Apple recently unveiled the iPhone 16 and iPhone 16 Pro, models which might be remembered as the “AI” iPhones due to their new generative AI capabilities, crafted in a distinctively Apple style. Analysts are suggesting that the release of these models could trigger a significant boon for Apple, potentially ushering in an iPhone “supercycle.”
A “supercycle” refers to a prolonged period of economic prosperity within a typical business cycle. This term is now being associated with a boost in iPhone sales that some market experts anticipate or are hopeful for.
Dan Ives, managing director at Wedbush Securities and known for his optimistic views on Apple, remarked to WIRED that this may represent “the strongest iPhone unit year ever”, possibly surpassing the previous record of 231 million units sold in 2015, thereby qualifying as a supercycle.
Analysts from Morgan Stanley suggested in a research note prior to Apple’s recent event that while the announcement might not heavily impact the market, there is potential for Apple’s performance to improve beyond its typical seasonal patterns.
“Apple Intelligence [will] help unlock pent-up demand and accelerate iPhone replacement cycles,” analysts Erik Woodring, Maya Nueman, and Oluebube K Udochukwu wrote.
Apple’s iPhone may be the most influential piece of technology in the world, but last year its sales declined for four straight quarters before getting a holiday season boost. An estimated 1.5 billion people already use iPhones around the world (though Apple has not confirmed this data), and the broader smartphone market is now considered saturated. Upgrade cycles have lengthened. In the UK, Apple is required to support security updates on iPhones for at least five years into their lifespans. Even small changes to the iPhone’s repairability, due in no small part to aggressive Right to Repair advocacy in the US, have led to consumers hanging on to their old phones for longer.
“We estimate 300 million iPhones have not been upgraded in 4 years,” Ives said.
Last quarter, global iPhone sales were down one percent from the same time period a year earlier, though Apple still managed to rake in billions and beat overall revenue expectations. The iPhone’s drop in China, a key market for Apple, was more stark: Earnings results showed that iPhone sales in China declined 6.5 percent, significantly more than the 2.4 percent decline analysts predicted. Apple is also no longer on the list of top five smartphone sellers in China.
But the new iPhone 16 and 16 Pro models—along with older iPhone 15 models deemed powerful enough to support new features—have artificial intelligence capabilities that Apple claims are more advanced and secure than similar AI tools from other companies. Apple has also collaborated with OpenAI to integrate some of these AI capabilities.
This includes enhanced photo-editing tools, AI-generated custom emojis, and improved capabilities in email composition and messaging. Additionally, the Siri voice assistant has been upgraded to sound more natural and offer better interpretation.
While some of these features are not expected to be available until next year, Apple’s integration of artificial intelligence within the iPhone is anticipated to significantly boost sales according to optimistic analysts. In recent years, instead of hardware enhancements, the major appeal has been the way Apple’s hardware enables the use of sophisticated AI technologies.
“Regardless of whether all Apple Intelligence features are available immediately, the new iPhones are designed with future capabilities in mind,” explains Paolo Pescatore, analyst and founder of PP Insights. Pescatore, agreeing with Ives, suggests that we might be on the verge of an iPhone supercycle driven by Apple’s expertise in silicon, hardware, and services converging to enhance artificial intelligence functionalities.
Pescatore mentioned that a significant update was overdue for Siri, suggesting that iPhone users might be ready to reconsider its usefulness.
Apple has not yet responded to requests for comment regarding their projections for iPhone sales growth.
Not all analysts are convinced about the potential for a sales supercycle. Anand Joshi, who has a background in engineering and technology leadership and now works with TechInsights as an analyst, pointed out that the outdated technology in older iPhones might prompt some consumers to upgrade. However, he sees only a “50-50 chance of a supercycle.”
“AI will be the key factor driving this, yet I remain wary about how this will impact user experience,” Joshi stated.
Counterpoint Research senior analyst Varun Mishra considers the upcoming trend for iPhone revenue a “step-cycle” involving incremental boosts, rather than a supercycle. He attributes this pattern to Apple’s staggered release of AI features over several months.
Mishra remarks, “Most of the use cases offered through Apple Intelligence are generally ‘nice to have’ and not compelling enough that a large section of users will upgrade their devices earlier than expected. There is also no pent-up demand for GenAI features among consumers, unlike in previous supercycles.”
Another significant concern is whether the AI-powered iPhones will boost sales in China, a key market for Apple both in sales volume and iPhone production.
Last fall, The Wall Street Journal reported that Chinese officials had ordered government employees to stop using iPhones and other foreign-made electronics at work. While this does not impact the broad population, it could negatively influence Apple’s brand in China long term. With the expansion of AI features dependent on both on-device processing and cloud interactions, questions have arisen about how Apple’s Private Compute Cloud will function in China, details of which are still not disclosed by Apple.
Earlier today, during the iPhone launch event, Apple announced its intention to broaden its AI capabilities to include other languages, such as Chinese, starting next year.
Joshi, from TechInsights, opines that the Chinese government’s regulatory actions against iPhones are not significantly affecting sales. “China will continue to buy the iPhone,” he asserts.
Ives believes that for Apple to succeed in the Chinese market, a strategy that diverges from their usual full-stack, tightly controlled approach is necessary. “Getting a Chinese partner will be key for Apple to enable AI in China,” he suggests.
