AI gadgets have been a bust so far. Apple aims to change that

In late 2022, OpenAI’s launch of ChatGPT spurred an explosion of interest in the possibilities for artificial intelligence.

Within months, some of the biggest tech companies in the world, including Microsoft, Meta and Google, joined the party, launching their own AI chatbots and generative AI tools. By the end of 2023, Nvidia proved it was the only company in the world positioned to make huge amounts of money by powering those services.

Fast forward to 2024, and a big theme in AI involves our consumer favorite gadgets, with tech companies trying to bring AI to phones and laptops.

Earlier this year, Samsung launched its AI-powered Galaxy S24 smartphone. Microsoft, partnering with companies like Dell, HP and Qualcomm, started selling a new crop of AI computers over the summer called Copilot+ PCs. A few weeks ago, Google launched its Pixel 9 series of AI phones.

So far, these new devices have underwhelmed. Rather than creating whole new experiences, they’ve introduced features for making it easier to edit photos, talk to a chatbot or provide live captions for videos. Then there’s Humane’s AI pin, a clip-on gizmo that launched in May and was immediately panned in reviews. By August, reports surfaced that daily returns were outpacing sales.

Apple will try to change the narrative.

On Sept. 9, the company is expected to show off its new family of iPhones, packed with the AI capabilities announced in June. The system is called Apple Intelligence, and it’ll be rolling out over the coming months. Current Apple devices like the iPhone 15 Pro and some newer iPads and Macs will also have access to it.

But Apple Intelligence will be free. So the company needs to convince hundreds of millions of iPhone customers that it’s time for an upgrade.

That’s what Wall Street is watching for when the latest iPhones go on sale this month. Will Apple Intelligence move more iPhones? Or will the post-pandemic sales slump continue?

“The reality is GenAI is still in its early stages and use cases that have been announced are probably only the tip of the iceberg of what’s to come,” said Nabila Popal, a mobile analyst at IDC.

Apple plans to roll out Apple Intelligence in stages. It will initially only be available in U.S. English, and will likely be blocked in countries with strict AI regulations, like China. Plus, many of the features Apple announced in June won’t be ready on day one. Instead, they’ll be introduced in phases over the coming months.

Because of Apple’s measured rollout strategy, even the most bullish analysts expect it to take years for the company to get its AI into the hands of the 1 billion or so iPhone users.

Do consumers want AI gadgets?

Apple typically adds modest enhancements to its iPhones each year. The camera gets a little better. The processors are faster. The battery life improves. None of that is compelling enough to get consumers to rush to upgrade every year or two as they did in the earlier days of the iPhone when big hardware innovations were standard. You can expect the same kind of iterative hardware improvements for this year’s phones.

That puts more pressure on Apple Intelligence to deliver. But consumer appetite is a question mark.

Results from a recent survey by research firm Canalys showed just 7% of consumers had a “very high inclination” to make a purchasing decision because of AI. Interest is significantly higher in Apple’s two most lucrative markets, the U.S. and China, but there’s a giant disparity between them.

In the U.S., 15% of respondents said they had a high or very high inclination to buy gadgets because of AI. In China, where consumers tend to care more about tech specs, that number was 43%. The relatively muted interested, especially in the U.S., suggests that Apple will need its marketing machine to tell a compelling story around what AI can do for the typical iPhone user.

“There are lots of interesting features, but you have to bring those to the normal user in situations they can use repeatedly, not just a one-time feature,” said Gerrit Schneemann, an analyst at Counterpoint Technology. “It’s hard to tell that story in a store with a poster or a two-second sales pitch.”

Apple Intelligence will use the personal data stored on your phone and help supercharge Siri into a more capable assistant. Plus, app developers will be able tap into Apple intelligence, so you can use it everywhere on your phone. Schneemann said that’s a fresh take on AI compared to Google or Samsung.

“There is the potential to help speed up that educational curve and permeate into the market,” he said.

Samsung’s Galaxy S24, its latest flagship device, has sold better than last year’s model. But there’s little evidence that AI is the primary driver, IDC’s Popal said. Apple is in another category.

“The psyche for premium Apple customers is different,” Popal said, adding that many iPhone customers buy their phones using financing plans, which make it easier to upgrade.

More recently, Google launched its Pixel 9 series of phones, which has the company’s digital AI assistant, Gemini, built directly into the software. Google’s smartphones have never been major sellers, but they often show what’s possible on Android phones before those features make their way to Samsung or Motorola devices.

The marquee feature on the Pixel is a version of Gemini that can carry out natural conversations instead of responding to one command at a time, a capability other Android phones with Gemini should get in the future.

While the reviews for the Pixel 9 were positive, it’s still too early to tell if AI can finally juice sales.

In the PC market, Microsoft’s Copilot+ PCs launched this summer, but without their marquee AI feature, Recall. (Microsoft learned the hard way it’s not a good idea to launch a product that takes screenshots of everything you do on your computer every few seconds.) Recall will hit this market later this fall for a limited number of early testers.

Without Recall, there’s not much AI in this batch of AI PCs.

The real benefit for now seems to be the power and performance from the new PC chips from Qualcomm that debuted in Copilot+ PCs. The processors are based on the same technology as your phone chip, meaning they’re still plenty powerful without using up the battery.

“This is the transition of the traditional PC, turning it to look like a mobile device,” said Alex Katouzian, Qualcomm’s general manager for mobile and wearable technology. He said Microsoft is working on more AI features and fixing the privacy issues with Recall.

Microsoft said it expects 50 million Copilot+ PCs to ship this year, which would represent about one in five PCs expected to be sold. Katouzian said Qualcomm-powered Copilot PCs are “on track” so far.

Still, Copilot PCs made up “a relatively small percentage” of PC sales at Best Buy this summer, CEO Corie Barry said on the company’s most recent earnings call. She added that customers “just want to replace and upgrade” without necessarily looking for a device with AI or spending a premium for it.

Apple’s AI rollout

If Apple can buck the trend and successfully wow its customers with Apple Intelligence, the next step will be rolling it out globally to drive iPhone sales in markets outside the U.S.

There are other roadblocks in its way.

China, where Apple generates nearly a fifth of its sales, requires government approval before an AI model can launch in the country. Apple CEO Tim Cook told CNBC in August his team is working with regulators in China to make that happen.

Then there’s the EU, which has passed a slew of stringent laws regulating the world’s largest technology companies. Apple said this summer it won’t launch Apple Intelligence right away in the EU because of those regulations.

In the meantime, Apple Intelligence users will be members of a relatively exclusive club. Apple’s job is to convince customer to pay up for a new device and join.

“We’re very excited about the value that Apple Intelligence gives to users,” Cook told CNBC in August. “For that reason, we think it’s another compelling reason to upgrade… we’ll see how the season goes once we start shipping, but we’re very excited about it.”

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