Can A Clever iPhone Move the Market?

On Monday, September 9, Apple hosted fans, developers and reporters at its Cupertino headquarters.

The event was a series of product announcements for the coming year, led by CEO Tim Cook. Following up on the company's annual WorldWide Developer Conference (WWDC) in June, Apple is ready to start releasing the next iteration of several major product lines, many based around Apple's latest investments in artificial intelligence.

The question is whether this will excite and inspire Apple's loyal user base. It's a question Apple increasingly wants to answer in the face of popular, but legacy, product lines and strong, but dipping sales worldwide.

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The Commodities Trap

Sales are the issue.

A criticism that Apple has faced in recent years has focused on quarterly sales growth. In recent years, Apple's device sales have slowed significantly compared with five or 10 years ago. Between 2023 and 2024 alone, the company reported a drop in sales across just about every category, with a particularly large 10% dip in the iPhone sales that drive much of Apple's revenue.

Much of this is generally attributed to a concept called " commoditization ." This occurs when a technology moves from its cutting-edge, high development phase and shifts towards a stable, well-established format. Think, for example, of how early PCs moved from changing the world in 1990 to desktop appliances in 2024, or the current transition of electric cars from futuristic marvels to municipal fleet vehicles.

While an opportunity for new entrants and startups, for established companies like Apple commoditization can be a problem .

In a technology's early, high-development years, customers have a strong incentive to upgrade their devices regularly. Each new generation of an early technology fixes problems, introduces features, and generally improves the experience overall as developers continue innovating. This can drive strong sales, since a company can sell to their existing customer base over and over again.

However, over time, developers figure their technology out and that rate of innovation significantly slows. Devices become reliable, effective and (critically) full-featured. Each generation may get a little faster and a little better, but a typical customer will see few limits or gaps in older devices. Once this commoditization stage sets in sales will generally dip, because existing customers will have less reason to upgrade on a regular basis. Sales growth will then rely increasingly on new customers, a significantly more difficult and expensive market to reach.

Market analysts have spent years reviewing the commodity arc for the iPhone. By now, however, most agree that it has long since arrived. The iPhone 15 is certainly better than the iPhone 12, say, but for an ordinary user the older phone offers few (if any) limitations.

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In its September presentation, Apple presented a series of products that it hopes will change all that. The most significant are:

The iPhone 16 and Apple Intelligence

Perhaps best described as Apple's AiPhone, the iPhone 16 is Apple's latest generation of smartphone. This, in and of itself, is nothing new. Apple has released a new generation of iPhone just about every year since the first launch in 2007. This year's phone offers the now-standard set of improvements, promising faster processing, better battery life, improved screen and camera performance, and related iterative improvements.

The big difference is artificial intelligence.

Apple has announced its own AI product called Apple Intelligence, a software feature that it plans to thoroughly integrate in all its devices going forward. The iPhone 16, and in particular the iPhone 16 Pro, will be the first devices to use this. According to Apple, this is because the iPhone 16 is the first phone powerful enough to run AI locally, as opposed to most devices which connect to a remote server running the AI.

As advertised, Apple Intelligence will be a full-platform upgrade, touching on just about every aspect of the user experience. Writing and transcribing abilities will help you draft messages and create transcripts of your recordings. Onboard agents will help you sort alerts and e-mails by priority. Siri will function as a conversational agent, answering questions and accessing on- and off-phone data on command. Image software can analyze the world through your camera, letting you point at something and ask Siri "what's that?", and can also improve your photography through digital touchups.

Again, at least this is how the phone will work as advertised.

It's impossible to say exactly how or how well these products will work. Nor is it easy to say exactly how users will react to a phone that wants to draft their love notes and take their pictures for them. This is all first-generation software, and AI has become known for its limits as much as its miracles. Still, Apple is presenting the new iPhone as next-kin to a Star Trek communicator, conversational computing at the touch of a button.

AirPods 4 and AirPods Pro 2

In addition to the iPhone, Apple is promising a significant leap in its AirPods product line. The company phased out its corded earbuds in favor of these wireless devices several years ago.

The new AirPods come with a bundle of features. The AirPods 4 will attempt to address user complaints about fit and stability. (One of the most common issues with this wireless device has been users complaining that AirPods fall out of their ears.) Noise cancelling will be introduced to the base model, and greater Siri integration promises to allow users more control over their phone from the AirPods themselves.

The endpoint, in theory, is an AirPod/Intelligence integration that allows users simply to say "Siri, call me a cab," then head outside and wait.

Arguably the biggest jump with the AirPods, though, comes in the medical context. The AirPods Pro 2 will function as a clinical hearing aid. Apple is seeking approval from the FDA to market their AirPods as medical devices. If successful, this feature will allow hearing-disabled customers to use their AirPods without interruption, switching from music to phone to ambient conversations without needing to switch devices.

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Apple Watch

Finally, Apple introduced the next generation of its Apple Watch. The Watch occupies an odd niche in the company's product ecosystem. Although technologically integrated with Apple's suite of products, it has a lower rate of adoption and is generally used only by Apple's more dedicated or affluent customers.

The newest version will likely do little to change that trend. The new Apple Watch offers largely iterative improvements, including longer battery life, faster charging, lighter weight and a larger display.

The most significant improvements offered by the Apple Watch, like the AirPods, come in the health and wellness categories. The Watch will now come with sleep tracking software, heart rate monitors, and health alerts. It will also have a suite of fitness trackers, and related "low cardio fitness" alerts. This continues what has been a long-term push by Apple to try and market the Watch as a lifestyle and health device. In this way, it appears that Apple is trying to expand the Watch's customer footprint, marketing it not only as a peripheral to the iPhone but also as an independent device for improving personal health, sleep and fitness.

Market Reaction

From a share price perspective, there has been little immediate reaction to Apple's product announcements. Trading opened at around $221 per share on September 9 and closed at around $220 per share, after a day in which prices rose and fell within a range of about $4. The event occurred during market hours.

The bigger question will be how markets, investors and customers react going forward. In particular, will they see the new Intelligence software as a reason for customers to upgrade?

This is likely to be the dispositive issue when it comes to market impact. In recent years Apple's customers have largely seemed satisfied with the products they already own, which is a problem for a company that has come to rely on them regularly upgrading. In the iPhone, the AirPods and the Apple Watch categories, Apple is trying to offer a reason for customers to buy something new. This is particularly true with the iPhone 16, with which Apple is marketing Intelligence as a product-changing feature upgrade.

If analysts and customers agree, this is likely to have a significant market impact on Apple's stock. It is likely that the first real information on this subject will come on September 13, when preorders open for the iPhone 16.

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The Bottom Line

On September 9, 2024, Apple announced a series of new products for its iPhone, AirPods and Apple Watch devices. While the market impact has been muted so far, the company is hoping that this will excite users to upgrade their existing devices and boost sales.

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