Apple faces pressure to recover following AI setback

Apple is facing growing pressure to prove it still holds its innovative edge after failing to deliver on promises to enhance iPhones with generative artificial intelligence (GenAI), while competitors surge ahead with the technology.

At its annual Worldwide Developers Conference (WWDC), starting Monday in Silicon Valley, Apple will reveal its latest plans for both its popular devices and the software that powers them.

This comes a year after the company announced a collection of AI features under the banner "Apple Intelligence," aimed at improving iPhones, including upgrades to its much-criticized Siri voice assistant.

“Apple promoted numerous features as if they were ready, but they never materialized,” said Emarketer senior analyst Gadjo Sevilla.

Instead, the company postponed the Siri upgrade, aiming to have it ready in time for the anticipated iPhone launch this fall.

“I don’t expect much fanfare at WWDC,” Sevilla told AFP. “It’s likely to be more about Apple trying to regain trust by outlining its future direction.”

Industry experts will be closely observing whether Apple addresses its AI missteps or focuses on subtler updates, such as a potential redesign of its device operating systems.

“Ultimately, Apple appeared to underestimate the AI revolution, over-promised on features, and is now scrambling to catch up,” Gene Munster and Brian Baker from Deepwater Asset Management commented in a WWDC preview.

There are also rumors that Apple might expand its generative AI collaborations by teaming up with Google or Perplexity, building on the OpenAI partnership it announced last year.

Integrating AI into its product lineup is just one of the hurdles Apple faces.

Developers who create apps and tools for Apple’s ecosystem are increasingly pushing for the company to ease its strict control over iPhone access.

“There’s still significant tension between Apple and developers,” said Sevilla. “Charging 30% commissions while falling short on delivering promised new features has only added to their challenges.”

Although a lawsuit by Fortnite creator Epic Games resulted in Apple being ordered to allow alternative payment systems in the US App Store, developers are demanding even more changes, the analyst noted.

“Apple needs to extend an olive branch to the developer community, which has endured a lot,” Sevilla added. “Many struggle to succeed within the restrictive rules Apple has enforced for decades.”

As Apple integrates AI into its software, the company might have to offer developers greater flexibility in syncing their apps with its platform, according to Creative Strategies analyst Carolina Milanesi.

“AI could be the catalyst that pushes Apple to reconsider its long-standing approach to an open versus closed ecosystem,” Milanesi explained.

Adding to the anticipation around WWDC is news that Jony Ive, the iconic designer behind the iPhone, has partnered with OpenAI, the creators of ChatGPT, to develop a potential competitor device for interacting with AI.

“That puts Apple on the back foot, since the lead designer of their flagship product is suggesting there’s something better than the iPhone,” noted analyst Gadjo Sevilla.

Although WWDC traditionally focuses on software, there is speculation Apple may introduce new hardware to demonstrate its ongoing innovation.

Meanwhile, outside the event, Apple faces challenges from tariffs imposed by former US President Donald Trump amid the trade tensions with China a crucial market for both sales growth and iPhone manufacturing.

Trump has also threatened to impose tariffs on Apple if it doesn’t move iPhone production to the US, a move analysts say is unrealistic given the high costs and complex infrastructure involved.

“The notion of an American-made iPhone is unrealistic you’d basically have to overhaul the entire global economic system,” Sevilla explained.

On the positive side, Apple benefits from a fiercely loyal fan base that’s likely to stick with the brand, even if it takes time to fully master AI, Milanesi noted.

“People definitely want a smarter Siri no question about it,” Milanesi said. “But once you’re in the Apple ecosystem, you’re in it for the long haul, and you’ll keep buying their products.”