What’s up with Apple these days?

Apple is not having a good 2024, with legal headaches & obscurity regarding its product innovation, that is causing investors to lose faith. Will it be able to engineer a comeback?

«The 2-minute version»

Apple is not having a good 2024 so far. The company’s market capitalization has fallen by more than 10% since the start of this year, as the long arm of the law is catching up really fast. Then, there is the question of innovation, or rather, its silence on the matter, leading investors to lose faith and patience in the company’s vision.

Regulators have finally woken up: Not to Apple’s benefit. With Europe’s Digital Markets Act that became a law earlier this month, the EU hopes to regulate Big Tech, and keep them from abusing their market power. Closer to shore, US Department of Justice (DOJ) filed a blockbuster antitrust lawsuit claiming Apple has used anticompetitive tactics, such as blocking innovative new apps to maintain a monopoly on the smartphone market.

But, what happened to innovation? Until now, the Vision Pro has been the only real hardware product launched in this decade, but so far, the company has different plans for it and is trying to position it for enterprises.  Meanwhile, reports suggest that the company will wind down its efforts of Apple Car after trying for a decade.  That leaves its investors and consumers with the usual semi-annual upgrade cycles to its iPhones, Macbooks, Watches, etc. that generally involve the addition of new semiconductor chips or better camera lenses.

The Hardware business is hard, especially in the AI era: As startups reimagine how users can use hardware to interact with AI, it raises the big picture question: what does an AI device really look like? How would people benefit from that?  Meanwhile, Apple has been busy in the M&A space, where it is trying to deliver incremental user value already by using AI models to enhance voice and other forms of media such as images and video. This fits well into its latest MM1 LLM model that it is working on, that envisions a multimodal approach in deploying AI in the iPhone.

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Apple AAPL 0.00%↑ is not having a good 2024 so far. The company was once the most valuable company in the world, only to be taken over by Microsoft MSFT 0.00%↑in January this year. The iPhone-maker has been stung by a bevy of lawsuits, and it just does not seem to end for Apple. Most recently, the company was left reeling from a one-two punch by regulatory authorities, first from Europe’s Digital Market Act, followed by the U.S.’s own antitrust lawsuit against Apple last week.

And then there is the question of innovation. Over the past couple of decades, the company has become a cornerstone of technological innovation, but all of those high expectations seem to be getting undone as the company remains tight-lipped about the advancements it is making in AI and Machine Learning (ML), steadfast in its culture of secrecy.

This puts Apple under intense pressure. It has to manage the expectations of regulators, consumers, employees, and its investors, who, judging by Apple’s performance on the stock market, are losing faith and patience in the company’s vision.

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Apple seems to be running out of juice 

The company’s market capitalization has fallen by more than 10% since the start of this year. For some investors, that might not seem like too much, but when observed from multiple different perspectives, cracks start to form in the expectations of the company.

A review of a range of commentary from market pundits as well as on social media shows a couple of fundamental issues that are plaguing the company at the moment. 

First, there is always the annual debate around projected demand for the company’s range of consumer hardware products, ranging from the iPhone to Macbooks, etc. At the start of every year, analysts issue their forecasts for product demand, and Apple generally ends up chugging along as long as the broad economy stays afloat, or even better, keeps growing.

But the flavor of that debate has changed this year in light of AI and the pace of innovation that is being seen elsewhere in other corners of technology. Plus, a larger issue that seems to be creeping in the shadows this year is the long arm of the law that is catching up really fast to Apple.

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Legal Headaches Intensifying, Aimed at the Walled Garden of Apple’s closed Ecosystem

Sovereign entities, world over, are finally starting to catch up to the technological innovation that was unleashed by the smartphone era by crafting regulation that is intended to reign in Big Tech, the so-called gatekeepers of the digital economy. With Europe’s Digital Markets Act that became a law earlier this month, the EU hopes to regulate Big Tech and keep them from abusing their market power while promoting competition, consumer choices, better quality and lower prices. Simultaneously, the European Commission also fined Apple $2 billion “for abusing its dominant position on the market for the distribution of music streaming apps to iPhone and iPad users through its App Store.” 

This wasn’t the first case like this for Apple. In 2021, South Korea became possibly the first country in the world to draft pro-competition regulation that would hold Apple and Google GOOG 0.00%↑ responsible if their respective app stores denied the use of third-party in-app payment mechanisms. Japan quickly followed suit with their own settlement over Apple’s App Store policies in the same year. 

Closer to shore, Apple had been tirelessly persuading the DoJ against filing app store-related antitrust lawsuits aimed at the company. Evidently, DoJ had enough of it after watching how Apple used their app store policies to boot Beeper’s iMessage-on-Android solution.

BIG by Matt Stoller

covers this in greater detail in Why the Apple Antitrust Suit Matters?

To add to all of this, on the patents front, the company almost had a scare when it had to temporarily halt the sale of its Apple Watch because of possible patent infringement, during Christmas last year, Apple’s peak season. 

The frequency and intensity of these antitrust lawsuits world over show how regulators globally have finally understood the legal ramifications of leaving app platforms unregulated for this long.

All these headwinds arrive at a time when Apple has refused from divulging details about its AI projects which is making folks impatient.

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Apple’s silence on its Innovation projects is not helping

In a previous post about AI, we pointed out how Apple has largely remained silent, refusing to divulge any details. At best, Apple’s frontman, Tim Cook, promised to “break new ground” in GenAI this year during an annual meeting with shareholders last month. Such was the eagerness to see some tangible AI features or products from Apple that during the same meeting, the company’s shareholders voted down a proposal for the company to draft an AI Ethics and Transparency Report, which would have delved into whether the company is using the technology ethically. 

Until now, the Vision Pro has been the only real hardware product launched in this decade, which is worthy enough of having its own new product line. But so far, the company has different plans for the Vision Pro and is trying to position it for enterprises. On a conference call last month, the company mentioned how they have already started to see “strong excitement” from their enterprise customers, citing examples from companies such as Walmart WMT 0.00%↑ , Nike NKE 0.00%↑ , and Bloomberg, among a few who have started to use Vision Pro in their projects. We had covered Apple’s motive for launching the Vision Pro earlier, where we talked about our expectations.

In addition to the Vision Pro, the only other hardware product was the Apple Car, but reports suggest that the company will wind down its efforts on building its own car after trying for a decade. That leaves its investors and consumers with the usual semi-annual upgrade cycles to its current hardware product line-up of iPhones, Macbooks, Watches, etc. that generally involve the addition of new semiconductor chips or better camera lenses. Earlier this year, one analyst turned on Apple’s stock by arguing that he does not see people buying more iPhones because he sees “no features or upgrades that are likely to make the iPhone 16 more compelling.” 

There were some reports a couple of weeks ago about a licensing agreement to bring Google’s Gemini to Apple’s iPhones but just like this post suggests Apple's merely trying to outsource its AI mess to Google to buy some time for itself.

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Apple has been (quietly) busy in the M&A space in AI

Contrary to current popular opinion, Apple actually does use ML models in the background without Apple’s users knowing that it's really the company’s proprietary ML models that are pulling strings in the background to enhance the user’s app experience. A quick scan through Apple’s development resources and design documents illustrates how the company quietly works in tandem with its app partners on the app store across all its devices to use ML. When asked previously about how the company uses AI or plans to scale deployment, Cook has responded on multiple occasions to illustrate how ML is being used in Apple Watch’s features such as Fall Detection, ECG, or the iPhone’s Personal Voice feature. It is a far cry from the buzzwords such as AI and GenAI that Cook needs to talk about, but for now, the company seems content taking the high road.

Apple has also been one of the busiest companies, acquiring AI companies and adding their technologies to its ecosystem, as seen below. These acquisitions indicate Apple’s intentions of deploying AI either in interactive domains such multimedia or areas such as its supply chain based on their recent acquisition of DarwinAI.

Granted that acquisitions are not the best representation of technological advancements for a company that prides itself on being one of the most innovative companies in the world, responsible for delivering some of the most historic moments in the history of technology. But then, acquisitions are also typical for late-stage, mature companies that have grown responsibly. This is critical, especially when a lot of investors' money is at stake.

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The Hardware business is hard. Especially in the AI era.

To date, smartphone companies such as Samsung and Google’s Pixel have moved faster than Apple, releasing new devices that claim to run generative AI features through the phone. Elsewhere, startups are reimagining how users can use hardware to interact with AI by simply doing away with the usual app store ecosystem that requires human touchscreen interactions.

While Rabbit’s R1 performs tasks using mainly voice controls, Humane’s AI pin envisions users using hand gestures to talk to AI. But of the two, Humane’s AI Pin has fumbled through its launch with issues surrounding the user experience. This raises questions about whether there is really a need for an AI-specific device. And these questions lead us all to the larger question at hand: What is Apple doing with the iPhone and AI? Or, the big picture questions, such as What does an AI device really look like? How would people benefit from that?

What most people tend to forget is that “hardware is hard." Hardware companies have to deal with vexing issues such as wear-and-tear, battery management, hardware performance, and device quality that are almost non-existent for software companies that just send updates to fix bugs in their software’s code. There is no scope to get devices wrong because if they do, customers will leave them forever and move to their competitor. 

One one hand Apple has been working with its head down, focused on using AI to add value higher up in its supply chain. A review of its acquisitions we mentioned earlier in addition to comments Cook has made before, points to this theory. On the other hand, some of Apple’s acquisitions show how Apple is trying to deliver incremental user value already by using AI models to enhance voice and other forms of media such as images and video. A couple of weeks ago, Apple’s research team quietly published research on a new MM1 LLM model that suggests the multimodal approach in deploying AI in the iPhone. The diverse set of training data used to train the MM1 model indicates that the company envisions voice, media and images as modes of communication between its users and models that are deployed directly on future versions of the iPhone.

However, for the time being, this still will not ease the pressure off Apple. It is still left to walk a delicate line to manage the expectations of its employees and consumers, while regulators circle and investors make the one demand that matters to them the most….

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Hope you enjoyed the post today.

Are you still bullish on Apple? Do you think it will be able to navigate through its current mess to regain its footing? What are your thoughts on what the future of AI devices look like?

Let us know in the comments section below…

Uttam & Amrita 👋🏼👋🏼