Earlier this month, Apple revealed its “Apple Intelligence” which helped trigger a rally in its share price. The company also reclaimed its $3 trillion market cap as investors gave a thumbs up to its artificial intelligence (AI) efforts.
However, rolling out AI in its devices is not that easy for Apple, and the company is facing challenges in the EU and China which are its biggest markets outside the US.
AAPL said that Apple Intelligence, iPhone Mirroring, and enhancements to its SharePlay screen-sharing service won’t be available in the EU this year, blaming the “regulatory uncertainties” arising from the region’s Digital Markets Act (DMA) regulation that was passed last year.
Apple won’t offer AI enhancements in the EU in 2024
“Specifically, we are concerned that the interoperability requirements of the DMA could force us to compromise the integrity of our products in ways that risk user privacy and data security. We are committed to collaborating with the European Commission in an attempt to find a solution that would enable us to deliver these features to our EU customers without compromising their safety,” said Apple.
In response, the European Commission said, “Gatekeepers are welcome to offer their services in Europe, provided that they comply with our rules aimed at ensuring fair competition.” The region refers to six tech giants which include Amazon, Meta Platforms, and Alphabet as gatekeepers.
Europe accounted for just about a quarter of Apple’s revenues in the last fiscal year. The region is an important market for the Tim Cook-led company and the absence of AI product enhancements might negatively impact its sales there.
Analysts see an iPhone supercycle amid AI enhancements
Notably, several Wall Street analysts believe that AI enhancements would lead to a supercycle and several brokerages raised Apple’s target price following the worldwide Developer Conference. JPMorgan analyst Samik Chatterjee for instance raised his target price from $225 to $245.
“We are updating our volume forecasts for the iPhone 16 and iPhone 17 cycle following the WWDC event, which laid out a collection of AI features that in our view will drive an upgrade cycle that starts with the iPhone 16 launch … followed by a cycle peak with the launch of iPhone 17,” said Chatterjee in his note.
AAPL’s China AI rollout could also face headwinds
Meanwhile, the next challenge that Apple could face might come from Greater China, a region that accounted for $72.6 billion of its sales in the last fiscal year. Notably, AAPL has partnered with ChatGPT which is not available in China. The Wall Street Journal reported that Apple is in talks with Chinese tech companies like Amazon, Baidu, and Baichuan AI for partnership in the Chinese market.
China has been even more protective of the data of its citizens. It has banned government employees from using Apple’s iPhone and the Cupertino-based company removed Meta Platforms’ apps from the Chinese App Store earlier this month on orders from the government. Meta’s apps like WhatsApp and Threads were anyways mostly inaccessible to Chinese users but Apple removing them from the App Store makes it even tougher to access these apps in the country.
China is quite protective of the data of its citizens
China has been quite protective about data of its citizens which was among the key reasons it did not grant approval to Tesla’s full self-driving (FSD). Meanwhile, Tesla has now received permission to roll out its in China Separately, the company announced a deal with Baidu and would use the Chinese tech giant’s mapping and navigation technology for the service – a move that was seen as an enabler for the permissions.
The permissions were held up for apparent concerns over data. Notably, China previously barred Tesla cars from military complexes over spying concerns. While Musk denied that Tesla cars are used for spying it did not cut ice with China.
In 2021, China also ordered Chinese ride-hailing app Didi to delist from the US over concerns over the data of millions of Chinese consumers that the company possessed.
Analysts believe China would be a tough nut for Apple
Analysts believe rolling out AI features in China won’t be easy for Apple. Bryan Ma, vice president of devices research at IDC, told CNBC via email. “China is in another world when it comes to AI given the regulatory environment there, so China is a big asterisk on Apple’s big announcements last week.”
CCS Insight Chief Analyst Ben Wood believes “Localising the Apple Intelligence experience will be a major challenge for Apple. He added, “As with all technology deployments, there are nuances to the way the service is delivered to respect the specific customs, regulations, and use cases in a particular country.”
With AI emerging as a new battlefield between the US and China, US companies offering AI services in China might also face roadblocks. Notably, Apple is anyways facing tough competition from Chinese companies like Huawei and if the company’s handsets are seen as lagging on AI features, it could further dampen its fortunes in the market.
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Mohit Oberoi
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