Apple Intelligence Rollout In China And Europe To Boost iPhone Sales, Says Deepwater's Gene Munster

Apple Inc. AAPL is set to introduce artificial intelligence (AI) features in China in collaboration with Alibaba Group Holdings BABA, a move that could potentially stimulate iPhone sales growth in the region, following a challenging period of declining sales.

What Happened: According to a report by Deepwater Management’s Gene Munster and Brian Baker, Apple’s business in China has been experiencing a slump, with an average quarterly decline of 7% over the past six quarters. This downturn is largely due to Chinese consumers’ preference for domestic brands and the absence of AI capabilities on iPhones in the region. In the past three years, China’s smartphone market leadership has transitioned from iPhone to Xiaomi.

However, the anticipated introduction of Apple Intelligence in China, possibly in the June or September quarter, could strengthen the case for a rebound in iPhone sales. However, Munster feels that the 10% growth expectation for iPhone for next year as cited by The Information could be too aspirational.

“In this case, I would expect growth closer to 7-8%. If I'm wrong on FY25 and it comes in closer to 1%, I believe the 10% growth expectation is achievable, in part due to the late fiscal year rollout of Apple Intelligence in China,” stated Munster.

If Apple Intelligence is launched as speculated, iPhone growth could accelerate over the upcoming eight quarters, especially as these features are introduced in Europe and China. Munster emphasized that this would be irrespective of whether the iPhone sales declined in FY25 or FY26.

Why It Matters: Apple’s collaboration with Alibaba could be the secret weapon needed to reclaim lost ground in China. This decision follows the termination of Apple’s previous AI development partnership with China’s Baidu BIDU. The Apple-Alibaba partnership is also critical as Xiaomi and Huawei have been gaining market share with their AI-powered smartphones, while Apple’s latest iPhones have lacked the AI capabilities that have become a key selling point.

The success of Apple’s strategy in China will depend on the effective integration of AI into its devices, navigating rising nationalist sentiment, and adapting its pricing strategy to align with changing consumer behaviors.

Meanwhile, BofA Securities analyst Wamsi Mohan reiterated a Buy rating on Apple with a price target of $265. The analyst is confident of Apple’s reliable cash flows and strong earnings stability, along with its potential advantages from integrating AI into edge devices.