Apple Intelligence in China: Alibaba on Board, but Analyst Cautious

Apple (AAPL) is preparing to launch its latest iPhone SE next week, reportedly partnering with Alibaba (BABA) to roll out Apple Intelligence in China. Despite the optimism surrounding these developments, Jefferies analyst Edison Lee remains cautious.

iPhone SE and Apple Intelligence

Apple's new iPhone SE is expected to feature a design similar to the iPhone 14, with Face ID, a larger display, and a more powerful processor. Its highlight is Apple Intelligence, a generative AI platform offering notification summaries, writing tools, and photo editing capabilities. By making it available on a lower-priced iPhone, Apple hopes to attract more users.

However, Lee believes the market optimism regarding Apple Intelligence is misplaced. He points out that Apple Intelligence has not been the success Wall Street anticipated on the iPhone 16 lineup. Morgan Stanley analyst Erik Woodring also notes that sales during the recent quarter were driven by discounted older models rather than Apple Intelligence.

Challenges in China

Despite Alibaba's involvement, Lee expresses skepticism about the potential impact in China. He highlights the tendency of Chinese users to use local third-party apps, which may hinder Apple's ability to leverage app data for user-specific services. Moreover, smartphone sales in China have been declining post-Lunar New Year.

Analyst Perspective

While acknowledging the potential of Apple Intelligence, Lee remains cautious due to the single rear camera on the iPhone SE, the limited appeal of Apple Intelligence, and the declining smartphone sales in China. He emphasizes the need for Apple to focus on core execution to ensure the success of Apple Intelligence in the region.

Industry Outlook

Despite the challenges, some analysts remain optimistic about Apple's AI opportunity in China. Gene Munster of Deepwater Asset Management believes the Alibaba partnership could mitigate headwinds. However, he stresses the importance of Apple integrating AI effectively, navigating nationalism, and adapting its pricing strategy.

Conclusion

While Apple Intelligence holds promise, it remains to be seen whether it can become a must-have product. As it evolves and gains capabilities, it could potentially emerge as a significant offering. However, analysts caution that Apple must execute effectively to overcome challenges and ensure its success in China.