Per Bloomberg, Apple (AAPL - Free Report) is planning to reduce the rate of hiring in some of its divisions, except the artificial intelligence (AI) team. The cut-back reflects the ramification of fewer iPhone sales in the holiday quarter.
Apple lowered its quarterly sales guidance on Jan 2, citing weak iPhone demand in Greater China and fewer upgrades to its flagship device. Notably, in fourth-quarter fiscal 2018, Greater China accounted for 18.1% of total sales, which increased 16% year over year to $11.41 billion.
Moreover, Nikkei recently reported that Apple is lowering its new iPhone production plan by almost 10% for the next three months. The cut applies to all three iPhone models. Notably, in December 2018, the company had lowered its new iPhone production target for the January-March quarter.
AI Gaining More Importance at Apple
Per the Bloomberg report, the pace of hiring at the AI team will remain strong, which reflects Apple’s increasing focus on AI. According to CEO Tim Cook, “Machine learning and AI are important to Apple’s future as they are fundamentally changing the way people interact with technology, and already helping our customers live better lives.”
Apple’s initiatives on infusing AI and machine learning in its solutions and devices are noteworthy. For instance, the company’s A11 Bionic 64-bit chip features a “Neural Engine”, which is the built-in neural network hardware. This component performs up to 600 billion operations per second and uses machine learning to deliver features such as Face ID and Animoji.
Moreover, Apple is encouraging developers to use AI in their apps. The company’s Core ML 2 API helps developers recognize faces or animals in photos, or parse the meaning of text. Per ZDNet, Core ML 2 framework offers 30% faster on-device processing and helps reduce model size by 75%.
Further, at 2018 Worldwide Developers Conference (WWDC), the company introduced Create ML for simple and efficient machine learning training on the Mac. Create ML is built on top of Swift programming language.
Notably, Apple has hired former Google head of search and AI, John Giannandrea, to lead its restructured AI division that includes the machine learning division, Siri team, and the Core ML API team. In addition to all these, acquisition of start-ups like Silk Labs enhances the company’s expertise in the domain.
Can AI-Driven Services Business Rescue Apple’s Dwindling Fortunes?
The Services segment has become the new cash cow for Apple and is expected to grow strongly, driven by increasing popularity of App-Store, Apple Music and Apple Pay.
In the last reported quarter, Services revenues increased 17% year over year to $9.98 billion and accounted for 15.9% of sales. Apple stated that paid subscriptions have surpassed $330 million, an increase of more than 50% year over year. We believe that growing numbers of AI-infused apps will attract more subscribers on App Store. This will further boost top-line growth.
Moreover, Apple’s endeavors to open up its ecosystem, through partnerships with the likes of Samsung and Amazon (AMZN - Free Report) , are positive for the Services segment.
The Samsung deal will allow users to easily watch iTunes movies and TV shows on the Korean electronics giant’s smart TVs. Samsung also noted that it will add Apple's AirPlay 2 software to the TVs, thereby allowing iPhone and iPad users to stream their device content on smart TVs.
Moreover, Apple Music’s availability on Amazon Echo devices is expected to boost the iPhone-makers’ footprint against Spotify (SPOT - Free Report) , which is currently the dominant player in the paid, premium music streaming market. Spotify has a user base of 191 million compared with that of Apple’s more than 50 million.
Further, Apple Pay’s expanding international footprint is a key catalyst. In December last year, the company launched Apple Pay in Germany. The service is supported by 15 banks, including Deutsche Bank.
Apple currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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