Apple doesn't want to keep winning effortlessly all the time.

Not long ago, Apple has received quite a lot of good news.

Shortly after Apple announced that Apple Intelligence is about to launch in China, integrated with Alibaba's Tongyi Qianwen large model, which will be open for testing on November 4 and officially launched with iOS 27.3 in December, Apple released its financial report for the fourth fiscal year of 2026: both revenue and earnings per share exceeded market expectations, and iPhone revenue hit an all-time quarterly high for the same period, drawing a perfect full stop for its "best fiscal year in history".

However, the newly appointed CEO John Ternus is not satisfied with Apple's current situation. It is reported that last week, in a closed-door conference room at Apple Park, he issued an unprecedented severe reminder to the software team:

Apple has fallen far behind its competitors in AI. It must embrace AI with the same sense of urgency as its rivals, accelerate the advancement of the roadmap, and quickly move beyond the stage of "only making necessary fixes to Siri".

This is probably the real good news for Apple — the new top leader is not content to reap the rewards passively.

Over the past year, Apple's inaction in AI has outperformed most companies; even the storage boom triggered by AI has further increased iPhone's share in the high-end market. But AI is fundamentally changing the value of smartphones, user entry points and the profit model of technology companies, which happens to be Apple's core commercial value.

As the definer of smartphones, Apple is the biggest beneficiary of the mobile Internet era. But right now, it seems to be in the same situation as Nokia was back then.

01 Anxiety Reflected in the Financial Report

In the fourth fiscal year of 2026 (the third quarter of the natural year), Apple posted revenue of 114.5 billion US dollars, up 12% year on year, which is also the highest revenue for a fourth fiscal year in Apple's history; net profit reached 30.7 billion US dollars, up 12% year on year.

In addition, iPhone revenue in this fiscal quarter was 57.58 billion US dollars, up 17.5% year on year, hitting an all-time high for the same quarter in history; revenue from the services business was 31.57 billion US dollars, up 9.8% year on year, hitting a record high. The newly appointed CEO Ternus said, "This is the best-performing fiscal year we have ever had." Especially at the moment, when Wall Street tech giants are overwhelmed by AI capital expenditure, Apple's financial report is even more remarkable.

But a closer look reveals that Apple's problems are also obvious.

Over the past year, the product strategy of "offering more features without raising prices" for the iPhone 17 series has allowed it to gain more replacement dividends amid the global mobile phone price surge; at the same time, the iPhone series started to raise prices in September, which further drove the growth of iPhone revenue. However, as the storage price hike cycle extends further, Apple cannot stay unaffected.

On the one hand, profits are being gradually eroded. Research institute TrendForce estimates that taking the 256GB version of iPhone 18 Pro as the sample, the BOM cost of the whole device is about 38% higher than that of the Pro model in the same period of 2025. The management stated that the gross margin for the next fiscal quarter (45%-46%) is expected to be lower than that of this quarter.

On the other hand, sales of other hardware have begun to show a noticeable decline. According to Omdia data, the global shipment of iPads in the third quarter of 2026 was about 11.5 million to 11.58 million units, plummeting 27.5% year on year, and the decline was higher than the average 23% drop in the global tablet market. Data from Luotu Technology shows that in the third quarter of 2026, iPad sales on China's e-commerce platforms plunged 45.2% year on year, and its market share decreased by 8.5 percentage points year on year to 19.1%.

At the same time, the growth of revenue from the services business, Apple's main source of profit in the past, has begun to slow down. Although Apple's services business revenue reached 31.57 billion US dollars this fiscal quarter, hitting a record high, its growth rate was only 9.8%, falling below 10% for the first time in nearly three years.

The management said that the slowdown in service revenue growth is mainly due to exchange rate fluctuations; but in fact, under the requirements of regional regulations, the commission rates and payment channel restrictions for Apple in many regions have been relaxed. For example, starting from October 1, the commission for the App Store in the European Union will be reduced from 30% to 26%, and some qualified developers will be subject to even lower rates.

However, these are just appetizers. The biggest challenge is still AI.

02 "Intelligence" Arrives Late

In June 2024, Apple Intelligence made a stunning debut at WWDC, impressing all attendees. But it took two years and four months for Chinese users to get access to it.

What is disappointing is that although it is a new feature that arrived late two years later, Apple seems to have stayed stuck two years ago.

In terms of on-device AI deployment, domestic Chinese manufacturers have made many innovative attempts. For example, Xiaomi tries to use mobile phones to connect the smart ecosystem, and Nubia's Doubao phone reshapes the interaction logic through GUI. AI assistants are all trying long-chain operations to meet user needs in one step.

The first batch of smart features launched by Apple mainly include object removal in photos, real-time translation, smart emoji generation, writing proofreading, etc. They do not have the capabilities of multi-task orchestration and cross-application execution, and are still the old solution of "single request, single response".

Apple is by no means unaware of the importance of AI.

Over the past decade or so, the business model of smartphones has a very important feature: whoever controls the operating system holds the entry point for users to enter the digital world. This is also the fundamental reason why Apple can control the app distribution channel and obtain revenue through the App Store, payment and subscription businesses.

But AI is changing this structure. On-device AI is gradually evolving into a window that can solve problems in one stop. In the past, users needed to know which App to go to for services; now users may only need to know which AI assistant to ask for requirements. This leads to the migration of entry points.

But there are two main reasons currently holding back the progress of Apple's AI.

First, Apple's progress in R&D speed, model capabilities and technical talents for cutting-edge foundational large models completely fails to match its status in hardware and operating systems. As a result, Apple has to rely on external technologies to advance AI — it started with OpenAI, then Google, and Alibaba and Baidu in China.

Second is Apple's insistence on privacy protection.

The demonstration of on-device AI capabilities itself requires users to cede part of their personal privacy, and use long-term memory to help you plan and make decisions.

But over the years, Apple has always given all decision-making power to users, so much so that even for operations such as accessing the clipboard, Apple will constantly pop up windows to get your consent. This inertia has made Apple's software chief Federighi maintain a cautious attitude towards the advancement of generative AI for a long time.

According to Bloomberg, Federighi has an extremely aggressive style in the software team, and is used to pushing his position in meetings by controlling technical details, which makes many more radical explorations within the team difficult to implement.

The lag in foundational models has also exacerbated this conflict. Apple needs models from companies such as Google and OpenAI to make up for its capabilities, but since these involve user data security, core technology autonomy and other issues, it cannot fully hand over the product. During WWDC 2024, Federighi said in an interview with the media when talking about the integration of ChatGPT and Siri, "We will ask for your consent before moving to ChatGPT", and at the same time "from a privacy perspective, users always have control, and the whole process is transparent."

03 The "New Direction" in the AI Era

Apple has been adjusting its AI pace.

In addition to the closed-door meeting mentioned at the beginning, Bloomberg disclosed that in the R&D of the next-generation system codenamed iOS 28, Apple has officially adjusted the long-standing "4 weeks of coding + 4 weeks of system integration" model for the first phase (M1) to "6 weeks of coding exploration + 2 weeks of system integration". The obvious shift of focus to the front is to free up time for underlying engineers to conduct free experiments, forcing the team to explore a radical Agent architecture.

Another key development direction is the hardware ecosystem.

An analysis published by Reuters on April 22, 2026 pointed out that Apple has achieved great success in the past through a highly controlled ecosystem, but AI competitors relying on open models and developer ecosystems to innovate rapidly may change the rules of competition. Generative AI has changed the way users interact with the digital world. In the future, users may only need to put forward demands to the AI assistant, and the Agent will automatically call different applications to complete the tasks.

Therefore, Apple needs to extend the ecological advantages of the iPhone to the home space, improve user stickiness, and thus gain control of more entry points.

In the second half of the year, Apple began to participate in the definition and design of third-party smart home products, and launched the Apple Home Collection in cooperation with brands such as LG Electronics and Schneider Electric. The products include smart video doorbells, smart door locks, indoor cameras, room sensors and other products.

Apple certainly still has strong advantages in hardware, chips and ecosystem, but these advantages cannot determine Apple's destiny in the AI era.

In addition to catching up on model capabilities, Apple needs to break away from the R&D and product inertia established over the past decade, and adapt to the rhythm that the new era requires.

References:

1. Apple Financial Report

2. ifanr: Ternus pressures Siri leader, Apple AI can't wait any longer

3. Reuters: In the AI era, Apple's strengths may become its constraints