Apple Bets on AI, Can the iPhone 16 Series Trigger an Upgrade Wave?

Apple Bets on AI, Can the iPhone 16 Series Trigger an Upgrade Wave?On September 10th, Apple held its annual "Glowtime" fall product launch event online, officially unveiling the iPhone 16 series and debuting the highly anticipated AppleIntelligence AI feature. This new feature will be officially launched in October and will support Chinese language next year

Apple Bets on AI, Can the iPhone 16 Series Trigger an Upgrade Wave?

On September 10th, Apple held its annual "Glowtime" fall product launch event online, officially unveiling the iPhone 16 series and debuting the highly anticipated AppleIntelligence AI feature. This new feature will be officially launched in October and will support Chinese language next year. The iPhone 16 series consists of four models: iPhone 16, iPhone 16 Plus, iPhone 16 Pro, and iPhone 16 Max. The first two models feature the new A18 chip, while the latter two are powered by the more powerful A18 Pro chip.

AppleIntelligence Empowers iPhone 16, Accelerating Upgrade Cycle

Apple has high hopes for the iPhone 16, the first model equipped with AppleIntelligence AI, and has informed suppliers to prepare components for approximately 88 to 90 million smartphones. This figure represents an increase compared to the initial component orders for 80 million new iPhones last year, reflecting Apple's strong confidence in the new model's sales.

Industry experts point out that AppleIntelligence will enhance the iPhone 16 and effectively shorten user upgrade cycles. Apple will continue to build its core competitiveness in chip, system, hardware innovation, and on-device AI models. Its AI technology and hardware innovations are expected to further drive hardware upgrade demand and propel Apple's A-share supply chain companies into a new wave of performance growth.

iPhone 16 Series Configuration Highlights

The new iPhone 16 series boasts significant improvements in performance and features.

• Processor: The iPhone 16 and iPhone 16 Plus are powered by the new A18 chip, with a 6-core CPU that is 30% faster than the A16 Bionic chip and 30% more energy-efficient. The 5-core GPU boasts a speed increase of up to 40% and energy efficiency improvements of up to 35%. The iPhone 16 Pro and iPhone 16 Pro Max are equipped with the more powerful A18 Pro chip, built on the second-generation 3nm process technology, featuring a 16-core neural network, a 6-core CPU, 15% faster performance than the A17 Pro, and a 20% reduction in energy consumption.

• Screen: The iPhone 16 Pro and iPhone 16 Pro Max will feature 6.3-inch and 6.9-inch screens respectively.

• Camera: The iPhone 16 series features two integrated rear cameras, including a 48MP main camera and a 2x telephoto lens, and a 12MP lens. It can capture new ultra-wide and macro photos, using integrated lenses to achieve the shooting effect of four lenses with two.

• Cooling: On the 16 Pro/ProMax, the inner frame is made of 100% recycled aluminum metal, integrated with the titanium metal outer frame through solid-state diffusion technology. Combined with the graphite-layered aluminum metal substructure, the new architecture is said to provide up to a 20% improvement in sustained performance.

• Other Features: All iPhone 16 models this year have an additional "camera control" physical button, allowing users to directly open the camera through this button and adjust camera parameters and take photos or videos using touch, click, double-click, etc.

Market Impact of AppleIntelligence

Apple has started training retail employees on the AppleIntelligence feature, positioning it as a key component of iPhone sales this fall. While Apple CEO Tim Cook has not yet quantified the impact of "AppleIntelligence" on revenue, he has stated that Apple is continuously increasing spending in this area, moving many individuals who previously worked in other domains to the artificial intelligence (AI) department.

Wall Street Bullish on AI Features Driving iPhone Sales Growth

Given the importance of iPhone to Apple's product suite, Wall Street is optimistic that AI features will drive more customers to upgrade, thereby accelerating Apple's growth. Statistics indicate that over 40% of Apple's 800 million+ smartphone devices are iPhone 12 or older, while another 27% use iPhone 13. Currently, less than 10% of users have phones that can upgrade to AI software. This suggests a substantial potential user base for upgrades.

However, Ben Bajarin, principal analyst and CEO of CreativeStrategies, believes that the iPhone 16's AI capabilities might "help generate interest in the new products, but the delayed launch of some features could mean that more people will wait until they see those features in action before considering a purchase."

Supply Chain to Benefit from AI Upgrade Wave

As Apple enters the era of AI terminals, the industry anticipates that current iPhone active users will complete AI device upgrades within the next 2-3 years, potentially triggering a 3-year upgrade wave, which could significantly benefit domestic Apple supply chain companies.

Key Suppliers Poised for Performance Growth

According to industry research gathered by Jiwei.com, the A-share market boasts at least 30 key Apple suppliers, including:

• Luxshare Precision: As a core supplier in the Apple supply chain, Luxshare Precision is expected to deliver impressive performance in the second half of the year. At the end of last year, Luxshare Group's subsidiary, Luxshare Precision, obtained control of Pegatron's Kunshan factory, further increasing its share in the iPhone manufacturing chain. Luxshare recently secured over 20% of the iPhone assembly share in 2023, participating in the production of the 15 ProMax/15/15plus models. If the acquisition of Wistron is successfully completed, Wistron's business is expected to significantly enhance Luxshare's share and profits in the second half of 2024. Luxshare as a whole is poised to capture over 40% of Apple's share in the 2024-2025 cycle, thereby boosting Luxshare Precision's profits.

• Leader Electronics: As a leading supplier of structural components and functional components for Apple, Leader Electronics is well-positioned to benefit from the increased shipment volume driven by the upgrade wave. Leader's product portfolio is comprehensive, with potential to secure a leading position in VC vapor chambers, steel shell battery structural components, fast charging heads, and other areas, propelling the company's revenue and profits to grow in tandem.

• Lens Technology: As the leading consumer electronics glass cover plate manufacturer in China, Lens Technology holds a dominant position in the domestic market and enjoys deep collaborations with renowned brands worldwide, including Apple, Samsung, and Xiaomi.

• Crystal Optics: The company collaborates with Apple on consumer electronics products, and its infrared cut filters, narrowband filters, optical thin film panels, and other products are used in Apple's consumer electronics products.

• BOE Technology: According to foreign media reports, Apple has included BOE in the list of OLED display suppliers for the iPhone 16 series, with plans to start supplying the standard version this year. Market research institutions reveal that BOE has successfully passed the verification procedures for supplying iPhone 16 and is currently in mass production according to schedule, gradually increasing its shipment volume to Apple.

• AAC Technologies: As Apple's acoustic supplier, the company's related products are also expected to witness substantial growth. AAC Technologies management has indicated that with the further development of the smartphone market, the increasing demand for voice interaction features in AI phones will also place higher requirements on the sound quality of phone speakers. The company will continue to promote high-performance acoustic products, with SLS Master speakers projected to achieve a 100% growth in shipments in 2024 and further increase market penetration.

In addition to the aforementioned key suppliers, there are numerous other small and medium-sized A-share companies that supply components to Apple, particularly those listed on the STAR market in recent years. While their market capitalization may be relatively small, their business primarily relies on Apple, either directly or indirectly supplying components.

Innovation Drives Growth, Bright Prospects for Apple Supply Chain

Huachuang Securities' research report by Xiong Yiyu points out that Apple, the leading player in consumer electronics terminals, continues to drive innovation in the industry. AI has become the main theme of current technological innovation. The launch of AI iPhone is expected to accelerate the pace of adoption, and Apple is poised to initiate a new round of innovation on the terminal side. Supply chain manufacturers are expected to fully benefit from product innovation and upgrades, experiencing a surge in volume and price for core products.

In conclusion, the launch of the iPhone 16 series marks Apple's official entry into the AI terminal era. The introduction of AppleIntelligence will open up new growth avenues for iPhone and drive accelerated user upgrades. Domestic Apple supply chain companies are expected to benefit significantly from the AI upgrade wave, propelling a new wave of performance growth. As AI technology continues to evolve, Apple and its supply chain partners will work closely to deliver smarter and more convenient mobile terminal experiences, guiding the consumer electronics industry into a new phase of development.