10 Major Challenges Facing Apple Right Now

Apple Inc., once the undisputed king of the technology world, is now under attack on many fronts.

Chinese demand for its products is cooling. The company’s money-spinning App Store is under fire from European regulators. And it just killed off a car project that was once one of its famous “next big things.”

Along the way, Apple’s valuation has taken a hit. After reaching a historic $3 trillion last year, it’s shed hundreds of billions of dollars in recent weeks. And now Microsoft Corp. — Apple’s sometime rival, sometime ally — has supplanted it as the world’s most valuable tech company.

Here are the challenges Apple is facing around the world:

The region’s Digital Markets Act takes effect this week, in a new threat to Apple’s “walled garden,” the ecosystem that encourages Apple hardware users to buy other Apple products and services. Customers will be able to download software from outside the App Store for the first time, a process known as side loading. Users also can tap alternative payment systems and more easily choose a new default web browser — addressing two frequent gripes of developers and regulators.

Apple has long fought such changes, arguing that they’ll undermine the user experience and security of its software. “Apple is having to create technology to allow an app to install other apps, and inherent in that is risk,” Phil Schiller, a veteran Apple executive who now runs the App Store, said in an interview in January.

The company has agreed to take a smaller commission on app store purchases, but still added some additional fees that have drawn indignation from developers. The bigger danger for Apple is the splintering of a business model that generates tens of billions of dollars a year.

Separately, the EU hit Apple this week with a €1.8 billion ($2 billion) penalty over an investigation into allegations that it hampered music-streaming rivals, including Spotify Technology SA.

The DOJ has been working for five years on its own case against the company and is now getting closer to filing suit. Its antitrust enforcers allege that Apple has imposed software and hardware limitations on its iPhones and iPads that make it harder for rivals to compete.

The suit has been expected by the end of March, people familiar with the matter have said. But a recent federal spending deal would curb funding available to antitrust enforcers, potentially affecting that timing. Apple representatives also met with the Justice Department in February in a final bid to persuade the agency not to go ahead with the suit.

Ever since OpenAI’s ChatGPT exploded into the public consciousness in 2022, tech companies have been racing to add more generative AI features — the technology that can create elaborate text, images and videos based on simple prompts.

Apple has been conspicuously absent from this frenzy, raising concerns that it’s falling behind in a vital new area. The company has assured investors that AI has long been woven into its software and services, but it’s clear that Apple needs to make a bigger splash.

That could come in June, when Apple holds its annual developers conference. Speaking at the company’s annual meeting last month, Chief Executive Officer Tim Cook vowed to “break new ground” in AI this year. “We believe it will unlock transformative opportunities for our users,” he said.

Behind the scenes, Apple software boss Craig Federighi has told his teams to develop as many new AI features as possible for this year’s operating system updates. And the tech giant is nearing the completion of a critical new software tool for app developers that relies on artificial intelligence to speed tasks.

But the company has to play catch-up with rivals like Samsung Electronics Co., which already unveiled phones packed with AI features from Alphabet Inc.’s Google. Microsoft Corp., OpenAI’s biggest backer, also has introduced a steady drumbeat of AI features.

Apple has been contending with a slump in China for months, and it doesn’t seem to be letting up. The iPhone’s sales in the country fell by a surprising 24% during the first six weeks of this year, according to figures from Counterpoint Research.

The entire market has been declining, but Apple is now sliding faster than local competitors. Vivo, based in the Chinese industrial city of Dongguan, has emerged as the country’s leading supplier, according to the Counterpoint data.

In a bid to spur demand, Apple rolled out rare discounts on its web store in January. And local resellers are cutting iPhone prices by as much as $180.

Perhaps more troubling, restrictions on the use of foreign technology at Chinese government offices have been spreading. As geopolitical tensions with the US mount, Apple’s reliance on the country — as both a market and manufacturing hub — is looking problematic.

When news first broke last week that Apple was winding down its car project, investors cheered the development. After all, it meant the company was no longer spending billions of dollars on a long-shot effort.

But the car’s demise ultimately leaves Apple without a big moneymaker on the horizon. As difficult as it was to build an electric vehicle, Apple could have charged $100,000 for such a product. Though profit margins would have likely been razor-thin at best, Apple could use a sales boost right now. Revenue decreased 3% in the last fiscal year, the company’s worst drop since 2016.

Abandoning the car also raises concerns that Apple is playing it safe, rather than fearlessly blazing a trail into new categories.

Read More: How Apple Sank About $1 Billion a Year Into a Car It Never Built

Apple did enter a new product category in 2024, and that’s the mixed-reality market — an area the company calls “spatial computing.” The Vision Pro headset, which debuted Feb. 2, has wowed reviewers and attracted early adopters. But it remains a $3,500 product with a less-than-obvious raison d’etre. The goggles are too heavy to wear for long periods, and many software developers have held off on creating dedicated apps for them.

Cook’s original vision was to sell a pair of lightweight augmented reality spectacles that users could wear all day. The technology for such a device wasn’t ready yet, so Apple had to compromise with a bulkier headset that melds AR with virtual reality.

The challenge now will be making the Vision Pro lighter and cheaper, getting it closer to something that a typical consumer might buy. But that process will take years.

More than a decade after the iPad became an instant hit, many consumers have fallen out of love with tablet computers. Overall sales of the devices fell to their lowest level last year since 2011, according to research firm IDC. That’s not just a problem for Apple, of course, but the company is the dominant seller of tablets, accounting for roughly 40% of shipments.

Some consumers have shifted to larger phones or just gone back to laptops, but it doesn’t help that Apple didn’t release a single new iPad model during the last calendar year. There’s never been a drought like that since Steve Jobs first unveiled the device in 2010.

The good news is, Apple is readying new iPad models that will break some ground. An updated iPad Air will come in two sizes for the first time, and the Pro model will get OLED screens — short for organic light-emitting diode. It’s none too soon for a business whose revenue fell 25% during the holiday quarter, the biggest sales period for the device.

In a rare move, Apple recently had to stop selling versions of its watch with a blood-oxygen sensor — the result of a legal fight with medical device maker Masimo Corp. The watches are a central piece of the company’s wearables, home and accessories division, a business that generated more than 10% of revenue last year, or nearly $40 billion.

Though Apple was able to deactivate the feature and get its watches back on the market, it was an embarrassing legal setback for a company that rarely suffers them. The loss of the blood-oxygen capability also could hinder Apple’s effort to add future functions to the watch, such as ones that measure hypertension and sleep apnea.

Executive turnover is a regular thing at Apple, and the company has a deep bench of managers. But the iPhone maker has lost some of its most distinguished leaders in recent months — especially in its design team. That includes Bart Andre, the company’s longest-serving senior industrial designer and one of the biggest holders of Apple patents. Top designers Colin Burns, Shota Aoyagi and Peter Russell-Clarke also left around the end of last year.

After years of departures, the team once led by the legendary Jony Ive — a group that helped define the Apple aesthetic — is nearly entirely gone. Ive’s successor as head of the department, Evans Hankey, left last year. Now the industrial-design and user-interface groups report to Jeff Williams, the company’s chief operating officer. Having an operations person oversee a division dedicated to design and innovation has rankled some staff, people close to the situation have said. There have also been cost-cutting measures that added to the discontent, they say.

Against that backdrop, Apple’s next quarterly report is poised to be a tough pill for investors. Already, the company has warned that the numbers won’t stack up well against the year-earlier period.

In that previous quarter, Apple was shaking off the last Covid-related supply constraints and enjoyed a sales bump from pent-up demand. The company will get no such windfall this time around.

Analysts expect sales to fall by about 4% in the quarter, which runs through this month. That means Apple’s revenue will have fallen in five of the last six quarters.

“Apple shares in our view are at a crossroads,” Rosenblatt Securities analyst Barton Crockett said in a note this week. The failed car project and a not-quite-ready Vision Pro has dimmed the company’s luster, he said.

The question now is whether Apple’s push into generative AI can bring it back. “Apple has potential to regain some of this sheen,” he said.