Apple's 2024 AI Problem and Opportunity: M4 Chip

Hello Everyone,

This past week we had new chip announcements from Intel, Meta, Google and now also Apple.

Mac Rumors do a fair job of summarizing the issue at hand:

Matt Gurman who is like The Information guy who happens to work at Bloomberg instead was up to his usual very basic rumor-mill about Apple stating the obvious. The new M4-equipped Macs will reportedly start arriving later this year, with the rest coming in early 2025.

Let’s take a listen to the actual source:

According to his sources, the M4 processor will come in “at least three main varieties” and is “nearing production.” Apparently, the new chip will “highlight” artificial intelligence features - for instance trying to make the claim that devices will be AI-native, like laptops upgraded and so forth.

Apple is having a growth problem and very related to sales in China. It’s the weakest we’ve seen Apple hardware sales in years. Let’s see how LinkedIn reported the news.

Can the M4 AI Chip Reverse a Consumer Downturn Trend for Apple?

In a bid to lift lackluster sales, Apple is nearing production of its first M4 chips for its entire Mac line with AI upgrades, Bloomberg reports, citing anonymous sources. Apple plans to update each of its Mac models with it. The move "comes at a critical time," per Bloomberg, after Mac sales dropped 27% last year. The tech giant is also trying to make its iPhone repairs easier and less costly — and touting the phones’ increasing lifespans in the process. The long-awaited change, which starts this fall, will allow iPhone 15 owners to use secondhand Apple parts to fix their devices.

So What?

• The company, which released its first Macs with M3 chips five months ago, is already nearing production of the next generation — the M4 processor — according to people with knowledge of the matter.
• Apple will reportedly emphasize the M4’s AI-processing capabilities once released, which likely comes in response to the slew of rival “AI PCs” hitting the market and a slowdown in Mac sales.
• It’s not clear if this will move the needle with lack-lustre Mac and iPhone sales.

The Verdict on M3 was Poor

Gurman explains that Mac computers haven’t enjoyed the most buoyant sales in recent months. Machine sales saw a 27% drop in sales during the last fiscal year, and the tepid critical response to the new M3 computers was a sign that the move from M2 to M3 wasn’t enough to entice customers to part with their hard-earned cash.

Donan, Brava, and Hidra

The Bloomberg report highlights three Apple M4 chip codenames. Though as usual, Gurman gives us a story without details, just a backbone rumor.

Apple’s Generative AI on Device Renaissance

Apple plans to release the first M4-powered computers by the end of 2024, with more launching in early 2025. This includes new iMacs, MacBook Pros, Mac minis and MacBook Airs. A new Mac Studio and Mac Pro are also expected.

Apple’s WWDC in June should give us more tangible information and Apple’s entire hardware sales future might depend on how impressive it’s AI capabilities for consumers will be. The conference could coincide with higher inflation due to geopolitical concerns and higher oil prices.

Mac Sales Peaked in 2022

After peaking in 2022, Mac sales fell 27% in the last fiscal year, which ended in September. In the holiday period, revenue from the computer line was flat. Apple attempted to breathe new life into the Mac business with an M3-focused launch event last October, but those chips didn’t bring major performance improvements over the M2 from the prior year.

Given issues in China, it’s not clear what could change the situation.

The names are not so endearing as Anthoropi’s poetic trinity though: Bloomberg says Apple will reserve the mid-tier Brava for the higher-specced MacBook Pros, Mac Minis, and the Mac Studio, while adding the top-tier Hidra chip to the Mac Pro.

Chips are codenamed Donan for the low-end, Brava for the mid-tier, and Hidra for the top-end.

• Donan - low end
• Brava - mid tier
• Hidra - top-end

Whether more AI processing power (and marketing) can make a difference to the deceleration of Mac sales remains to be seen. Apple will have to put something good out of the hat, a bit like the pressure at Google. These are no longer growing companies whose best days may be in the past.

Apple WWDC, which kicks off on June 10 will be the big reveal for the juicy details. Apple may need to team up with Google Gemini and/or OpenAI to get some AI advantages into their products. While Microsoft has OpenAI and both Google and Amazon have invested in Anthropic, besides acquiring minor AI startups, it’s not clear how or how well Apple is competition for AI talent.

Apple is the major client of TSMC and an entire semiconductor ecosystem is behind it.

As TSMC receive orders for 3nm chips from multiples partners who are Apple competitors, Apple still hold the position as the leading customers with 50% boost in orders, and accounted for US $17.52 billion which was 25% of the TSMC's total revenue in 2023. If Taiwan were to be invaded, Apple’s stock price would likely take a huge hit.

The Hidra chip is designed for the Mac Pro, which suggests it is an "Ultra" or "Extreme" tier chip. It remains to be seen on a product and on-device level what new product enhancements AppleGPT and its other investments may provide for consumers of all of Apple’s devices including Mac OS, iOS, Siri and so forth. Or how they might play into Apple’s new line of consumer home robots that are in early stages of R&D.

Everything we currently know about Apple M4 comes from Gurman’s recent report. Gurman’s report is so light it’s nearly hard to write about it.

What can we Even Infer from all of this?

M4 versions of the Mac desktops could support as much as 512GB Unified Memory, which would be a marked jump over the current 192GB limit.

The M4 chips will be built on the same 3-nanometer process as the M3 chips, but Apple supplier TSMC will likely use an improved version of the 3nm process for boosts in performance and power efficiency. Apple also plans to add a much improved Neural Engine that has an increased number of cores for AI tasks.

Apple’s Q1 (Feb, 2024) earnings showed a 13% decline in sales in China easily its most important market. While the Biden Administration has blacklisted over 300 (up to 319 now!) Chinese companies (the most of any POTUS) the reality is starkly different, China remains crucial for U.S. chipmakers amid rising tensions between the world’s top two economies. China is also pivotal for Apple, Tesla and a host of other American consumer brands.

U.S. AI Bans and Blacklists not Sustainable for AI Supremacy

Even Nvidia, AMD and others are losing a lot of business to the China AI chip ban. It’s not clear how Intel’s Gaudi-3 also recently announced will be re-packaged for China.

Despite increasing restrictions on sales of advanced chips to China, U.S. chipmakers have signaled they are committed to serving the massive market. Apple and Tesla look like plummeting Chian sales could impact their growth for years to come. It’s doubtful any AI bells and whistles can prevent this either from an Apple or Tesla Robotaxi promise side.

It doesn’t matter how many years Apple is ahead in chips or Generative AI implementation of its biggest market is showing signs of decline. The geopolitical risk on some hyperscale firms appears to be escalating. Meanwhile there are signs Tesla may be worse off in China than anyone thought.

Apple’s Slipping Behind in Generative AI Problem

Apple is desperate for good news, and announcing that the M4 is coming is not substantial news. Read what people are saying on Reddit. Whether breaking news comes from Reuters, The Information or Bloomberg these days it seems pretty thin on facts. No one we are reading breaking news less of late.

Apple is in serious trouble. The U.S. thinks it can ban China into submission. It couldn’t be more wrong. The Biden Administration led Commerce Department added six Chinese companies to its entity list on Thursday, bringing the tally of new targets during the Biden administration to 319. That compares to the 306 entities added during Donald Trump’s time in the White House, when he oversaw a trade war with Beijing that hurt both countries’ economies.

Geopolitical Risks Could Stifle Apple’s 2024 and 2025 Sales

Promises of higher tariffs, more geopolitical pressure and the A.I chip ban just forces China to innovate faster. Apple already had its Huawei surprise in recent months. Being tough on China, including through the restriction of its access to technology really just makes China incredibly more resilient and self-sufficient for the decades to come in technology. Recently Funds are starting to pour into Chinese AI startups challenging OpenAI's Sora and OpenAI’s technology itself.

In mid March, 2024 Beijing-based generative AI startup Shengshu Technology said it secured several hundred million yuan in a recent fundraising round to support its research on multimodal large models, product innovation and market expansion. The investment was led by Qiming Venture Partners, along with Delta Capital, Zhipu AI and Baidu Ventures, among others. Established in March 2023 by a group of scientists from Tsinghua University Institute for Artificial Intelligence, Shengshu focuses on research and development of multimodal large models, including images, 3D and video.

China remains incredibly impressive in its AI startups and robotics, among fields like biotechnology. China is much stronger at building and applying tech into products and AI applications and marketing those apps to scale. TikTok, Temu and BYD are cases in point. It’s only a matter of time before Chinese AI startups and robot makers show very competitive approaches.

Being cash friendly isn’t enough for Apple. It’s doubtful the M4 chip alone can do very much. The big focus for Apple this year is to add new artificial intelligence features across its products. Whether it can do this in an impressive way remains to be seen. From what we can tell, Apple’s iPhone sales declined 24% in the first week weeks of 2024.

Apple entered the Chinese market in 2010. Now 14 years later, it accounts for almost 20 percent of the company's total sales.