Apple's new AI demands new phone

Hi all, it’s Austin in Boston and Vlad in Hong Kong. If you bought your iPhone more than a year ago, you’re unlikely to get access to all of [View in browser]( [Bloomberg]( Hi all, it’s Austin in Boston and Vlad in Hong Kong. If you bought your iPhone more than a year ago, you’re unlikely to get access to all of Apple’s newest artificial intelligence features. But first... Three things you need to know today: • London-based VC Atomico raised [$1.24 billion for two new funds]( • Nvidia’s recent volatility is making [Bitcoin look like calm waters]( • TSMC’s Arizona factory [production yields are looking good]( Seeding an upgrade cycle Later today, Apple Inc. will reveal its new AI-enhanced iPhone 16 lineup, with support for what it’s calling Apple Intelligence built in. The AI integrations could represent the biggest overhaul to the iPhone’s software in years — and yet the company is likely to withhold its best add-ons from users not running its newest hardware. Apple’s justification, articulated during its developer conference in the summer, is that it sees AI as a hardware-enhanced feature. That’s strikingly similar to the language used by Honor Device Co. CEO George Zhao, who we spoke with last week. His company’s focus is on building “AI-enabled hardware,” he said. Both companies generate the bulk of their revenue from selling handsets, which may explain the shared approach. What Apple and Honor espouse is so-called edge AI — simply put, where the heavy lifting is done on the devices themselves, rather than in some powerful but distant datacenter. Zhao, much more talkative about his company’s spending than Apple chief Tim Cook, said Honor has spent 10 billion yuan ($1.4 billion) on AI research and development since 2021 and now has a third of its R&D staff focused on the technology. He welcomes the debut of Apple Intelligence as an affirmation of the AI-centric strategy, he added. Going forward, the big question — which no one has yet answered conclusively — is how to monetize AI beyond subscription fees. In the electronics world, the most common answer has been to refashion laptops and phones as new AI-first gadgets. From Microsoft Corp.’s Copilot+ PCs — which even have [a dedicated button]( to call up the AI assistant — to Samsung Electronics Co. and Alphabet Inc.’s Google putting that label on everything from earbuds and watches to home appliances. And that’s the path Apple is pursuing too. Which may be considered a little unusual given the company has the industry’s best track record of delivering its latest software to older devices — some even five years or more after their initial release. But maybe AI is a big enough leap to justify disruption. Apple is pushing the idea that new iPhone components will enable some of the AI computing that others offload to datacenters in the cloud to happen locally — and thus privately. Having parts of Siri’s AI brain implanted inside the iPhone is vital to maintaining data security and giving users peace of mind, says Apple. Of course, that pitch just happens to align with Apple’s mission of selling hundreds of millions of new iPhones every year. The Android competition is, as usual, fragmented. Some AI features will trickle down to some older devices but not others, depending on the brand you’ve chosen. Most Android device makers place their emphasis on selling you the next device rather than ensuring existing owners get the most up-to-date user experience. It’s just how the market is, and to be fair, that’s the tradeoff we have to accept when everyone outside of Apple and Samsung is wrestling with paperthin profit margins. Still, the reality is that most consumer AI features these days really only require an internet connection to use, rather than some onboard, AI-geared chipset. So long as you have decent Wi-Fi or cell reception, you can access the latest and greatest machine models from OpenAI, Google, Microsoft, X’s Grok and so on. Whether you ask ChatGPT a tricky question or Midjourney to generate a complex image, your query will inevitably be beamed up to the cloud and, seconds later, voilà , the AI’s response will zap back to your phone or computer, however ancient the hardware. This is a problem for Apple and the other players ultimately keen on retailing more devices, and we’ll see the scale of the challenge in the coming weeks. Google launched its AI-centric [Pixel 9 family]( of devices a month before Apple’s iPhone rollout, Samsung’s been on this train [all year]( and Shenzhen-based Honor just announced its new AI agent that can do things like cancel all your paid subscriptions from a voice prompt. This holiday season will tell us if the sales pitch works. For customers, the question is whether unique, but inevitably limited, hardware-enhanced AI features are worth the price of a whole new smartphone. Apple has indicated that Apple Intelligence will only be compatible with the iPhone 15 and above. According to Gadjo Sevilla, an analyst at research firm Emarketer Inc., it’s possible the Siri you use today will get some boost from AI no matter the iPhone you have, but don’t expect Apple to make its more comprehensive Apple Intelligence experience backward-compatible. “This strategy serves a twofold purpose,” Sevilla said. “A slower rollout of features to iPhone 16 adopters will be easier to manage at scale, and access to AI will incentivize upgrades to the latest models.” In other words, you’ve got to pay to play. The silver lining to all this: we’ll be able to better judge the longer-term potential of built-in AI when it’s no longer just a standalone app like ChatGPT. If users flock to the new devices, that’ll be a sign that AI agents and assistants are truly here to stay.—[Austin Carr](mailto:acarr54@bloomberg.net) and [Vlad Savov](mailto:vsavov5@bloomberg.net) The big story The federal judge who recently found that Google illegally monopolized the search market said he wants to deliver a decision on remedies by August. Judge Amit Mehta asked at a hearing Friday in Washington that the Justice Department file its proposed remedies by the end of the year [to give Google a fair chance to respond.]( One to watch [Bloomberg’s Mark Gurman joins Bloomberg Technology to preview Apple’s product event on Monday where the company will unveil the new iPhone 16.]( Get fully charged The earliest and biggest investor in the creator of Black Myth: Wukong is riding high as the [game keeps setting new records.]( Goldman Sachs has lined up around €350 million of debt financing to back Italian IT group Almaviva SpA’s [purchase of US tech firm Iteris Inc.]( Panasonic is starting to sell TVs in the US again after a decadelong absence, [in collaboration with Amazon.]( Salesforce is buying data protection and management provider Own for $1.9 billion, the company’s [second acquisition in a week.]( More from Bloomberg Get Bloomberg Tech weeklies in your inbox: - [Cyber Bulletin]( for coverage of the shadow world of hackers and cyber-espionage - [Game On]( for reporting on the video game business - [Power On]( for Apple scoops, consumer tech news and more - [Screentime]( for a front-row seat to the collision of Hollywood and Silicon Valley - [Soundbite]( for reporting on podcasting, the music industry and audio trends - [Q&AI]( for answers to all your questions about AI Follow Us Stay updated by saving our new email address Our email address is changing, which means you’ll be receiving this newsletter from noreply@news.bloomberg.com. 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