Don't expect an Apple Pencil for the folding iPhone

John Ternus, who succeeded Tim Cook as Apple's Chief Operating Officer, faces a significant challenge in recovering market share in artificial intelligence and identifying the next innovation to transform the technology industry. Ternus, 51, took on his first major test only a week after replacing Cook, who celebrated his 15th anniversary at Apple's September product launch event, where a first flexible smartphone is expected to be unveiled.

The success of this flexible smartphone will be one of Ternus' first tests, but the most important will be executing a new AI strategy after several setbacks. With over 25 years at Apple, Ternus inherits the legacy of Cook, who has turned Apple into a profit machine thanks to the iPhone, the expansion of the services business, and a streamlined supply chain.

Apple's current market cap stands at over $4.6 trillion, with revenues exceeding $416.161 billion and net profits surpassing $112 billion. The immediate focus for Ternus is AI integration throughout Apple's ecosystem. Apple has unveiled a new Apple Intelligence suite to integrate AI into daily iPhone, iPad, and Mac operations, with a new Siri capable of better understanding user context, accessing information across applications, and executing more complex tasks.

Apple must now prove that these demos deliver on their promises and offer sufficient value to convince users to upgrade their iPhones. Additionally, Ternus must monetize the AI bet through a premium services subscription, which would add significant revenue to the services division, known for its 75% margins. While UBS doubts Apple Intelligence will significantly boost iPhone sales in the short term, Bank of America positively values Apple's AI strategy restart after Siri's setbacks.

The tech giant must also develop AI-specific devices that integrate hardware and software to offer unique experiences, following the iPhone's philosophy. Morgan Stanley suggests Ternus should create AI-focused devices to stay ahead in the mature smartphone market, where iPhones contribute around 50% of Apple's revenue. The flexible smartphone could revitalize the category, but the big unknown is whether Ternus can drive a radical product innovation that establishes Apple's competitive position for the next decades, as the industry looks for a new generation of products centered around this new technology.

Projects related to glasses and other wearables, such as Mark Zuckerberg's vision of time-reality interpreting devices, illustrate the challenge of opening new product categories, even for a giant like Apple. Meanwhile, Ternus must navigate supply chain complexities amid geopolitical tensions, although Apple continues to benefit from Cook's help as the new CEO.

The management of the memory crisis, which has led to price increases in Apple's catalog, is one of the immediate challenges Ternus must address, but he also faces the challenge of expanding production beyond China to reduce dependence on a single market, a significant operational challenge inherited from the Cook era.