Apple Inc. is gearing up to announce its quarterly earnings report on Thursday, with all eyes on its anticipated largest revenue decline in over a year. 

As the tech giant grapples with sluggish sales and heightened competition, its efforts to integrate generative AI into iPhones and rejuvenate its presence in the crucial Chinese market will take center stage.

Despite Apple’s longstanding reputation as a must-have stock on Wall Street, its shares have trailed behind other major tech players in recent months, declining by more than 10% this year. 

Concerns have mounted over the company’s slow adoption of artificial intelligence services and the resurgence of competitors like Huawei in China.

Analysts project a significant decline of 10.4% in iPhone sales for the first quarter of 2024, accounting for approximately half of Apple’s revenue. This drop would mark the sharpest decline in over three years, reflecting both current market challenges and the exceptional surge in iPhone sales recorded a year ago.

In the previous year, Apple experienced a surge in iPhone revenue, partly attributed to pent-up demand following disruptions caused by the COVID-19 pandemic. However, even after adjusting for this anomaly, analysts anticipate a modest decline in iPhone sales, contributing to an overall revenue downturn of 5% for the fiscal second quarter that ended in March.

Apple is reportedly discussing with OpenAI and Google-owned Alphabet to counteract these challenges by integrating genAI features into its upcoming iPhone series. Such enhancements are expected to be unveiled at the company’s highly anticipated annual developer conference in June, potentially stimulating demand for its flagship devices.

While rivals like Microsoft, Alphabet, and Meta Platforms have been vocal about their AI strategies, Apple CEO Tim Cook has been relatively reserved. 

However, analysts believe that incorporating AI capabilities into iPhones could position Apple to better compete with Huawei and Samsung Electronics, which have seen success with AI-driven features in their smartphones.

Bernstein analyst Toni Sacconaghi expressed optimism about Apple’s prospects, particularly citing the potential impact of generative AI features on the upcoming iPhone 16 cycle. Sacconaghi upgraded the company’s shares to ‘outperform,’ emphasizing the cyclical nature of weaknesses in the Chinese market and the historical volatility of Apple’s business in the region.

In addition to AI integration, investors will be closely monitoring updates on Apple’s stock buyback plan and the performance of its latest product, the Vision Pro. Initial enthusiasm for the mixed-reality headset has waned, leading to speculation about reduced production estimates.

Apple’s hardware business, including iPads and Macs, is expected to face challenges with declines in sales, further underscoring the company’s need for innovation and market revitalization. 

The services segment, however, remains a bright spot, with anticipated revenue growth driven by offerings such as the App Store and Apple TV subscriptions.