Even before President Trump’s tariffs threatened to upend Apple’s
manufacturing business in China, the company’s struggle to make new
products was leading some people inside its lavish Silicon Valley
headquarters to wonder whether the company had somehow lost its magic.
The tariffs, which were introduced April 2, caused Apple to lose $773
billion in market capitalization in four days and briefly lose its
standing as the most valuable publicly traded company in the world. But
investors had already started to sour on the company, sending its share
price down 8 percent in the first four months of the year, double the
S&P 500’s decline.
Apple had hoped to revive its fortunes over the past year with a
virtual reality headset, the Vision Pro, and an artificial intelligence
system called Apple Intelligence. Sales of the headset have been a
disappointment, however, and the signature features of the A.I. system
have been postponed because it didn’t work as well as the company had
expected.
The company’s issues underscored how its reputation for innovation,
once considered a fundamental element of its brand, has become an
albatross, fueling angst among employees and frustration among
customers. And company insiders worry that Apple, despite its years of
gravity-defying profits, is hamstrung by the political infighting,
penny pinching and talent drain that often bedevil large companies,
according to more than a dozen former and current employees and
advisers.
Apple declined to comment.
It has been a decade since the releases of Apple’s most recent
commercial successes: the Apple Watch and AirPods. Its services like
Apple TV+ and Fitness+, which it introduced in 2019, lag behind rivals
in subscriptions. Half of its sales still come from the iPhone, an
18-year-old product that is incrementally improved nearly every year.
While Vision Pro sales have been disappointing, Apple’s issues with
Apple Intelligence exposed dysfunction inside the organization.
In a nearly two-hour video presentation last summer, Apple demonstrated
how the A.I. product would summarize notifications and offer writing
tools to improve emails and messages. It also revealed an improved Siri
virtual assistant that could combine information on a phone, like a
message about someone’s travel itinerary, with information on the web,
like a flight arrival time.
The A.I. features were unavailable when new iPhones shipped. They
arrived in October, about a month late, and quickly ran into trouble.
Notification summaries misrepresented news reports, leading Apple to
disable that feature. Then, last month, the company postponed the
spring release of an improved Siri because internal testing found that
it was inaccurate on nearly a third of requests, said three people
familiar with the project who spoke on the condition of anonymity.
After the delay, Craig Federighi, Apple’s software chief, told
employees that the company would reshuffle its executives, removing
responsibility for developing the new Siri from John Giannandrea, the
company’s head of A.I., and giving it to Mike Rockwell, the head of its
Vision Pro headset.
“Apple needs to understand what happened because this is bigger than
just rearranging the deck chairs,” said Michael Gartenberg, a
technology analyst who previously worked as a product marketer at
Apple. “If ever there’s been an example of over-promising and
under-delivering, it’s Apple Intelligence.” It was the first time in
years that Apple hadn’t shipped a product it had unveiled.
Some details of Apple’s changes to its Siri team and challenges were
previously reported by Bloomberg and The Information.
The A.I. stumble was set in motion in early 2023. Mr. Giannandrea, who
was overseeing the effort, sought approval from the company’s chief
executive, Tim Cook, to buy more A.I. chips, known as graphics
processing units, or GPUs, five people with knowledge of the request
said. The chips, which can perform hundreds of computations at the same
time, are critical to building the neural networks of A.I. systems,
like chatbots, that can answer questions or write software code.
At the time, Apple’s data centers had about 50,000 GPUs that were more
than five years old — far fewer than the hundreds of thousands of chips
being bought at the time by A.I. leaders like Microsoft, Amazon, Google
and Meta, these people said.
Mr. Cook approved a plan to double the team’s chip budget, but Apple’s
finance chief, Luca Maestri, reduced the increase to less than half
that, the people said. Mr. Maestri encouraged the team to make the
chips they had more efficient.
The lack of GPUs meant the team developing A.I. systems had to
negotiate for data center computing power from its providers like
Google and Amazon, two of the people said. The leading chips made by
Nvidia were in such demand that Apple used alternative chips made by
Google for some of its A.I. development.
At the same time, leaders at two of Apple’s software teams were
battling over who would spearhead the rollout of Siri’s new abilities,
three people who worked on the effort said. Robby Walker, who oversaw
Siri, and Sebastien Marineau-Mes, a senior executive with the software
team, struggled over who would have responsibility for some aspects of
the project. Both ended up with pieces of the project.
The infighting followed a broader exodus of talent from Apple. In 2019,
Jony Ive, the company’s chief designer, left to start his own design
firm and poached more than a dozen integral Apple designers and
engineers. And Dan Riccio, the company’s longtime head of product
design who worked on the Apple Watch, retired last year.
In their place, Apple has been left with old and new leaders with less
product development experience. Mr. Giannandrea, who joined the company
in 2019 from Google, had never led the launch of a high-profile product
like the improved Siri. And Mr. Federighi, his counterpart overseeing
software, had never led the creation of a new operating system like
some of his predecessors in that role.
Mr. Cook, 64, who has a background in operations, has been hesitant
over the years to provide clear and direct guidance on product
development, said three people familiar with the way the company
operates.
“It’s clearly a breakdown of leadership and communication and internal
processes,” said Benedict Evans, an independent analyst who previously
worked as a venture capitalist at Andreessen Horowitz.
Apple hasn’t canceled its revamped Siri. The company plans to release a
virtual assistant in the fall capable of doing things like editing and
sending a photo to a friend on request, three people with knowledge of
its plans said.
Some of Apple’s leaders don’t think the delay is a problem because none
of Apple’s rivals, like Google and Meta, have figured out A.I. yet,
these people said. They believe there’s time to get it right.
As the clock ticks on fixing Siri, Apple will be defending the
assistant’s current shortcomings. Last month, customers filed a federal
lawsuit accusing Apple of false advertising. Since then, its
commercials about Siri have gone dark.
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What’s Wrong With Apple?