(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)By Robert CyranNEW YORK, July 1 (Reuters Breakingviews) - Even a former right-hand man to Apple (AAPL.O) founder Steve Jobs concedes that the iPhone could be obsolete in a decade. Eddy Cue, who now runs the company’s services division, said as much earlier this year during his testimony at the U.S. antitrust trial against Google in making a point about how technological change creates new markets while destroying old ones. The ways in which powerful incumbents respond to changes like those he describes has come to be known as the “innovator’s dilemma,” and they’re a big problem for his boss, Tim Cook. Last year’s annual gathering of developers for the iOS mobile system signaled a wave of “Apple Intelligence” improvements. Although the $3 trillion company has long used machine learning here and there, it promised to accelerate efforts. The focus was on technological plumbing, for example to help users find photos and automate writing. Siri, the 15-year-old voice-activated digital assistant, represents the real opportunity, though. The idea was to have it better understand natural language and user intent, and to take action within apps by the end of 2024. Some tools have reached the market, albeit with mixed results. ChatGPT is available on Apple devices and editing pictures is easier, but Apple paused its AI-powered news alerts and summaries because they were inaccurate. Worse, Siri enhancements haven’t arrived, and the company won’t say when they will. It reflects a broader lack of urgency. Apple’s capital expenditures hardly budged after ChatGPT’s 2022 release, while Microsoft (MSFT.O) and others doubled their investments.Cook’s priority, it would seem, is returning cash to shareholders. Dividends and stock buybacks are projected at $115 billion for its fiscal year through September 25, 11 times more than what Apple will deploy on fixed assets, according to estimates collected by LSEG.Apple may yet come around and leverage its innate powers to compete in AI. It counts about 1.4 billion active iPhone users, customers who tend to stick with them. If the company could manage to even just match the competition in AI, it would go a long way in keeping them around longer.The bigger edge is in data users provide. Well-designed AI would enable iPhones to spot patterns and handle grunt work. Apple’s reputation for prioritizing privacy, and its assurances of safeguarding data by performing as many AI tasks as possible on the devices themselves instead of remotely, also would be a big selling point for anyone worried about surveillance and for developers seeking to minimize cloud computing expenses.These advantages are real, at least based on what competitors are doing. Sam Altman’s OpenAI is spending $6.5 billion just to buy iPhone designer Jony Ive’s startup. The ChatGPT maker wants to create a device that will serve as an artificial intelligence chokepoint for consumers, accessing zettabytes of user data in the process and making its services the default option. The reasons for Cook’s exceedingly patient approach are telling. Craig Federighi, the executive in charge of the company’s software engineering, told the Wall Street Journal a few weeks ago that the intended Siri improvements weren’t delivered because they didn’t live up to Apple’s high standards. He added that there was no reason to rush out the wrong features or products because the AI transition will take decades.It’s a message wholly consistent with Apple’s ethos. The company’s success, and user devotion, exists largely because its gadgets are intuitive, beautifully designed, and fastidiously unite software and hardware. Rolling out a janky voice assistant or teaming up with an AI developer that spews out garbage theoretically would erode far more of its dear brand value than taking extra time to get things right.The reality may be less clear, based on Clayton Christensen’s influential concept. In his 1997 book, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail,” the Harvard professor outlined how dominant incumbents lose to newcomers in breakthrough markets despite having a litany of advantages, such as greater financial firepower, customer relationships and established R&amp;D practices. Startups can afford to release an imperfect product that’s good enough to entice customers. Moreover, new technology tends to improve quickly with each iteration.By the time, the longer-established company competes in earnest, its challenger has created snowballing advantages. It’s also easier to attract ambitious engineers and salespeople eager to invent the next big thing. As Jobs said, “It’s better to be a pirate than join the navy.”There’s a chance, too, that AI is overhyped and excess money is chasing a market with too little profit. Simply expanding systems by feeding them more computing, data and power no longer easily leads to vast improvements. Other methods, such as giving computers time to ponder their answers may face fundamental limits in dealing with complex problems. That said, even if machine intelligence is merely a tool, and won’t exceed human capabilities, it will be useful.AI probably can be expected to increase productivity and foster new forms of work and entertainment. Those are bigger stakes than Apple’s unsuccessful efforts at upgrading television or cars. It’s also far too early to count the company out. After all, it wasn’t the first to develop a PC, smartphone or headphones either. Even if the iPhone gives way to, say, glasses or pins, Apple could ultimately design them better.For now, Apple revolves around its renowned handset, which generated more than half its top line in the first half of the latest fiscal year. Services accounted for almost another quarter, most of it squeezed from iPhone apps, advertising and licensing fees. Throw in AirPods and other accessories, and an iPhone extinction by 2035 could wipe out more than 80% of the company’s revenue.Apple shares trade at 26 times estimated earnings over the next 12 months, a multiple 20% higher than its 10-year average, a premium to Alphabet (GOOGL.O) and only a small discount to both Microsoft and Amazon.com (AMZN.O) . It suggests that investors retain confidence that Cook will find a way to capitalize on AI and unravel the innovator’s dilemma.Previous technological shifts suggest a less promising outcome awaits. Being slow to adapt can be more than just a squandered opportunity. IBM (IBM.N) , for one, lost the PC revolution and missed the mobile one, but keeps peddling mainframes, software and advice. In 1980, it was on top of the world as the most valuable publicly traded company. Big Blue’s market capitalization is also far larger today, at $275 billion, but less than a tenth the size of Apple. Follow Robert Cyran on Bluesky.Apple thinks different about capex in the AI boom<img src="https://imageproxy.pbkrs.com/https://www.reuters.com/graphics/BRV-BRV/znvnnenylvl/chart.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" width="1420" height="954" original-src="https://imageproxy.pbkrs.com/https://www.reuters.com/graphics/BRV-BRV/znvnnenylvl/chart.png"/>Missing a tech wave can be very costly<img src="https://imageproxy.pbkrs.com/https://www.reuters.com/graphics/BRV-BRV/BRV-BRV/lbpgznzqxvq/chart.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" width="1420" height="574" original-src="https://imageproxy.pbkrs.com/https://www.reuters.com/graphics/BRV-BRV/BRV-BRV/lbpgznzqxvq/chart.png"/>(Editing by Jeffrey Goldfarb; Production by Pranav Kiran)

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Apple faces the "innovator's dilemma" as it contemplates the future of the iPhone, which may become obsolete in a decade. Eddy Cue highlighted the need for technological adaptation during a recent antitrust trial. Despite promises of AI advancements, Apple has lagged behind competitors like Microsoft in capital expenditures. The company aims to enhance Siri and leverage its user data for AI improvements, but delays in product releases reflect a cautious approach. Apple's focus on maintaining brand integrity may hinder its ability to compete effectively in the rapidly evolving AI landscape.

- Eddy Cue, Apple’s services chief, acknowledged that the iPhone could become obsolete in a decade, highlighting the "innovator's dilemma" faced by the company.  
- Despite promising advancements in AI, Apple has been slow to implement improvements, focusing instead on returning cash to shareholders, which may jeopardize its competitive edge.  
- Historical precedents suggest that failure to adapt quickly to technological changes can lead to significant losses, as seen with companies like IBM, raising concerns about Apple's future in the evolving market.

BREAKINGVIEWS-Apple fruitlessly ponders the innovator’s dilemma