Apple has an innovation gap. Will its new CEO fill it?
The tech titan that once urged consumers to ‘think different’ may itself be ripe for disruption in the AI age
In early 2025, Apple software engineers were working around the clock to deliver the company’s next trick.
The previous June, software chief Craig Federighi had walked onstage at the company’s annual developer conference to unveil an overhauled Siri voice assistant that would act like a true companion, using AI to carry out tasks on command.
What the audience gathered in the Cupertino sunshine cheering Federighi’s demonstration did not know was that the new personalised AI agent did not yet exist.
The Siri team had been given just nine months to deliver. And as the spring 2025 deadline approached, progress was not good. Federighi circulated a bug report listing queries he had put to the new Siri, with red crosses next to each failed response, according to people familiar with the document.
“Internally, Apple called the project ‘Endgame’ because executives realised that if it didn’t ship, it was the end,” says one executive. A final item on Federighi’s list, the person adds, was “something to the effect of ‘Hey Siri, is OpenAI better than Siri?’”
The miss resulted in a $250mn class action settlement over false advertising and the departure of several top executives, including longtime AI chief John Giannandrea.
It was a chastening moment for a company that built its reputation — and vast financial success — on taking new technology, perfecting it and marrying it with consumer-friendly innovations.
In the 2000s, Apple reinvented the entire consumer electronics industry with a series of era-defining products. Today the group is a $4.5tn, 50-year-old behemoth that relies on selling an ever-expanding suite of services, mostly via a product unveiled two decades ago: the iPhone.
Following the debacle over the voice assistant, and other indicators that the pace of innovation is not what it was, the question is whether the group that once urged consumers to “think different” is itself now ripe for disruption in the age of AI.
It is John Ternus, an engineer steeped in the leadership culture of Apple co-founder Steve Jobs, who must address this challenge. The 51-year-old will take over as chief executive from Tim Cook in September as the company looks to generate new excitement about its products and move into ambitious new categories such as AI pins — wearable voice-controlled devices — and robotic tabletop arms.
“It’s about making things that are sublime, to create what Steve called an ‘insanely great’ moment,” says a former colleague who worked with both Jobs and Ternus.
“It’s too easy to say Apple doesn’t do anything any more; they are constantly delivering best-in-class products,” the person adds. “But people are asking to feel something.”
Jobs, Ternus and the innovation era
Few companies have been shaped by the personality of their leader as much as Apple. Jobs placed design purity at the heart of the company, driving its engineers to develop whole new manufacturing techniques to create aesthetically pleasing, beautifully engineered versions of existing products such as PCs and smartphones.
Ternus belongs to a dwindling generation of engineers still at Apple who were part of the extraordinary era of innovation between 2000 and 2010 that brought the iPod, the iPhone, the MacBook and the iPad.
Jobs and design chief Sir Jony Ive defined Apple’s devices by reimagining the materials they should be made from and the ways in which users should interact with them. Both processes placed huge pressure on Apple’s engineers, as Ternus soon discovered.
Around five years into his quarter-century career at Apple, he was made lead engineer on a project to reinvent the iMac. Apple’s PC, the first major collaboration between Jobs and Ive, had wowed consumers at its 1998 launch with its unconventional bubble design and playful colours, but was due another upgrade.
The vision was to use a single flat piece of metal encasing a flat screen and the computer’s circuit boards, doing away with the separate bulky unit traditionally associated with PCs. While the original iMac was assembled in California, Apple was increasingly relying on factories in Asia to make its products at scale and at lower cost — a process led by Cook, then operations chief.
Ternus flew to China, where Taiwan’s Foxconn was being lined up to make the device. “It was the first time we did such a metal bezel piece, and we didn’t really know how to do it — there were a lot of new ideas in it,” recalls one former colleague.
But Ternus and his team cracked the challenge, adapting metalworking techniques that had formerly been the preserve of industries such as aerospace to create a desktop computer with a large flat screen squeezed into what seemed an impossibly flat chassis. It launched in 2007, and its minimalistic aluminium and glass aesthetic still defines the iMac today.
Ternus’s power is his “atypical clarity”, says another former colleague. “It’s not just the ability to have a really broad understanding of the many component parts of the products, but also his powers of recall, and now his understanding of the company-wide context” that will allow him to reimagine the next generation of Apple products.
Tim Cook: more money than ever
Cook’s tenure as chief executive of Apple established a model that was radically different from the design-centric company that existed under Jobs, who died in October 2011.
In financial terms, it has been one of the greatest success stories in business history. Apple now rakes in sales of over $1bn a day. Its services business alone, driven by the App Store and Apple Pay, generates more revenue than Netflix, Spotify and Adobe combined, with a margin of around 75 per cent. Under Cook, the company has returned around $1tn to shareholders through dividends and buybacks.
Nearly two decades since the product launched, Apple shipped well over 200mn iPhones in 2025 and the device still accounts for about half of Apple’s $400bn of annual sales, with high product margins underpinned by the highly efficient, Asia-based supply chain also created by Cook.
Apple’s astonishing profitability is sustained by an annual cadence of new iPhones, each iteration featuring largely incremental improvements on the one before. Research and development spending as a proportion of revenue went from 8 per cent at its height in 2001 to a 2 per cent low in 2012 as the iPhone boom began, meaning that for a while Apple was spending proportionally far less than its Big Tech peers.
But as the profits piled up, the team behind Apple’s original products began drifting away, with some citing fatigue with the gruelling schedule of annual iPhone releases. Ive left in 2019, luring multiple colleagues to his new start-up that would later join OpenAI.
Cook abandoned Jobs’ practice of daily visits to Apple’s design studio, where the different strands of Apple’s leadership would plan out the next blockbuster product together.
“The way we operated under Steve, we felt like pirates,” says another former executive. “Then suddenly you don’t have a pirate ship to steer, you have a naval ship . . . less free-spirited, less nimble and a bit more procedural.”
The result was a marked slowdown in launches of genuinely new products. Wearables such as AirPods and the Watch emerged during Cook’s tenure, along with the HomePod. But the Apple Car was abandoned after expensive years-long development and 2024’s Vision Pro headset proved a flop.
There are others indications that Cook’s model cannot deliver the growth it once did. Apple’s 2.5bn-device base is showing signs of becoming saturated and product revenue has flattened after a boost during the pandemic.
Upgrade cycles for the iPhone — the time that elapses between consumers buying one device and then trading it in for a new one — are lengthening. Last year’s iPhone 17 generated record sales, but Counterpoint Research attributes this largely to consumers who purchased smartphones during the Covid-19 boom buying new devices.
The company, which declined to comment for this article, is contending with increasing competition in China, where local rivals can offer devices that look almost identical to the iPhone using the same domestic contractors Cook recruited over two decades.
That China-dominated supply chain is also looking more vulnerable in an era of mounting trade tensions between Washington and Beijing. Efforts to diversify it, mostly by building production capacity in India, are already under way and are likely to intensify under Ternus.
By the company’s own admission the margins around its App Store, which levies commissions of up to 30 per cent, are at risk of erosion even before AI disrupts its software ecosystem.
“Regulators around the world are watching this case to determine what commission rate Apple may charge,” the company warned as it unsuccessfully petitioned the US Supreme Court to pause a legal injunction over the fees brought by Epic Games. Meanwhile the US Department of Justice is suing Apple over an alleged monopoly in smartphones.
“To be bullish on Apple here, you need to believe they can extend App Store tax and tolling to agentic AI,” says Nicholas Rodelli, director of legal research at investment research firm CFRA.
But he adds that the company is “over-reliant on the tax-taking model”, describes its App Store policies as “unsustainable” and estimates that Apple faces an 8 to 9 per cent reduction in earnings power if this model is unwound by legal challenges.
The hope expressed by Apple insiders is that Ternus will refocus the company on more radical product development through his deep understanding of hardware, and the software — including AI — that can operate on it.
“I think there’s a good chance Ternus will reinvigorate [the innovation culture of] ‘old Apple’,” says one former executive. “The pieces are all in place for a new chapter.”
Erik Woodring at Morgan Stanley describes him as “a product guy who has played a pretty critical role in delivering a number of different platforms over the years”. His task, Woodring adds, is to create a portfolio of devices that are specifically built around AI.
That would mark a return to the Jobs-era philosophy of developing integrated hardware and software to create an often radically different user experience, rather than simply bolting new features on to existing devices, as it has done with AI to date.
It was this approach that gave the world the multitouch screen on the iPhone, replacing a physical keyboard with an interface that could be navigated by a toddler.
Apple’s new take on AI could precipitate similar shifts — but it will require an appetite for disruption. A truly capable voice assistant could change the look and feel of an iPhone by drastically reducing the need for on-screen icons, for instance, and dilute the high-margin App Store model of users manually downloading apps and making individual purchases.
In late 2024, Apple acknowledged this for the first time in its legal disclosures, warning that “new products, services and technologies may replace or supersede existing offerings and may produce lower revenues and lower profit margins”.
Apple’s AI challenges
The launch of ChatGPT in 2022 showed how quickly the imagination of consumers could be captured by AI chatbots.
For Apple, the promise of a genuinely smart and intuitive voice assistant, able to carry out tasks across the device using AI models, is that it would push consumers to buy new iPhones.
But the problem of developing such a tool does not play to Apple’s traditional hardware strengths. “There is a vulnerability there for Apple,” says one former executive. “I have the biggest trust that from a hardware point of view they can build the most beautiful, highest-quality products, but in a way it’s about the ‘brain’ of the device now.”
A former employee who worked on the Siri upgrade adds that “at the end of the day, Apple is an advanced hardware company that builds ‘good enough’ software”.
The person says the company simply does not have the frontier AI models of its competitors, while its commitment to privacy prevents it from mining the critical data from users that would help it build them. At the start of this year, it agreed with Google to use its Gemini models as the backbone for more advanced AI features.
The way to make a “small” model that would work locally on an iPhone-size device “is to start with a big model”, explains Anastasios Angelopoulos, chief executive of Arena, an open platform for evaluating AI models. “You take a frontier model and progressively distil it until you have a small model that has 3bn parameters and is very close to the same performance.”
Ternus inherits an AI team at Apple that, like its design team, has seen steep attrition in a hugely competitive market. The company’s top software interface designer, Alan Dye, also left in December.
Meta and OpenAI, which have been among the most aggressive poachers, are positioning themselves as AI-powered consumer hardware competitors to Apple and have ambitions to control the AI ecosystem from end to end — the very philosophy Steve Jobs pioneered.
When Cook unveils the much-delayed AI-powered Siri at Apple’s Worldwide Developer Conference on June 8, part of his intention will be to give Ternus a blockbuster new AI feature to go with the foldable iPhone that Apple is due to unveil in September.
But Morgan Stanley’s Woodring says that, given the link-up with Google, Siri’s AI functionality will be heavily dictated by Gemini’s capabilities. “The debate is no longer, ‘Do you have the models to support your AI initiatives?’”
Apple needs to demonstrate “one to three clear uses” for its AI voice assistant, Woodring adds, with features compelling enough to persuade existing users to buy a new device. The longer-term aim is to outline a clear path to generating fresh revenue from AI software in the way Apple currently does from iCloud.
The outgoing chief executive is also opening the door for his successor to start spending heavily on talent and AI research; the group is already growing headcount and last month dropped its longtime commitment to balancing cash and debt. Research and development spending for the year to March reached $40bn, an increase of about 23 per cent.
Ternus will have a mandate to reshape the senior leadership team in his own image too, given that several top executives are already approaching retirement.
“If I were John, I’d be wondering how to assemble a team of warriors who are up for the challenge and look like a bunch of crazy dreamers,” as in the early days of the company, says one former colleague.
In one sense at least, Ternus will be picking up where Jobs left off. “When Jobs acquired Siri [in 2010] he was asked why he was getting into the search business,” recalls one former executive.
“And he said something like ‘I’m not — I’m getting into the AI business’.”