- John Ternus as Apple's new CEO marks a shift back to a hardware focus.
- Apple has not entered the race to build the best AI model and has outsourced it instead.
- Analysts say investors may have mixed views on the CEO change.
Apple is going back to what it does best with its new CEO pick.
On Monday, the iPhone maker announced that Tim Cook is stepping down as CEO on September 1. John Ternus, Apple's senior vice president of hardware engineering, will take the helm.
Ternus joined the company in 2001 and most recently oversaw Apple's new product lines, including the iPad and AirPods, as well as new models of the iPhone, Mac, and Apple Watch. He also oversaw hardware engineering work on products across all categories.
Analysts say giving the top job to a hardware VP rather than the software head is part of Apple's strategy to dominate the devices space in the AI era.
"That means that a lot of the path ahead has to do with hardware innovation. So glasses, pins, folding phones. At some point, a less expensive virtual reality device than Vision Pro," Gil Luria, a tech analyst at D.A. Davidson, said in an interview with CNBC on Monday. "We haven't had a lot of innovation around hardware up until now, but that is Apple's lane."
Read more about Apple's transition
Hardware made up about 80% of Apple's $143.8 billion in revenue in the quarter ending December 31. The other 20% came from advertising, the App Store, and cloud sales — a major focus and growth area during Cook's tenure.
Luria said he sees the move as "good news" for the company and that this strategy should be a "relief" to investors.
"They spend a lot on R&D and CapEx by their standards, but it's obviously a rounding error compared to what Amazon, Microsoft, Google, and Meta are spending chasing the top model," Luria said, referring to research and development and capital expenditure on AI models.
Instead of investing in its own model, Apple has partnered with OpenAI to integrate ChatGPT into its devices for "Apple Intelligence" features.
The D.A. Davidson analyst added, "Eventually, there'll only be two or three leading models, and they'll all have to work through Apple devices because most consumers, especially ones willing to spend on subscriptions, are using an Apple device."
But Dan Ives, an analyst at Wedbush Securities, is not so sure if investors will see this succession as all positive.
The perennial tech bull wrote in a note on Monday: "Cook leaves a lasting legacy in Cupertino, and there will be a lot of pressure on Ternus to produce success out of the gates, especially on the AI front."
Patrick Moorhead, the CEO of tech research firm Moor Insights & Strategy, told CNBC that Ternus is not a "risk-taking visionary."
"What I'm expecting and what the streets should expect is tight operational execution, margin management, and incremental product iteration," Moorhead said.
