I think the key here is the ability to focus on the privacy-first nature of local LLMs. A cloud-based service will always be more powerful (and markedly so), but Apple is very cautious about pursuing cloud-based solutions when user data is involved - privacy is a selling point of their products, after all. This is a double-edged sword, as you get to sell your services as privacy-friendly, but your offerings can be significantly less capable than your competitors' (see the iOS messages summary debacle, for example). The advantage of waiting is that smaller AI models are becoming much more powerful all the time.

Of course, Microsoft is also at this with its Copilot programme for laptops, where an onboard Neural Processing Unit has to be a particular speed to qualify. This lets you do local AI things like content-aware image snipping, text summaries and...er, Recall.

As to whether Apple will come out of this looking good or not, I think they're currently regretting rolling out a shitty initial AI offering, and will get better with the next release. It'll be like Apple Maps. Or the butterfly keyboard. Or any number of other broken version 1 Apple things.

An interesting question is to whether Apple Intelligence can be cancelled or pared back now the landscape is so AI dominated, i.e. will the lack of AI offerings be seen as a competitive disadvantage, or are people so sick of AI by now that it isn't a factor.