Apple Inc.

[cyclone]

Apple shares hit record on first day of developer conference

Chloe Aiello
June 5, 2018

Apple shares hit a new all-time high on Monday, as tens of thousands of developers flooded into San Jose, California, for WWDC, the company's annual developer conference.

The stock rose as much as 1.7 percent to $193.42, pushing Apple's market capitalization past $940 billion. The shares have gained 24 percent over the past year.

All three of the world's most valuable publicly traded companies climbed to records on Monday, with Amazon and Microsoft also claiming new highs. The three tech companies are now worth a combined $2.5 trillion.

More details in https://www.cnbc.com/2018/06/04/apple-sh...rence.html

[cyclone]

Apple CEO calls $1 trillion value a 'milestone' but not a focus

Stephen Nellis
August 3, 2018

(Reuters) - Apple Inc (AAPL.O) Chief Executive Tim Cook said on Thursday that the iPhone maker’s $1 trillion market capitalization was “not the most important measure” of the company’s success but was instead a result of its focus on its products, customers and company values.

In a memo to Apple’s more than 120,000 employees that was seen by Reuters, Cook called the valuation a “significant milestone” that gave the company “much to be proud of.” But he said it should not be the Cupertino, California, company’s focus.

“Financial returns are simply the result of Apple’s innovation, putting our products and customers first, and always staying true to our values,” Cook said in the memo.

With a closing price of $207.39 on Thursday, Apple became the first publicly listed U.S. company to ever reach $1 trillion in market capitalization. Apple’s stock market value is greater than the combined capitalization of Exxon Mobil (XOM.N), Procter & Gamble (PG.N) and AT&T (T.N). It now accounts for 4 percent of the S&P 500.

Cook had not previously publicly commented on the company’s $1 trillion valuation.

Apple was founded in the late 1970s by Steve Jobs and went public in 1980 after helping usher in the era of the personal computer. One of three founders, Jobs was driven out of Apple in the mid-1980s, only to return a decade later and rescue the computer company from near bankruptcy.

More details in https://www.reuters.com/article/us-apple...SKBN1KO05A

[cyclone]

Apple will probably lower iPhone prices on Wednesday — here's why

Steve Kovach
September 12, 2018

* Apple will reportedly reduce the price of the iPhone X's successor to as low as $800.
* Since all three new iPhone models are expected to be based on the iPhone X's design and technical features, Apple has to shift the pricing structure.
* The new strategy could help Apple increase iPhone unit sales, which have been flattening recently.

Apple made a big bet last year that it could convince you to spend $1,000 or more on a new iPhone. It sounded like a crazy move after people spent 10 years spending $650 or so on a new device, but Apple's gamble worked.

The iPhone X, which starts at $999 and goes all the way up to $1,149, has helped boost profits for the company, even as iPhone unit sales continue to flatten. Last quarter, the pricier iPhone X helped increase the iPhone's average selling price (ASP) to $724, which was well above expectations.

It turns out Apple doesn't necessarily need to sell more phones each year to keep its wild profits flowing. It just needs to create a version that's worth spending more on.

But things are going to change this year.

According to numerous reports, Apple will announce three new iPhones based on the iPhone X design on Wednesday. That means we've seen the last of new iPhone models with a home button and large, chunky borders around the screen, like last year's iPhone 8. Starting this week, all iPhones will look like the iPhone X for the foreseeable future.

It also means Apple will probbly tweak its pricing scheme to reflect the fact that paying a premium for a futuristic phone no longer makes sense.

According to a June report obtained by MacRumors and written by Ming-Chi Kuo, an analyst at TF International Securities who is almost always accurate with his Apple gadget predictions, the successor to the iPhone X will start between $800 and $900 instead of $1,000. There will also be a larger version of the phone, the so-called iPhone Xs Max, that will start between $900 and $1,000. And the new entry-level model with a cheaper, 6.1-inch LCD screen, will cost between $600 and $700

If Kuo's pricing predictions hold up, that gives Apple the opportunity to keep growing iPhone profits through the $1,000 jumbo-sized iPhone X model, while growing overall unit sales through the two cheaper models. A discounted new version of the iPhone X will seem like a steal at $900, compared to its current price. And the LCD model will look especially enticing at $700.

More details in https://www.cnbc.com/2018/09/11/iphone-x...price.html

[Kaimin]

Valuebuddies here have no doubt been exposed to a lot of hype as to the prospect of the Internet of Things (IoT) and how many people claim it's the next huge thing. As someone with some experience in the field and value investing, I think I can provide a more rational and factual perspective on this industry than "it's the next Facebook". I choose to write this here because I think Apple is both an excellent example and the best company to make money in this field. Mind you, this isn't a recommendation to buy the stock - IoT makes up a fraction of Apple's revenue. But this will shed light on one of Apple's business segments.

What is IoT? The technology itself is nothing new. Wireless transmission of commands to devices have been around since remote TVs. But from a technical definition, the first widespread commercial IoT devices just came around the a decade ago, with the most well known probably being printers you can print from your computer. Lots of us probably have them, printers we connect to our WiFi and appear as a device on our network. And that's all IoT really is, a device connecting to the Internet. This part might mislead investors - the Internet here does not mean the world wide web, but rather being able to communicate on a wireless computer network, using the same protocols and frequencies computer networks use. But as we know, IoT printers did not make HP Inc fabulously successful and a multibagger. 

The technology itself is practically primitive by industry standards. Hell, you can buy a Raspberry Pii, a USB light bulb and a WiFi USB adapter for $15 and boom, you have what is technically an IoT device. Every Tom, Dick and Harry company can cobble together an IoT device. And the practical benefit of it is pretty small - no one is going to pay much money for a light bulb they can turn on with their phone. No, the real benefit of IoT is something that IoT people rarely mention. Instead of talking about smartphone controlled coffee machines and door locks, they should be talking about what happens when you seamlessly integrate many IoT devices. The best example of this right now is Apple. An AppleTV for example, can connect to your iPhone and play high-def YouTube or personal videos. Then you can connect the TV to your AirPods and play sound straight to it. Then if you feel like doing some work, you can load your Mac to the AppleTV and turn on iTunes. That's where, I think, the value of IoT lies. If Apple could only do one of those things, it would just be a mild convenience. But together, there's a multiplicative effect of the benefit. More than that, there's a network effect where owning any single product then makes other Apple products more attractive. It's what is going to differentiate Apple from HP. 

From a technical standpoint, this is not easy to achieve. What you need to do to achieve this kind of versatile ability of multiple wholly different devices integrating is a ground up software framework that lets them all communicate with each other where every system has to be, from the start, built to comply with this framework. Few companies have shown this kind of excellent software development skills and hardware integration, the most well known of which is Apple. Microsoft, Huawei and Google are also on this list. This is a field which Apple absolutely dominates because it has complete control over developing all iOS devices. Its only competitor, Android, is an open source OS developed by Google which every vendor that sells it (Oppo, Huawei, Samsung) implement their own way. Because each company tries to differentiate itself, each implementation of Android has a slightly different OS built for the specific hardware that it's company has. This causes a security problem called fragmentation, where the distributed nature of Android makes it a lengthy process to patch newfound vulnerabilities because it goes through each vendor to test and implement, if they bother implement it at all. It's pretty easy to have the Android device control one IoT device - lots of apps on the app store for that - but the kind of seamless integration Apple has, in both software and UI/UX, is on a whole other level. The failure of the Wear OS backs this up.

The UI/UX is also another key factor. This is a qualitative, not technical, opinion, but I think users need to be "nudged" towards using IoT. Partially because a lot of what IoT does could be done somewhat messily, like say plugging your headphones into an adapter then to a TV. And partially because consumer trends are not based purely on practicality but on perception which is influenced by marketing. Like the iPod, which while functionally equivalent to a Creative ZEN, sold infinitely better. This kind of brand marketing Apple also excels at. 

So right now I think Apple has vast moats in the IoT business. But what could threaten these moats? That's any other company - or group of companies - that can produce such a seamless, integrated IoT experience. Does any such competitor exist, or will exist? I find it highly unlikely. The first reason being IoT needs a device to control everything. That means you already have to be already selling to your future IoT customers something they already use. Presently, that's either iOS or Android. Windows might be a competitor, and it doesn't suffer from fragmentation like Android. But Windows has the twin fatal weaknesses that it is almost purely a software company whose entire business model is based on software and that has little experience developing hardware (other than the Xbox), and that computers are far less versatile than a smartphone. I can't imagine someone lugging a laptop around to listen to music on the train, or even connecting to a TV when a large computer screen does the same thing. 

Google could conceivably rival Apple. While the Android OS is fragmented, the Google Pixel is under full control of Google. But the Pixel has a tiny market share - less than 1% of the market - and has a very bad track record of developing hardware. I mentioned Google above as a company with the excellent software and hardware integration, I should clarify I mean this is a basic prerequisite to becoming a successful IoT company, not that these companies will be successful. 

Open source IoT frameworks might threaten these moats. Both Apple and Android have released software frameworks, respectively HomeKit and Android Things. But this is essentially a standardised way for devices to communicate with smartphones. They are equivalent to a HP printer app rather than the seamless IoT experience Apple provides. 

But above all this is what I strongly believe will be the snowballing nature of the future IoT business. Because these devices all use proprietary protocols, it's the opposite of an open source system. So consumers will be forced to pick between mutually exclusive IoT systems. And the network effect mentioned above means that if you buy one IoT capable device, you're more likely to buy another, and another. Given that the cost of replacing an IoT system is going to be huge - much more than each device - it means there will be very high brand loyalty. And the more people that use Apple's IoT system, the more their friends and family will have incentive to join, although I think this is a much smaller effect. I personally have never bought an iPhone because my friend had one. 

This may be less of a windfall to Apple than it sounds because Apple still needs to manufacture the products. Say, if it wants to make ApplePrinter, it needs to go against HP, Canon, Brother Industries et cetera. So while it has this indisputable IoT edge, it is effectively entering into various parts of the consumer electronics industry which it has no experience in. Apple has had unusual success in the past in developing high quality hardware with large margins and vertical integration, but it is not guaranteed this will translate to other, possibly very different products. Tim Cook has also said Apple will be focusing on software and services to drive growth. The growth of its IoT segment is virtually unpredictable as it relies on the prices, margins and popularity of it's entirely new IoT products. Potentially but not realistically this includes most consumer electronics.

Again, this is not a recommendation to buy Apple. IoT devices are a fraction of Apple's business. It's quite certain Apple has huge moats in the future IoT industry, but whether this will translate into growth is a whole other question. In short, it has huge moats, but in a very tiny segment.

[Choon]

Valuebuddies here have no doubt been exposed to a lot of hype as to the prospect of the Internet of Things (IoT) and how many people claim it's the next huge thing. As someone with some experience in the field and value investing, I think I can provide a more rational and factual perspective on this industry than "it's the next Facebook". I choose to write this here because I think Apple is both an excellent example and the best company to make money in this field. Mind you, this isn't a recommendation to buy the stock - IoT makes up a fraction of Apple's revenue. But this will shed light on one of Apple's business segments.

What is IoT? The technology itself is nothing new. Wireless transmission of commands to devices have been around since remote TVs. But from a technical definition, the first widespread commercial IoT devices just came around the a decade ago, with the most well known probably being printers you can print from your computer. Lots of us probably have them, printers we connect to our WiFi and appear as a device on our network. And that's all IoT really is, a device connecting to the Internet. This part might mislead investors - the Internet here does not mean the world wide web, but rather being able to communicate on a wireless computer network, using the same protocols and frequencies computer networks use. But as we know, IoT printers did not make HP Inc fabulously successful and a multibagger. 

The technology itself is practically primitive by industry standards. Hell, you can buy a Raspberry Pii, a USB light bulb and a WiFi USB adapter for $15 and boom, you have what is technically an IoT device. Every Tom, Dick and Harry company can cobble together an IoT device. And the practical benefit of it is pretty small - no one is going to pay much money for a light bulb they can turn on with their phone. No, the real benefit of IoT is something that IoT people rarely mention. Instead of talking about smartphone controlled coffee machines and door locks, they should be talking about what happens when you seamlessly integrate many IoT devices. The best example of this right now is Apple. An AppleTV for example, can connect to your iPhone and play high-def YouTube or personal videos. Then you can connect the TV to your AirPods and play sound straight to it. Then if you feel like doing some work, you can load your Mac to the AppleTV and turn on iTunes. That's where, I think, the value of IoT lies. If Apple could only do one of those things, it would just be a mild convenience. But together, there's a multiplicative effect of the benefit. More than that, there's a network effect where owning any single product then makes other Apple products more attractive. It's what is going to differentiate Apple from HP. 

From a technical standpoint, this is not easy to achieve. What you need to do to achieve this kind of versatile ability of multiple wholly different devices integrating is a ground up software framework that lets them all communicate with each other where every system has to be, from the start, built to comply with this framework. Few companies have shown this kind of excellent software development skills and hardware integration, the most well known of which is Apple. Microsoft, Huawei and Google are also on this list. This is a field which Apple absolutely dominates because it has complete control over developing all iOS devices. Its only competitor, Android, is an open source OS developed by Google which every vendor that sells it (Oppo, Huawei, Samsung) implement their own way. Because each company tries to differentiate itself, each implementation of Android has a slightly different OS built for the specific hardware that it's company has. This causes a security problem called fragmentation, where the distributed nature of Android makes it a lengthy process to patch newfound vulnerabilities because it goes through each vendor to test and implement, if they bother implement it at all. It's pretty easy to have the Android device control one IoT device - lots of apps on the app store for that - but the kind of seamless integration Apple has, in both software and UI/UX, is on a whole other level. The failure of the Wear OS backs this up.

The UI/UX is also another key factor. This is a qualitative, not technical, opinion, but I think users need to be "nudged" towards using IoT. Partially because a lot of what IoT does could be done somewhat messily, like say plugging your headphones into an adapter then to a TV. And partially because consumer trends are not based purely on practicality but on perception which is influenced by marketing. Like the iPod, which while functionally equivalent to a Creative ZEN, sold infinitely better. This kind of brand marketing Apple also excels at. 

So right now I think Apple has vast moats in the IoT business. But what could threaten these moats? That's any other company - or group of companies - that can produce such a seamless, integrated IoT experience. Does any such competitor exist, or will exist? I find it highly unlikely. The first reason being IoT needs a device to control everything. That means you already have to be already selling to your future IoT customers something they already use. Presently, that's either iOS or Android. Windows might be a competitor, and it doesn't suffer from fragmentation like Android. But Windows has the twin fatal weaknesses that it is almost purely a software company whose entire business model is based on software and that has little experience developing hardware (other than the Xbox), and that computers are far less versatile than a smartphone. I can't imagine someone lugging a laptop around to listen to music on the train, or even connecting to a TV when a large computer screen does the same thing. 

Google could conceivably rival Apple. While the Android OS is fragmented, the Google Pixel is under full control of Google. But the Pixel has a tiny market share - less than 1% of the market - and has a very bad track record of developing hardware. I mentioned Google above as a company with the excellent software and hardware integration, I should clarify I mean this is a basic prerequisite to becoming a successful IoT company, not that these companies will be successful. 

Open source IoT frameworks might threaten these moats. Both Apple and Android have released software frameworks, respectively HomeKit and Android Things. But this is essentially a standardised way for devices to communicate with smartphones. They are equivalent to a HP printer app rather than the seamless IoT experience Apple provides. 

But above all this is what I strongly believe will be the snowballing nature of the future IoT business. Because these devices all use proprietary protocols, it's the opposite of an open source system. So consumers will be forced to pick between mutually exclusive IoT systems. And the network effect mentioned above means that if you buy one IoT capable device, you're more likely to buy another, and another. Given that the cost of replacing an IoT system is going to be huge - much more than each device - it means there will be very high brand loyalty. And the more people that use Apple's IoT system, the more their friends and family will have incentive to join, although I think this is a much smaller effect. I personally have never bought an iPhone because my friend had one. 

This may be less of a windfall to Apple than it sounds because Apple still needs to manufacture the products. Say, if it wants to make ApplePrinter, it needs to go against HP, Canon, Brother Industries et cetera. So while it has this indisputable IoT edge, it is effectively entering into various parts of the consumer electronics industry which it has no experience in. Apple has had unusual success in the past in developing high quality hardware with large margins and vertical integration, but it is not guaranteed this will translate to other, possibly very different products. Tim Cook has also said Apple will be focusing on software and services to drive growth. The growth of its IoT segment is virtually unpredictable as it relies on the prices, margins and popularity of it's entirely new IoT products. Potentially but not realistically this includes most consumer electronics.

Again, this is not a recommendation to buy Apple. IoT devices are a fraction of Apple's business. It's quite certain Apple has huge moats in the future IoT industry, but whether this will translate into growth is a whole other question. In short, it has huge moats, but in a very tiny segment.

Thanks Kaimin much for the insights and detailed explanation. 

I would think that the IoT-ecosystem advantage of Apple is already fully/substantially reflected in its current business performance, that it has helped to build stickiness and price premium towards Apple's products.

Continuing on this IoT-ecosystem advantage, I think what could be interesting for Apple is whether this advantage can help Apple to build a dominant position in AR and AR glasses. What do you think?

[weijian]

Talking about IoT, remind of the recent good article by Stratechery summarizing the state of affairs for the battle for the home (Amazon vs FB vs Google vs Apple)

The Battle for the Home

If the first stage of competition in consumer technology was the race to be the computer users went to (won by Microsoft and the PC), and the second was to be the computer users carried with them (won by Apple in terms of profits, and Google in terms of marketshare), the outlines of the current battle came sharply into focus over the last month: what company will win the race to be the computer within which users live?

https://stratechery.com/2018/the-battle-for-the-home/

[Kaimin]

Thanks Kaimin much for the insights and detailed explanation. 

I would think that the IoT-ecosystem advantage of Apple is already fully/substantially reflected in its current business performance, that it has helped to build stickiness and price premium towards Apple's products.

Continuing on this IoT-ecosystem advantage, I think what could be interesting for Apple is whether this advantage can help Apple to build a dominant position in AR and AR glasses. What do you think?

I can't say, and I think no one else on Earth correctly tell you. Yes, Apple has an undisputed IoT advantage, which if it does ever make AR or AR glasses it will deploy. But the material impact on earnings which will be based on what it does, how many people buy it and so on. That no one can say. But in the future, Apple plans to grow by expanding its services segment, which has made up most of the growth in recent years. This is its iTunes, App store, Apple Pay and so on.

[weijian]

Apple’s Errors

The good news for Apple is that, to the extent these errors really were predictable, there is nothing structurally different about the company’s competitive position today versus six months ago, when the current stock slide began.

The next iPhone hardware revision should sell better in China, simply by virtue of being new (and the implication of it being easy to switch away from iOS is that it’s easy to switch back).

Customers still prefer Apple’s flagship iPhones, no matter how expensive they are.

Headwinds like currency and battery replacement programs will go away, and phones, thanks to their centrality in people’s lives as well as the greater likelihood of harm, will always have a faster replacement cycle than PCs.

https://stratechery.com/2019/apples-errors/

[specuvestor]

I frowned on the pricing on the Apple X. They were trying to test price elasticity

IMHO XR should have been iPhone 9 and priced vs iPhone 8 rather than iPhone X

Feels like 1980s again when they are priced out of the middle class. If they refuse to change strategy, I think Apple should be reval, as a yield stock rather than a growth stock as developing markets are not going to have mass market following vs when the days iPhones were US$199 after carrier subsidy (no typo)

[weijian]

New money making revenue for Apple. The Netflix of news.

The Cost of Apple News

Apple Inc.’s plan to create a subscription service for news is running into resistance from major publishers over the tech giant’s proposed financial terms, according to people familiar with the situation, complicating an initiative that is part of the company’s efforts to offset slowing iPhone sales. In its pitch to some news organizations, the Cupertino, Calif., company has said it would keep about half of the subscription revenue from the service, the people said. The service, described by industry executives as a “Netflix for news,” would allow users to read an unlimited amount of content from participating publishers for a monthly fee. It is expected to launch later this year as a paid tier of the Apple News app, the people said.

https://stratechery.com/2019/the-cost-of-apple-news/