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Tales From The Future. I picked my nickname because many advisors and investors claim they can predict the future of the (stock) markets and somehow pick the winners. I don't. I usually do not engage in short-term trading and myopic analysis (quarter by quarter, without looking at the big... More
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  • State Of Apple (Post WWDC 2014) 7 comments
    Jun 3, 2014 8:55 AM | about stocks: AAPL, NFLX

    Since I already wrote several Instablogs on Apple, I will just present an outlook for the next 6-12 months in the following three areas:

    • Hardware
    • Services (or rather "Platform" / "Ecosystem")
    • (Potential) Acquisitions

    1. Hardware

    Following the various SDKs and initiatives I stick to my past predictions that Apple will announce (in addition to important updates like an iPhone 6 with bigger screens) two new products, the first being a completely revamped Apple TV and the second one the iWatch.

    I see Amazon's new Fire TV device as a good indicator where the Apple TV box might be headed in the near future.

    The Apple TV could serve as both a casual game console (eating even further into sales of other family-friendly consoles like Nintendo) and an updated media player. It could also serve as a hub for some basic home automation functions coming in iOS 8.

    (Apple might also extend the Apple TV line. A basic updated device acting as a media player retaining the current sub-$100 price point and a more expensive version incorportating gaming and home automation functionality).

    I already discussed the iWatch in earlier articles back in 2013, please read that article for more details. Please note that while iWatch is the product rumor most people talk about, "Wearables" is potentially a much broader product category (for example smart headphones, smart belts or smart necklaces**).

    2. Services

    While Apple has somewhat struggled in the past between tight control, security on one hand and openness/third-party access on the other, iOS8 opens a new chapter tilting the needle in favor of third parties.

    We saw various new SDKs and offerings opened up for third-party developers (for example, Touch ID for user identification or iCloud Drive for file access and exchanges) at WWDC 2014.

    At the same time, Apple is offering important new services, creating a seamless 24/7 experience and lock-in for its user base:

    - CarPlay (already available on some cars and third-party audio kits)

    - HomeKit (Home automation, possibly including the future iWatch)

    - Health and HealthKit (Health/Fitness for the iWatch and third-party devices)

    Add rumored mobile payments and local orientation/navigation services (iBeacon serving as "augmented reality" and local push messaging systems) to that and it is becoming clear very few companies will be able to match Apple's eco-system on a global basis.

    Apple may be even moving into Search or at least act as a gatekeeper for Search, widening its options and lessening its dependence on Google (see the Spotlight demos where Google is bypassed completely in many occasions: www.apple.com/ios/ios8/spotlight/ ).

    CNet summed up this lock-in coupled with more access in some areas very well:

    With iOS 8, Apple opens its garden, but keeps thorns sharper than ever

    (...)

    The strategy on display is a two-fold assault. Apple wants to be as friendly and accommodating as it can be to its developer community of more than 9 million coders and established companies with which it has a symbiotic relationship. But the iPhone maker is also being overtly clear concerning the app areas in which it wants to squash competitors big and small -- namely messaging and personal media, which also includes cross-device sharing and storage for files.

    ( Source: www.cnet.com/news/apple-opens-garden-wit.../ )

    3. Acquisitions

    Moving beyond Beats, some analysts are thinking Apple will now make similar big moves in video and gaming. The two "big N" were mentioned as potential targets for AAPL (namely Netflix and Nintendo) long before the Beats acquisition by various pundits.

    I don't think either is plausible: Nintendo for cultural reasons and its huge cash hoard (making it very difficult to be acquired) and Netflix for valuation and content/supply deal reasons. While AAPL could of course afford NFLX the price would be at least 10x (north of $30 billion) what it paid for Beats Music and Beats Electronics.

    Video streaming and access rights are very balkanized and margins aren't that good, see here for NFLX profit margins:

    ycharts.com/companies/NFLX/profit_margin

    NFLX has a myriad of agreements in place with various hardware manufacturers and Apple would have to cut/end these deals over time.

    I also don't think Apple wants to dabble with content creation (a new area where Netflix and its competitors are moving into, often accepting that segment - and live sports events- as a loss leader.)

    I therefore think the Beats deal was an anomaly to the usual rule of Apple buying smaller tech companies (also, many people would have guessed Apple buying the leader in streaming music, e.g. Spotify or Pandora. Should history repeat itself Apple may well go for a smaller company in the video streaming business or one focused on discovery/content curation rather than the "big fish" Netflix).

    Let's also point out that while Beats was the largest acquisition Apple ever made, Beats "only" has about 550 employees and is a private company, making the M&A and cultural integration into Apple easier.

    Summary: I see very strong 6-12 months ahead for Apple if it introduces devices as discussed in 1. and can introduce the services as outlined in 2. without major hiccup (e.g. no major problems as with the introduction of MobileMe or the first Maps release in iOS 6).

    My post-split price target for AAPL stock remains $100-125.

    I reserve ultimate judgment about detailed price targets and timeframe until I see the pricing and functionality of the new Apple TV and the iWatch (there are wild rumors all over the place about iWatch pricing with some even thinking Apple will go into luxury watch territory for the high-end iWatch iterations*).

    _______

    * One very important stumbling block for wearables remains battery life. I think Apple could introduce a novel idea such as solar (but solar is still too weak, it may only help extend iWatch battery life) and wireless charging. Progress was made in this area in the past years, see e.g. here: techcrunch.com/2013/09/09/cota-by-ossia-.../ (I'm not implying this company will be chosen, this is just an example on the state of R&D in wireless charging for consumer electronics. Also see my previous entry on low-power screen company Luxvue acquired by Apple, this went largely unnoticed by media: seekingalpha.com/instablog/5760541-tales... ).

    ** Post the Beats acquisition, Apple could for example add fitness and 3D sensors to the large Beats headphones - in addition to other accessories like smart belts etc.; the iWatch worn as a wristwatch is just one possibility (and most rumors point to a smartwatch in two sizes, one for men and one for women. As with the iPod family, the wearables product category could be extended over time).

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.

    Additional disclosure: I'm out of the stock for the moment and will reload in summer as I expect temporary weakness (due to fickle investors who anticipated too much at WWDC 2014 including new hardware).

    Themes: apple, wearables, apple tv Stocks: AAPL, NFLX
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Comments (7)
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  • Tales From The Future
    , contributor
    Comments (4956) | Send Message
     
    Author’s reply » Since there was no sell-off post WWDC, I bought back a small position around $635 shortly after publishing this article. I may increase the position should AAPL fall in the summer months.
    3 Jun, 09:51 AM Reply Like
  • inside man 55
    , contributor
    Comments (778) | Send Message
     
    I agree the iWatch and Apple TV are coming later in the year.

     

    I like your thought process but I feel these are not the only new hardware we can look forward to. Perhaps not immediately, but Beats can turn into another iWearable category. We can look forward to iBands, iBelts, and iClothing. and iShoes.

     

    With the introduction of HomeKit Apple can produce its own master control unit which keeps track of everything in the house (similar to an alarm system but better). The app can access the master control to get a quick summary of everything. This same technology could be used in companies but I bet the margins are lower. This might be a new product no one has ever thought of but why not?

     

    What are your thoughts on some of the ideas above? And this doesn't preclude more software innovation. I bet we see a lot more of that.
    3 Jun, 03:39 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4956) | Send Message
     
    Author’s reply » "...iWearable category. We can look forward to iBands, iBelts, and iClothing. and iShoes."

     

    I agree. But it will probably take several years, just like with the iPod family that started with a single device. Apple will most probably start with one device (two sizes for men and women) on the wrist and then extend the category.

     

    As I wrote earlier, I expect wearables to completely replace /take over the iPod line over time (iPod revenue is already down to almost neglible in Apple's total revenue).

     

    "HomeKit"

     

    Apple will maybe need a stationary hardware device over time. It could be an extended AppleTV or Airport device - because few people will want to run their computers 24/7.

     

    Compared to wearables, I expect a slower start (revenue-wise) for this home category. It could be similar to CarPlay with little direct revenue potential for Apple.

     

    But there have been interesting devices in this category like the one from start-up Canary:

     

    http://bit.ly/1hdqf1z

     

    Maybe Apple will go for a small company in this space over the next years.

     

    As for software, there was a good summary from Macworld. I agree 2014 was the most packed WWDC for developers in years:

     

    "The ways Apple is opening up app access to iOS in particular will change the experience for users more than any single OS feature. And it will happen in unexpected ways, because those developers are very, very clever, and tend to think of approaches that nobody—not even the people at Apple who enable them—has anticipated."

     

    http://bit.ly/1p8JhGN

     

    PS: The third major initiative that had to wait this year could be mobile payments. Apple is not in a hurry here. It will be interesting to see if Apple (finally) adopts NFC (in addition to iBeacon) in the iPhone6. That could give a hint about how and when mobile payments are introduced. There have been so many false rumors about NFC in Apple devices over the past five years that I will only believe it when I see NFC in the iPhone6.
    In general, mobile payments looks more like a 2015 or later initiative. Apple has a lot on its plate before that (Health, Home...).
    5 Jun, 02:46 AM Reply Like
  • inside man 55
    , contributor
    Comments (778) | Send Message
     
    <iWearable>

     

    Yes, the ramp up will be slow for iWearables. But if we look at the recent fashion hires it also makes more sense. I read somewhere that sapphire spun into fibers can be used to capture heat and turn it into electricity. That was one of the reasons for mentioning iClothing. They should probably create a kids size iBand also, bet it would be very popular with families.

     

    <HomeKit>

     

    This Canary device is very fascinating. I just recently bought a monitoring camera but for $50 more I would have gladly bought one of these. It has the potential to upend the traditional alarm business. All it would need for me is the ability to summon police, fire, or ambulance services and I would seriously consider switch. Some nice to haves would include a backup battery, smaller form factors with less sensors, ability to mount the devices so they tap into the home's power grid, audio commands, and ability to disable the device from sending an automatic alarm similar to current alarm systems.

     

    I agree if Apple were to go the hardware route this company or building something similar would be the way to go. From the proliferation of cable and telephone companies entering this field it seems alarm monitoring has high margins.

     

    <Software development>

     

    That's an excellent quote and I fully agree developers will go crazy with the new features and extend the platform in ways not previously considered. I am considering learning Swift myself. Even though Apple is late with extensions I like the approach. It leaves the possibilities up to the developers, which requires less maintenance on Apple's part, and allows Apple to tap into the creativity of millions of individuals.

     

    <Mobile payments> I agree here with a twist, the movement to Touch ID for Apple, then Touch ID for third parties seems deliberate in the goal of mobile payments. They are slowly introducing these features, thinking it through, allowing people to become familiar with the idea of using their bio information to secure items. Once the idea is accepted it is easy to make the next leap and have your fingerprint pay for anything. That gives them plenty of time to get other companies on board, work out the details, add more iBeacons and bring security to the necessary level. I bet the iPhone 6s will launch with mobile payments, allowing the 5s and 6 to join the party. Having a large pool of devices able to use mobile payments makes it easier to sell to the public.
    5 Jun, 11:00 AM Reply Like
  • inside man 55
    , contributor
    Comments (778) | Send Message
     
    Here are other areas where they can continue to grow into:

     

    1) Search - the switch on Siri and Spotlight allows Apple to build more experience tuning their own search engine. The goal has to be to replace Google wherever possible.

     

    2) DSLR's - a contributor posted the item today. If the iPhone 6 does allow attachable lenses this might be the next camera market to fall.

     

    3) Extending iCloud Drive - The new plans are a great start. Now that Apple is committed they will continue to add features making the cloud easier to use, again competing with Google.

     

    4) Continued assault on the enterprise - Some of the features added at WWDC were to make things easier for enterprise. I see that continuing with new devices and services that make it easier and more productive for companies to use Apple products.

     

    5) Switch from x86 to ARM for Macs - This is coming. Switching to ARM has two main advantages for Apple, they control the product schedule and lower cost. If they can get the performance up to speed this is a definite. Already rumors are swirling Apple tested out quad and dual-quad core versions of the A-series chips in lower end Mac's.

     

    6) Streaming music - The acquisition of Beats shows Apple's interest in this segment. This goes directly to Apple's creative soul.

     

    7) Wireless power charging - I would love to see this on a grand scale. Intel had a demo of a laptop with this property.

     

    I think we have covered everything else (CarPlay, HomeKit, HealthKit, iWearables, Apple TV, mobile payments). Enough to keep Apple busy for some time.
    5 Jun, 11:42 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4956) | Send Message
     
    Author’s reply » Thanks for the long and interesting inputs.

     

    "Wireless power charging - I would love to see this on a grand scale. Intel had a demo of a laptop with this property."

     

    Yes, Intel is apparently on track to introduce this as part of the Skylake platfrom in 2015-2016:

     

    Intel shows off new 'Skylake' platform with wireless charging, docking

     

    http://bit.ly/1mjtXDg
    6 Jun, 09:33 AM Reply Like
  • inside man 55
    , contributor
    Comments (778) | Send Message
     
    You are welcome, thank you for taking the time to read my long posts.

     

    It would be a real coup if the new 12" MacBook Air with Retina introduces wireless charging first.

     

    Everyone thinks Intel and Apple gets along fine. I disagree. Apple is a small portion of Intel's business. PC vendors are Intel's big clients. The same article shows an Intel exec comparing the 'Skylake' platform with the MacBook Air platform. Why would Intel antagonize Apple? I have to think that will rub Apple execs the wrong way. Let's not mention that we are comparing a platform coming next year to a platform last updated two years ago. Apple will definitely slim down their platform when they update the design of the MacBook Air.

     

    I think the secret weapon here is AMD. AMD is the only vendor that can and wants to produce x-64 and ARM chips. AMD is revising their server chips to run ARM. It is not inconceivable to me if AMD gets their act together Apple completely replaces Intel with AMD chips on the medium to high end (iMac / MacBook Pro /Mac Pro) and their own A-series chips in the MacBook Air while they move up the ladder chain.

     

    AMD has excellent x86 graphics. For Graphics Apple could use the APU's or the Radeon's. AMD has already shown they will give Apple what they want on the Mac Pro graphics and OpenGL. Jim Keller, the technical lead for the A-series, left for AMD. If he shares what Apple wants in their high-end PC and server chips AMD will do it if they can get that business. AMD has already disclosed their new server chip will be a custom ARM variant.
    6 Jun, 10:58 AM Reply Like
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