Apple’s Launch – The Good, the Bad and the Ugly (truth)
[P]Apple’s September 9[sup][SIZE=2]th[/SIZE][/sup] product launches were much hyped before the event and have generated more commentary than any other technology launch this year and likely since Apple launched the original iPad in 2010.[/P][P]We are adding to the commentary with this blog. We will spare you repetitious details about the product’s specifications; there are hundreds of places where those are being minutely analyzed. What we will try to do is net-out key points and what they mean – both to Apple and to other players in the industry.[/P][P][B]The Good[/B][/P][ul][li]Bigger screens – 4.7” to 5.5” bracket current smartphone sweet spots[/li][li]Refreshed industrial design – gone are the hard edges and flat blocky shape[/li][li]Improved battery life – the 6+ might last a day of moderate to heavy use without recourse to a recharge[/li][li]Camera image processing – OIS and 240fps slow mo are interesting features[/li][li]NFC – at last and more importantly Apple Pay which will inject life into North American contactless payments.[/li][li]Apple Pay itself will likely be more important as a means of driving transactions more broadly – not just as an in store credit/debit card substitute. Apple is opening the API for app developers to embed Pay into apps.[/li][li]The Apple Watch with its beautiful design and intuitive new UI legitimizes the smart watch category[/li][li]The Watch UI may prove to be a master stroke – time will tell.[/li][li]iPhone 5S and 5C come down in price – Apple now has something approaching a range that spans premium to high mid-range price points.[/li][/ul][P][B]The Bad[/B][/P][ul][li]iPhone 6 and 6+ barely catch-up with price comparable Android and Windows Phone products from a hardware perspective.[/li][li]Battery life on 6 likely remains a weakness[/li][li]On paper an 8MP sensor looks sub-par. In reality it’s enough, but perceptions count.[/li][li]Pay uses proprietary technology. While the list of initial partners is long – merchants, banks and other stakeholders will shy away from proprietary standards.[/li][li]Pay will work in the US for NFC payments, but likely not for some time in Europe where contactless cards are widespread and where the banking and merchant infrastructure is highly fragmented.[/li][li]iPhone 6+ looks conspicuously expensive – likely to create a logical price range and to limit competition with iPad Mini.[/li][li]Watch – while undoubtedly beautifully designed and executed – still seems to lack a true purpose, in common with many other so-called smart watches.[/li][li]Watch is unlikely to replace the Swiss timepiece for the older generations and is too expensive to entice millennials, Gen X and Gen Z to start wearing watches.[/li][li]Watch at $349 is relatively expensive compared to other smartwatches but not that expensive as a watch. And we can expect the average price of the Watch to be much higher than $349 with some versions many times that price.[/li][li]Expect battery life on Watch to be a real issue – especially for committed sports users who refer to the screen frequently.[/li][li]Giving away a U2 album highlights how much Apple has missed the shift in music consumption.[/li][/ul][P][B]The Ugly (truth)[/B][/P][ul][li]So a couple of days after an (at times) exciting launch event, the dust has settled, what have we learned and what should we expect going forward?[/li][li][B]Has Apple done enough to keep its existing customers and ensure they upgrade from previous versions of iPhone?[/B] Yes – just about.[/li][li][B]Has Apple done enough to seduce users from Android – particularly Samsung users?[/B] Partly. We think Apple will achieve a net gain in share with Samsung likely the biggest loser.[/li][li][B]Will Watch succeed where other smart watches have failed?[/B] Apple will sell many millions of its Watch product. For many this will likely be because of the artefact not because of any particular use case or problem that the product solves. Apple would be wise to keep supply limited initially.[/li][li][B]Will the new products materially impact Apple’s financial position?[/B] Apple is dramatically increasing the number of SKUs it’s offering. This adds complexity and therefore cost to the demand and supply process. iPhone 6+ will likely cannibalize the iPad Mini. However the net impact is likely positive because we believe 6+ margins are better than iPad Mini. The financial case for Watch is less clear. Sales will be good, but costs are likely relatively high given the premium materials and supply chain complexity, initially at least. However we only know the starting price is $349 – the most expensive Watch will be priced far above the starting price, so margins across the product line will most probably be excellent.[/li][li][B]And will Pay drive a new revenue stream?[/B] If successful, and we’ve no reason to believe it won’t be in the US, Pay will generate massive volumes of transactions, each earning Apple fractions of cents. However the margins will be extremely high likely >90%, so over time it is likely to become a material source of income for Apple.[/li][li][B]How many iPhones will Apple ship? [/B]We expect Apple to ship (sell-in not production) 40M iPhones in 3Q14 and 60M in 4Q of which the new iPhone 6 and 6+ will comprise 65% of the shipments. The iPhone 6+ will be slightly delayed so the majority of shipments for the iPhone 6+ might be in Q1 2015.[/li][li][B]Should other players be concerned?[/B] Samsung needs to take a long hard look at its portfolio. [B]Galaxy S5[/B] has not been as successful as it should have been. [B]Note 4[/B] is good but not a game changer. [B]Note Edge[/B] brings something new to the sector but may bring problems too – how strong is that curved glass if dropped on its edge? However Samsung and other leading Android players, should be relieved that Apple hasn’t improved its hardware performance even further. Nevertheless all players have to contend with lower pricing on the [B]iPhone 5S[/B] and [B]5C[/B] – both will eat into the mid-range segments. The Watch shows what can be done in terms of thoughtful, creative UI design. It highlights that Samsung’s Gear S Tizen-based UI is uninspired.[/li][/ul]