Tag: This

This Time It Matters: Why Apple Is Falling

Preface
Apple Inc (NASDAQ:AAPL) is dropping hard after its event to announce the new series of hardware, in particular the new iPhone 8, 8 Plus and X as well as the Apple Watch 3.

It’s Different This Time
Normally when Apple stock dives on lukewarm product reviews we stand firmly in our position that the stock market reaction is over blown. Our simple thesis for that response is to look at demand, which is hypnotically strong, every time. That is not the case this time.

A New Risk is Not Obvious But is Enormous
Apple announced a more complicated lineup of iPhones this time around. It introduced the iPhone 8 series which is an upgrade to the iPhone 7, and then it announced the highly anticipated iPhone X (pronounced iPhone Ten).

Then the company made the iPhone 8 available this month, but pushed delivery of iPhone X to early November, which pre-orders stating in late October. That has created a risk.

It turns out that Apple hyped the iPhone X so much, and poured so much new technology into it, that it has left the demand for iPhone 8 lackluster in Apple terms. Here’s what we mean.

If you go to the Apple Store, and try to purchase an iPhone 8, the wait time is essentially 1-3 days for the smaller memory version. Here is an image:

That is for the iPhone 8, in Los Angeles, on Verizon’s (NYSE:VZ) network. The other networks are essentially the same. A normal wait time for a new iPhone release is usually several weeks, let’s say 2-4 depending on where you are in the world.

There are also reports that in store lines are much smaller than before, with one report pinpointing Sydney Australia, where only 30 people were camped out for the new release. Reports from China are similar.

Here are links to two stories:

Turnout for iPhone 8 Launch in Australia “Bleak” as Customers Hold Out for Upcoming iPhone X
The iPhone 8 launch in Sydney saw “a bleak turnout,” reports Reuters, with fewer than 30 people lining up outside of the Sydney Apple Store on George Street. In past years, hundreds of people have lined up for new iPhones on release day.

Apple Falls After Analyst Report Indicates Weak iPhone 8 Demand
Consumers pre-ordered about 1.5 million handsets on Chinese retail website JD.com in the first three days, compared with about 3.5 million for the comparable period of iPhone 7 orders.

Tim Cook just said he “couldn’t be happier” with the iPhone release (and Apple Watch 3). While sales are lower than prior models, there is one reason, a big reason, that he may actually be telling the truth.

Is There a Plan?
One of the headlines that surfaced from the Apple Event was that the iPhone X was very expensive, starting at $ 999 and climbing to $ 1,200 based on the configuration.

It’s possible, maybe even likely, that Apple decided to release the iPhone 8 for less to make it appear that it was not forcing Apple loyalists to buy a far more expensive phone by offering a reduced priced new model (iPhone 8).

In fact, it does appear that even in the bearish analyst notes, each tends to comment on the fact that demand reduction for the iPhone 8 is simply a reflection of the outsized demand for the iPhone X.

If that’s true, then Apple will have an average selling price significantly higher than in prior times, and if demand is in fact to the point where Apple also sells more units, then that would bring a windfall of profits larger than any company has ever seen in one quarter. If that sound overly bullish, it’s just the choice of words — Apple already has the largest earnings ever in one quarter, so this would be a breaking of its own record — also known more simply as, “growth.”

Back to Risk
While there is a rather bullish narrative to wrap around this odd iPhone selection, there is also, in earnest this time, a reasonable bearish thesis.

Apple won’t be delivering its iPhone X until well into November, and if demand is very strong, it might not even be able to deliver before the holiday season in the United States. And while, certainly, if all of those sales simply occur later in the year (or early 2018), then that’s fine, but to consider that a foregone conclusion is a step we are not willing to take with blind faith.

Some consumers, perhaps many consumers, will not wait. And while Apple loyalists may stick around for a later date, the all-important “Android switchers” (those smartphone Android owners that switch to Apple) may not — and that is a real risk and worthy of a stock drop, until proven otherwise.

Apple’s market share in the United States is jumping as Android loses market share — an under reported but critical phenomenon. On January 11th, 2017, 9TO5Mac wrote iPhone market share grows 6.4% in USA, takes share from Android in most markets.

Apple gained 9.1% in the UK, mostly at the expense of Windows phones.

The iPhone grew its market share in Australia, France, Italy, Japan, Spain, the UK and USA, with Android seeing its own share drop in all of these countries bar Italy, where its growth was less than half that of iOS.

Those are Android switchers and Apple may have just put that group, or at least that trend, in serious jeopardy.

Now What?
We believe the iPhone X is going to be a knock-down drag-out mega hit, and the elevated price will make it yet an even larger success. But, the risk that Apple took, as of right now, is hurting the company both with iPhone 8 sales, and potentially, with Android switchers. And that is not a false narrative — it is accurate.

That risk means the stock should drop, and is dropping.

But, we’re not done yet. What we did not show you, and is easily missed unless you are really looking, is how hard Apple is focusing consumers on the iPhone X over the iPhone 8 — in our opinion.

I recorded a 45 second video arriving on the Apple Store and looking at iPhones. I have turned to video to allow you to make your own decision, as opposed to snapshots, which are too selective and an be used to weave any narrative the author likes.

When you watch this video (below), decide for yourself if you feel that Apple is purposefully pointing people to the iPhone X over the iPhone 8. Here we go:

That’s hardly headline grabbing footage, but we found it noteworthy.

Apple Watch 3
There have been some pretty poor reviews of the Apple Watch 3 surrounding its LTE connectivity and its battery life. This is one of those times where the reviews are meaningless. Demand is strong and that’s all that matters.

Here is a snapshot from the Apple Store for that product:

We see the Watch becoming a runaway success as people learn to use that wearable device as a standalone product — leaving the phone at home on runs, meetings, swims, hikes, and whatever other times such a convenience could be desired.

Conclusion
We maintain our Top Pick status on Apple, but have certainly tempered our bullishness with an undeniable new risk. It might work out very well, but, it might not, and that is a new risk to Apple stock.

The author is long shares of Apple Inc (NASDAQ:AAPL).

Thanks for reading, friends.

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Disclosure: I am/we are long AAPL.

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Waymo Partners With Intel, Tesla Kills a Model S, a Lawyer Debates the Trolley Problem and More This Week in the Future of Cars

Self-driving vehicles are well on the way to replacing human drivers. There are just a few problems. No one has a good idea of how to properly test or validate the tech. The hardware’s too expensive. The ethics of how the robots should behave in emergency situations remain unclear. No single company is in a position to upend the way people move about all on its own.

Tricky stuff, no doubt. But far from unsolvable, as this week’s raft of news will show you. Google’s self-driving car outfit shacked up with Intel to give its cars the brains they need to drive safely. A lawyer weighed in on how to answer the dastardly trolley problem, and Canadian researchers went after a more contemporary trouble: distracted driving. It’s been a busy week, and you probably missed a few things. So let’s get you caught up.

Headlines

Stories you might have missed from WIRED this week

  • You’ve probably heard of the trolley problem, the hypothetical scenario in which a self-driving car must choose the lesser of evils: say, crashing into an old lady and her granddaughter, or into a wall, killing its occupants. The latest take on this knotty ethical question comes in an opinion piece from Jay Donde, a Morrison Foerster lawyer who practices privacy and data security law. While some people think the courts will sort this out, Donde argues the opposite: that however we answer the problem will reshape American jurisprudence, reaching far beyond the automotive realm. So, think carefully.
  • Still broken up over the demise of Brangelina? Take solace in the world’s newest power couple, which we’re calling Waytel. This week, Waymo (a k a Google’s self-driving car company) announced that it is—and has been—working with Intel to acquire the powerful chips its robocars need to process gobs of sensor data and make driving decisions in real time. In a self-driving car industry that’s all about partnerships, Aarian Marshall explains, this duo is a new force to be reckoned with.
  • While Waymo and others race to ditch human chauffeurs, others hope to improve the way people drive now. Eric Adams brings us news of a bid to end distracted driving, which accounts for a staggering 80 percent of US road crashes. Researchers at the University of Waterloo say that by combining a few cameras with some pattern analysis and machine learning, they can detect when a driver isn’t paying attention. Spotting the problem doesn’t exactly solve it, Adams admits, but it’s a crucial step forward.
  • Say you’re not driving, you’re looking for a good way to distract yourself, and you have $ 3 to spare. Aarian Marshall humbly recommends Freeways, a new mobile game that lets you play traffic engineer. It’s not just mercilessly addictive. According to the pros, it’s pretty realistic too.
  • Whatever consumers think of electric cars, their governments seem to love the idea. Just this month, China, the world’s largest car market, announced a plan to ban the sale of gas- and diesel-powered cars, some time soon. The UK and France plan to do the same by 2040. Norway and the Netherlands are aiming for 2025, India (another enormous market) for 2030. It’s unclear how practical those plans are, but the world’s automakers have realized if they want to stay in business, they’ve got to adjust. And so at last week’s Frankfurt Motor Show, the industry offered a battery of electric car concepts, most of them clear indications of where their makers plan to go in the next few years. I took a look at the most interesting of the lot.

Puppy of the Week

This young husky, who appeared on stage at TechCrunch’s Disrupt conference in San Francisco this week, strapped to the chest of Sebastian Thrun. The AI expert, who launched Google’s self-driving car project in 2009, didn’t explain the dog. He did announce that his online education company, Udacity, is launching a “nanodegree” program for wannabe flying car engineers. And he noted that since Udacity started its self-driving car engineer course a year ago, it has enrolled more than 10,000 students eager to help build the future of transportation.

Required Reading

News from elsewhere on the internet.

  • To get a read on the coming age of autonomy, Renault did what any old-timer confused about technology tends to do: It asked the kids. The French automaker sponsored a student competition to imagine the car of the future. Top prize went to “The Float,” created by Yuchen Cai. It may look like an oversized marble, but Dezeen explains the levitating vehicle can link up with others of its kind, great for groups on the move.
  • Business Insider reports that Tesla is axing the cheapest version of its Model S sedan, the one with rear-wheel drive and a 75-kWh battery. As Tesla ramps up production of the $ 35,000 Model 3, it makes sense to create more separation between that affordable new model and its higher-end offerings.
  • A pair of former Apple engineers have unveiled a new kind of sensor for self-driving cars, a version of lidar that sends out waves of light instead of individual points. Soroush Salehian and Mina Rezk, founders of the Silicon Valley startup Aeva, believe their technology will give robocars a far more detailed and reliable view of the world, says The New York Times.
  • Purdue University is staking its claim to the burgeoning autonomous vehicle industry, announcing plans to build an enormous, 517-acre “smart city” where engineers can develop and test self-driving tech. (The University of Michigan’s Mcity test facility covers just 32 acres.) According to local outlet The Republic, the “Pruv Mobility Ground” will sit adjacent to the university campus and include a 5-mile test track.

Please tip your local transportation reporters: @adavies47, @stewart_jack and @AarianMarshall.

Tech