Apple Event Preview

We don’t expect many surprises at Apple’s September 12th event (see our expectations detailed below). That said, the event will mark an important new chapter for Apple centered on augmented reality, which will eventually replace the smartphone over the next decade. Give credit to Apple for overcoming the innovator’s dilemma and pointing their product roadmap toward the future.

Expect Investor Optimism to Be Tempered with Concern Near Term. Over the past year, investors have been anticipating a shift in the iPhone growth from flatfish in FY17 to high single digits in FY18 (we’re modeling for 8% iPhone unit growth in FY18).  Shares of AAPL have risen 54% during that time driven by this improved iPhone growth outlook along with a more optimistic view that Services growth will be sustainable in the 15-20% range through 2020. For the balance of 2017, we expect history to repeat itself and optimism around the next iPhone to be tempered with concern about the iPhone cycle’s tail, specifically wavering investor confidence in iPhone growth in the Mar-18 and Jun-18 quarters (iPhone cycles are made or broken in the March & June quarters).

Don’t Let Short-Term Distractions Minimize the Long-Term Apple Story. Despite near term shifts in investor optimism, we remain positive on Apple’s story long-term. Over the next year, we expect to see two camps emerge on the Apple story: The first camp will remain positive on Apple despite little to no iPhone growth over the next few years if Services meets Cook’s goal of y/y growth in the high teens. The second camp will be more pragmatic, wanting to see Apple make a push into AR & auto to set the stage for higher growth over the next decade.  We remain optimistic that Apple will be a significant player in the shift to AR-driven computing with potential growth from Apple’s car project representing option value.

image source: iDrop News

Our Expectations for Sept. 12th
  • iPhone and iPhone Plus. We expect updates to the iPhone 7 and iPhone 7 Plus, traditionally the S-branded models, but we think they will be called simply “iPhone” and “iPhone Plus,” in keeping with both the iPad and MacBook lineups.
  • iPhone Pro. In addition to the typical iPhone updates, we expect a Pro model this year, with a level of innovation (and price) that we have not seen from Apple’s iPhone line in recent years. With an edge-to-edge display, no home button (instead using facial recognition for unlocking), advanced AR-related sensors and cameras, and potentially wireless charging, the iPhone Pro will be the biggest step forward in iPhone technology that we’ve seen since the original device launched ten years ago. Per the mockup above, we expect the iPhone Pro’s screen to be 5.8″ – larger than that of the iPhone 7 Plus (5.5″) but housed in a smaller form factor. This design feat is accomplished by, among other feats, removing the home button in favor of a software-based home button and navigation interface and facial recognition technology for unlocking the device. The new floating dock in iOS 11 also seems to hint at major changes to the navigation and control of apps and the iPhone home screen. One quibble with almost every mockup of the new iPhone: We don’t think Apple will allow developers to use the screen real estate to the left and right of the front speaker and cameras for content. We think that real estate will be dedicated to the menu bar with a black background. Finally, we expect the iPhone Pro to be capable of inductive charging and come with new cameras and 3D sensing capabilities for new augmented reality applications.
  • Augmented Reality Capabilities. While the new hardware will draw the most attention, the most significant change with long-term implications is the addition of 3D sensing capabilities that enable augmented reality applications (also likely to be included on new iPhone and iPhone Plus models). While AR applications will be backward compatible to the 2015 iPhone 6s, the addition of designated 3D and computer vision hardware on the iPhone Pro would be a big step toward putting AR in the hands of everyday users. It would also a big step toward the next generation of computing – beyond the smartphone.
  • Apple TV. Recent rumors point to the possibility of Apple announcing an updated Apple TV with support for 4K video, which wouldn’t surprise us.
  • Apple Watch. Other rumors suggest Apple may introduce Apple Watch Series 3 with the option of LTE connectivity, which would surprise us a bit.
  • Apple Campus 2. The new product we’re most excited to see on Sept. 12th is the Steve Jobs Theater. Apple’s new campus was, in many ways, Steve’s last product – one that captures his legacy and the impact he’s had on the world. We’re eager to see how Apple honors Steve at the event.
Apple suppliers may offer insight into iPhone capabilities. Finisar reports earnings on Sept. 7th. We believe they are 1 of possibly 3 companies supplying VCSEL lasers to Apple, enabling 3D sensing capabilities on the iPhone. Lumentum, which we believe is the largest VCSEL supplier, announced a $200M order last quarter (more from us here), which we believe went mostly to Apple. We expect Finisar to comment on VCSEL laser demand, which will give us incremental color on the number of new iPhones that will incorporate 3D sensing. To date, we believe advanced 3D sensing capabilities will primarily be incorporated in the iPhone Pro, but given the large order Lumentum announced, the technology could be incorporated into the iPhone and iPhone Plus models as well.
Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.