iPhone X Availability Showing Dramatic Improvements

Conclusion. iPhone X supply improved materially over the past week both in-store and online. We now believe iPhone X will be near global supply demand equilibrium by the end of December or early January. Previously, we had anticipated iPhone X would reach global supply demand equilibrium by mid- to late-January.  This means the Mar-18 outlook will have only a fractional bump up from December iPhone X demand getting pushed in the Mar-18 quarter. We believe the bigger story is that the Street is under estimating the positive ASP impact from the iPhone X over the next few quarters, which should play out as a positive to the Apple story. Our FY18 overall iPhone ASP is $740 vs. the Street at $705.

Online lead times continue to improve. We noted an improvement in global iPhone X lead times (8 countries), exiting the week (Dec 10th) at 4 days, down from 8 days at the beginning of the week. For the week (Dec 4th-Dec 10th) we measured a decline to an average of 7 days, compared to an average of 10.1 days in the previous week (Nov 27th-Dec 3rd).

Apple Store availability jumps. We continued our daily monitoring of iPhone X availability, capturing 2224 daily in-store data points for 139 of the 271 U.S. Apple retail stores. Availability at U.S. Apple Stores increased to an average of 25% (Dec 4th-Dec 8th) compared to 7% in the previous week (27th-Dec 3rd). We saw a dramatic ramp during the week, starting at 6% availability and ending at 48%. It’s worth noting that on Friday, AT&T and Verizon showed 72% availability, and Sprint and T-Mobile showed 26% availability. Adjusting for market share by carrier (AT&T and Verizon have about 67% of the U.S. share), the effective in-store availability on Friday was 57%.

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.

Posted in Apple  • 

Apple Wearables Drafting on Tech’s Push into Healthcare

Healthcare is in the midst of a dramatic transformation. This may seem obvious, but the culmination of this week’s news – CVS buying Aetna to create a new healthcare platform and Apple partnering with Stanford to carry out a medical study on AFib using the Apple Watch – brought the pace of change into perspective. Healthcare is transforming before our eyes, and new players are moving into the space that accounts for 18% of U.S. GDP.

Taking a step back, healthcare 100 years ago was fundamentally the same as it is today. We go to the doctor for two reasons – we’re sick, or it’s time for an annual checkup. The effectiveness of this approach is dreadful, illustrated by the fact that about half of all Americans have one or more chronic condition, diabetes and heart disease are on the rise, almost 40% of us are obese, and 7 out of 10 deaths are attributed to chronic diseases. All the tech advancements we’ve made have not kept Humpty Dumpty together. The reason for this is that healthcare is generalized, impersonal, and reactive in nature. The individual must fight the day to day battle of preventative care, not the provider who the average American sees only 4 times per year.

Today, we see a shift toward two themes – personalization and prevention – and the future of healthcare will be grounded in the frequency of health monitoring. CVS and Aetna are coming together to create what CVS CEO calls the country’s “front door to healthcare,” because more doors means more frequent access to care. Apple and Stanford aim to collect data on more people more frequently. The concept of increasing health monitoring frequency holds the greatest promise of actually making people healthier and the easiest approach to increasing frequency is through wearables.

Today wearables are seen as a luxury gadget for geeks and health nuts. In the future (7-10 years from now), we will be inseparable from our wearables, similar to our current obsession with smartphones. Today, the smartwatch is the wearable of choice. Soon, however, that could include things like hearables (think AirPods), contact lenses, and connected fabrics.

Driving with your eyes closed. Healthcare monitoring today is comical. Nootrobox CEO Geoffrey Woo on an a16z podcast put it into perspective by saying “imagine that we’re driving cars and we only let ourselves open our eyes every minute. That’s essentially the snapshot of information we get when we go to the doctor.” We go in for a checkup, make a course correction, then drift back into our old habits until the next time we see the doctor. Continuous health measurement is the most effective approach to stay our course corrections. We now have biometric sensors in common devices and the computing power to make sense of that volume of data. The benefit of continuous health measurement is twofold – it allows for large-scale data collection from which AI algorithms can derive insights, and it keeps your health top of mind. And it appears to be working, studies show that 70% of Apple Watch users track their heart health, even weeks after purchasing the device.

Apple’s got a tiger by the tail. Investor opinions on the Apple Watch range from “it’s a rounding error” (4% of overall revenue), to “it’s a dud.” The reason is investors had been spoiled by Apple’s vertical growth in new product categories with the iPod, iPhone, and iPad. Apple Watch simply didn’t live up to its predecessors. While it has been a slow start for Apple Watch, we believe the Watch and future (7-10 years) wearables (notably hearables) will account for a material part of future Apple revenue. As the health advantages of wearables begin to resonate, we foresee Apple selling as many them (Apple Watch and hearables in the future) as they do iPhones. At a wearable ASP of $300 (below current Apple Watch ASP assumption of $450) and 250M units a year, that would equate to $75B in annual revenue (not in our model today).

Apple has been engaged with the concept of healthcare since it introduced the Apple Watch in 2015, releasing ResearchKit that year and CareKit in 2016. While their new Heart Study is technically their first true medical study, the Watch has been used in the past for similar crowdsourcing of biometric data (along with Fitbit and others). So this begs the question, why is Apple interested in healthcare? Their core competencies are well-aligned to benefit from the shift toward personalized and preventative care. They also have a platform in their device user base and software frameworks, the data and AI power to carry out large-scale operations, and the design expertise to integrate sensors into devices that consumers want to use.

A word on hearables. Apple has tipped their hand. Earlier this year, the company filed patents suggesting AirPods may have a future as in biometrics. The patents outlined the addition of a photoplethysmogram, or PPG sensor, that can measure heart rate, VO2, galvanic skin, EKG, impedance cardiography, and temperature. We don’t have enough details to guess when these features might be integrated into a product, but do see a future when these hearables are continuously worn, giving users volume control of the world, as well as next-level, real-time health monitoring.

What about other tech companies. Don’t forget about Google and Amazon. One of Google’s other bets, Verily Life Sciences, is focused squarely on making healthcare more preventative and data-driven. Verily argues, “a new car has up to 400 different sensors. You know the oil pressure and how much air is in your tires, but we don’t do that with people.” They have undertaken an array of different projects from glucose monitors in contact lenses to eradicating vector-borne diseases by engineering and releasing fertile mosquitos. Verily’s efforts are largely complementary to Apple’s health ambitions, and their engagement in the space is confirmation that big tech companies have a place in healthcare. The opportunity here is substantial enough to accommodate more than a few entrants. While it is unlikely that Amazon will be a player in data or wearables, the company has the DNA to reinvent the logistics around how care is delivered.

It will take time to win over the “I don’t want to be monitored” segment. It’s going to take years for widespread adoption of health monitoring wearables, as defined by more than a billion daily users. As a point of reference, we’re at 40-50m today, with about 25-30m of those being Apple Watches. Some people resist continuous monitoring on the grounds of privacy, inconvenience, and anxiety around knowing their true health. That said, the resistance group will shrink over time (some due to poor health).

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.

Key iPhone X Supplier Receives Qualification and Meaningfully Expands Capacity

Finisar (FNSR) reported earnings for the Oct-17 quarter and the company announced they began shipping production quantities of VCSEL arrays. Finisar is Apple’s 2nd largest VCSEL array supplier, which powers 3D sensing applications such as facial recognition through a flood immolator and dot projector on the face of the iPhone X (see below). In addition, the company announced they acquired a 700,000 square foot facility in Sherman, Texas, which will allow them to scale production of their VCSEL arrays. This new site is expected to go live in 2H18. With the combination of volume orders beginning, as well as capex initiatives, we believe Finisar received final qualification from Apple, and will begin shipping larger quantities of VCSEL arrays in the Jan-18 quarter and throughout CY18.

Impact to Apple. In terms of a read on demand for iPhone X, Finisar’s comments are in-line with previous comments, so we are not making any changes to our iPhone estimates. What was incremental was acquisition of the Sherman, Texas production facility which suggests that Apple will add the VCSEL array to all of its new phones starting the fall of 2018. Today the VCSEL array is limited to the iPhone X. Separately, our daily checks suggest iPhone X remains supply constraint. We believe the VCSEL laser is causing production bottlenecks for the iPhoneX and with Finisar now receiving Apple qualification we expect the supply/demand imbalance will ease in the next month.

What they said. Finisar VCSEL revenue in the quarter was in the low-single-digit millions, but the company anticipates sales can grow to “tens of millions” of dollars per quarter beginning in Jan-18 and beyond. Once they are at full capacity they will see revenues reaching $30M. However, this compares to Apple’s largest VCSEL array supplier, Lumentum, who recorded $40M in VCSEL revenue in the Sep-17 quarter.

Finisar and Lumentum continue to talk about one customer (Apple) driving demand for VCSEL arrays. We believe both companies remain supply constrained, but Apple has secured a high percentage of all VCSEL lasers created, which we view as a large competitive advantage that will make Apple a leading AR player in the smartphone space.

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.

Feedback Loup: Switching From Android to iOS

Written by Alex Schwappach

The grass is always greener. I’m an intern at Loup Ventures and I just got my first iPhone, an iPhone 8 Plus. It’s still early, but three weeks into my ownership I’m undecided about my next phone purchase in 1-2 years, and could see myself going back to Android. I’m not sold on the iPhone yet, but my next phone decision will likely be based on which phone has the best AR and VR experience. I guess it’s stories like mine that keep Tim Cook up at night, which pushes the competitive bar higher and benefits us all with better phones.

Background.  It’s been 9 years, 6 months, and 5 days since I received my first flip-phone on my 15th birthday, and up until 2 weeks ago my family and I have been solely Team Android for our mobile devices. As a kid I remember it being a big deal to have a phone, but as I got older the conversation centered more on “which” phone you had. Being an iPhone user became increasingly cool and the phrase I have been hearing for years, that “everyone has an iPhone,” seemed to feel more real because everyone appeared to be moving into the Apple ecosystem. Apple is second in global market share for smartphones at roughly 15%, versus first-place Samsung at around 23%. In the U.S, Samsung outweighs iPhone share at 54% vs. 43%, but the U.S. gap is shrinking given a year ago Android’s market share in the U.S. was 60%. Outside of the U.S., Apple continues to grow it’s presence in Europe while companies like Huawei, OPPO, or Xiaomi gain traction in Asia.  Separately, Apple has a leading share in devices per household in the U.S. According to a CNBC All-America Economic Survey earlier this year, 64% of Americans own an Apple device and the average Apple device per household has risen from 1.6 in 2012 to 2.6 in 2017. So, while not everyone in the U.S. has an Apple smartphone, two-thirds do own an Apple device (iPhone, iPad and Mac).

My new phone. Three weeks in and I am very satisfied with my iPhone 8 Plus. I am surprised at how much I like iMessage and the seemingly simpler layout of the phone. I tried to be fair in my comparison because my last phone, the Samsung Galaxy S6, is 2 years older and things like screen size and battery life have come a long way.

  • Things I like
    • iMessage (Being viewed in blue has been a huge hit with other iPhone owners)
    • Circular Home Button
    • Bare necessity Apple apps as a base (My Android devices came pre-loaded with an unnecessary number of apps with similar capabilities)
    • 3D touch, especially for keyboard
    • App icon in messaging, can slide through other app icons
    • FaceTime
    • Ring/Silent Button
    • Seamless integration with other Apple devices
  • Things I miss
    • Saying I don’t have an iPhone
    • The back button, multi-menu buttons (native iPhone users will never appreciate the luxury of having a back button instead of needing to press the tiny back arrow icon in the upper left-hand part of the iPhone screen)
    • “Close All” app capability (I hear I don’t need to shut my iOS apps down but I still have the urge)
    • Ability to add apps to folders inside of the folder (“+” sign at the bottom of folders to add several apps at once made it easier to customize)
    • Quick connect features for Bluetooth, Wi-Fi (there needs to be a 3D Touch way to switch network connections)
    • Swipe text as the default keyboard setting (you need to download an app to switch your iPhone keyboard)

Waiting for killer AR and VR. Give iPhone credit, I still access my camera, use apps, and make calls in a similar way, but I appreciate how intuitive iOS is and Apple’s focus to protect user data. That said I can see myself going back to Android. I switched because I was curious and wanted to experience an iPhone even though my Samsung phone was working fine. I’m not loyal to the Apple brand and will continue to be curious, so I’ll consider buying the next great phone that comes out. But defining a great phone for the future is difficult because there are unknowns that will play a bigger role in my next phone decision, notably which phones have the best AR and VR experiences. These markets will grow rapidly over the coming years, and companies will be forced to optimize around AR and VR features to stay competitive. iPhone, if you win in AR and VR, you win my loyalty.

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.

iPhone X Online Lead Times Improve, In-Store Worsens

Conclusion. iPhone X supply had mixed results over the past week with online improving and in-store worsening. We anticipate iPhone X lead times of more than 4 days to continue for the balance of 2017 and expect the iPhone X to reach supply demand equilibrium sometime in January. That’s a slight positive for the outlook for Apple’s Mar-18 quarter.

Online lead times continue to improve. We noted an improvement in global iPhone X lead times (8 countries), exiting the week (Dec 3rd) at 7.7 days. For the week (Nov 27-Dec 3rd) we measured a decline to an average of 10.1 days compared to 14.7 days in the previous week (Nov 20-26th).

Apple Store availability worsens. We continued our daily monitoring of iPhone X availability, capturing 2224 daily in-store data points for 139 of the 271 U.S. Apple retail stores. Availability at U.S. Apple Stores declined to an average of 7% (week of Nov-Dec 3rd) compared to 16% in the previous week (Nov 20-26th).

  • This past week (Nov 27-Dec 3rd) availability declined to 7%, compared to 16% in the previous week (Nov 20-26th)
  • The sharp drop in supply was after the Thanksgiving holiday weekend

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.

Posted in Apple  •