Feedback Loup: Early iPhone AR Apps

Since the launch of iOS 11, we’ve been testing popular AR apps available on the App Store. We’ve had fun, and found some useful new tools, but it doesn’t seem like we’ve unlocked the true utility of AR – yet.

After testing out a a few of the more popular AR apps, we have four takeaways:

  1. AR apps offer a new, semi-immersive experience. What began with Pokemon Go has expanded to an entire category of apps; AR enables an entirely new app experience, particularly as it relates to gaming. These apps have consumers using iPhones and iPads in an entirely new way, as a window into a mixed reality.
  2. AR apps demonstrate the novelty of AR but don’t provide true utility – yet. Outside of measuring distances and placing furniture, there is little utility value available in these early AR apps. iPhones and iPads can only provide a window into an augmented reality, not a fully augmented reality. Until some form of wearable technology comes along, we won’t have a seamless AR experience.
  3. AR apps are meaningfully better on the iPhone 8 and (soon) iPhone X. Right now, AR apps leveraging iOS 11 work on iPhone 6S and newer models. But while these apps can run on older phones, the experience isn’t the same. Older iPhones have a harder time picking up surfaces and objects.
  4. Don’t Forget About Audio AR. iOS 11 and ARKit have spawned a new category of AR apps layering digital objects on horizontal planes, but we view audio (not just visuals) as a huge opportunity for our devices, like AirPods, to augment our realities. Imagine a co-worker speaking to you in Mandarin, but hearing English in real-time translation.

Here are some of the AR applications that we reviewed:

Follow Me Dragon – The VR Company. Follow Me Dragon gives users their own imaginary dragon that follows them around. At one point, Magic Johnson even tweeted about Follow Me Dragon’s success.

My Very Hungry Caterpillar AR – StoryToys Entertainment Limited. I’ve been playing My Very Hungry Caterpillar with my 4 and 7 year-olds and they’re enthralled. More than a few times, they’ve looked around my iPhone to see the AR caterpillar directly, only to find that it’s not really there.

TapMeasure AR Utility – Occipital, Inc. One of the higher utility apps that we used, TapMeasure, allows users to measure distances with their iPhones. We used TapMeasure to help confirm that we were illegally parked – but just barely. Ultimately, though, distance measurement will be just one ingredient that developers will use to create killer AR apps.

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 Survey Shows 28% Interest in iPhone X; Positive for ASPs

Intent to upgrade survey shows promise for the iPhone X, and higher ASPs. In addition to surveying consumers in launch lines, we surveyed a broader base of 511 consumers this week regarding their intent to purchase the upcoming iPhones. We found that 23% of respondents intend to purchase a new iPhone within the next year compared to about 25% a year ago. Of that those planning on purchasing an iPhone, 28% are planning to buy the iPhone X, and 40% an iPhone 8 or 8 Plus. We continue to model for 20% of FY18 iPhone units will be iPhone X, given we expect the U.S. to over index to iPhone X. It’s important to note that the most current iPhone typically accounts for 50-60% of overall iPhone unit sales. This survey suggests the most current iPhones will account for 68% of iPhone unit sales. This increases our confidence that ASPs for the iPhone will move higher in FY18. We are modeling for a 6% increase in ASPs in FY18 versus a 1% increase in FY17, and expect our ASP assumption will end up being on the conservative side.

There have been many reports expressing fear that demand for new iPhones is wavering, signaled by low initial sales numbers and short lines for the iPhone 8. However, it must be pointed out that we currently have only partial data. While the release of two devices with slightly different launch dates is unique, the iPhone 8 and iPhone X should be viewed more as a single cycle. Factoring in strong demand for iPhone X and higher ASPs, we believe this cycle will exceed last year’s in both revenue and unit shipments, modeling for iPhone units in FY18 to increase 9% and iPhone revenue to increase by 16%, compared to 3% and 4% in FY17.

Additional Survey Details

  • Total sample size: 511 U.S. consumers
  • iPhone 7 users: 87 of 511 (17.0%)
  • iPhone 6s users: 66 of 511 (12.9%)
  • iPhone 6 users: 65 of 511 (12.7%)
  • Other iPhone users: 38 of 511 (7.4%)
  • Android users: 255 of 511 (49.9%)
  • Users planning to upgrade iPhone in the next year: 119 of 511 (23.3%)
    • Users planning on upgrading to iPhone X: 32 of 116 (27.6%)
    • Users planning on upgrading to iPhone 8: 23 of 116 (19.8%)
    • Users planning on upgrading to iPhone 8 Plus: 23 of 116 (19.8%)
    • Users planning on upgrading to other iPhone: 38 of 116 (32.8%)
  • More interest in AR: 105 of 503 (20.9%)
  • Unchanged in AR: 314 of 503 (62.4%)
  • Less interest in AR: 84 of 503 (16.7%)
  • 18-29 (19.3%)
    • iPhone users: 56 of 97 (57.7%)
    • Purchasing the next iPhone: 26 of 97 (26.8%)
      • Users planning on upgrading to iPhone X: 8 of 26 (30.8%)
      • Users planning on upgrading to iPhone 8: 5 of 26 (19.2%)
      • Users planning on upgrading to iPhone 8 Plus: 6 of 26 (23.1%)
      • Users planning on upgrading to other iPhone: 7 of 26 (26.9%)
    • More interest in AR: 26 of 97 (26.8%)
    • Unchanged interest in AR: 59 of 97 (60.8%)
    • Less interest in AR: 12 of 97 (12.4%)
  • 30-44 (27.2%)
    • iPhone users: 70 of 137 (51.1%)
    • Purchasing the next iPhone: 36 of 137 (26.3%)
      • Users planning on upgrading to iPhone X: 9 of 35 (25.7%)
      • Users planning on upgrading to iPhone 8: 9 of 35 (25.7%)
      • Users planning on upgrading to iPhone 8 Plus: 7 of 35 (20.0%)
      • Users planning on upgrading to other iPhone: 10 of 35 (28.6%)
    • More interest in AR: 35 of 137 (25.6%)
    • Unchanged interest in AR: 80 of 137 (58.3%)
    • Less interest in AR: 22 of 137 (16.1%)
  • 45-59 (28.0%)
    • iPhone users: 82 of 141 (58.2%)
    • Purchasing the next iPhone: 34 of 141 (24.1%)
      • Users planning on upgrading to iPhone X: 9 of 33 (27.3%)
      • Users planning on upgrading to iPhone 8: 4 of 33 (12.1%)
      • Users planning on upgrading to iPhone 8 Plus: 6 of 33 (18.2%)
      • Users planning on upgrading to other iPhone: 14 of 33 (42.4%)
    • More interest in AR: 24 of 141 (17.0%)
    • Unchanged interest in AR: 91 of 141 (64.5%)
    • Less interest in AR: 26 of 141 (18.4%)
  • 60+ (25.5%)
    • iPhone users: 48 of 128 (37.5%)
    • Purchasing the next iPhone: 21 of 128 (16.4%)
      • Users planning on upgrading to iPhone X: 4 of 20 (20%)
      • Users planning on upgrading to iPhone 8: 5 of 20 (25%)
      • Users planning on upgrading to iPhone 8 Plus: 4 of 20 (20%)
      • Users planning on upgrading to other iPhone: 7 of 20 (35%)
    • More interest in AR: 20 of 128 (18.8%)
    • Unchanged interest in AR: 84 of 128 (65.6%)
    • Less interest in AR: 24 of 128 (18.8%)
  • Male (46.9%)
    • iPhone users: 112 of 236 males (47.5%)
    • Purchasing the next iPhone: 50 of 236 (21.2%)
      • Users planning on upgrading to iPhone X: 14 of 49 (28.6%)
      • Users planning on upgrading to iPhone 8: 10 of 49 (20.4%)
      • Users planning on upgrading to iPhone 8 Plus: 10 of 49 (20.4%)
      • Users planning on upgrading to other iPhone: 15 of 49 (30.6%)
    • More interest in AR: 58 of 236 (24.6%)
    • Unchanged interest in AR: 141 of 236 (59.8%)
    • Less interest in AR: 37 of 236 (15.7%)
  • Female (53.1%)
    • iPhone users: 144 of 267 (53.9%)
    • Purchasing the next iPhone: 67 of 267 (25.1%)
      • Users planning on upgrading to iPhone X: 16 of 65 (24.6%)
      • Users planning on upgrading to iPhone 8: 13 of 65 (20.0%)
      • Users planning on upgrading to iPhone 8 Plus: 13 of 65 (20.0%)
      • Users planning on upgrading to other iPhone: 23 of 65 (35.4%)
    • More interest in AR: 47 of 266 (17.6%)
    • Unchanged interest in AR: 173 of 266 (64.8%)
    • Less interest in AR: 47 of 266 (17.6%)
  • Plan to purchase next iPhone 119 of all 511 U.S. consumers (23.3%)
    • iPhone users: 91 of 119 (76%)
    • More interest in AR: 47 of 105 (40.2%)
    • Unchanged interest in AR: 49 of 105 (41.9%)
    • Less interest in AR: 21 of 105 (18.0%)
  • Not planning to purchase next iPhone 392 of all 511 U.S. consumers (76.7%)
    • iPhone users: 165 of 392 (42.1%)
    • More interest in AR: 58 of 386 (15.0%)
    • Unchanged interest in AR: 265 of 386 (68.7%)
    • Less interest in AR: 63 of 386 (16.3%)

It’s important to note that demographic information was not available for all respondents. In addition, some respondents did not complete the survey. For example, 119 out of 456 respondents shared that they intend to upgrade their iPhone in the next year, but only 116 specified their decision further.

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.

Survey Suggests Higher Demand for iPhone 8 and X; but Brace for Short Lines

Survey suggests better than expected demand for iPhone X and iPhone 8, but lines will be shorter tomorrow.  This week we surveyed 388 consumers in the U.S. across all demographics and found that of those planning to buy an iPhone in the next year, 25% plan on purchasing an iPhone X and 39% and iPhone 8 and 8 Plus. We are modeling for iPhone X to be 20% of units over the next year, and iPhone 8 and 8 Plus to be 25% of units over the next year. Said another way, the survey suggested 64% of iPhones in the next year will be either the iPhone X, iPhone 8, or 8 Plus, compared to our current model of 45%. While we are encouraged by this survey, we are keeping our iPhone mix estimates unchanged to err on the side of conservatism.

Expect shorter lines this year. We will be making our annual pilgrimage to a handful of Apple retail stores to count lines and more importantly, survey people regarding their intended purchases. The lines have been declining over the past two years. For example, the line at the 5th Avenue New York store declined from 1,880 people in 2014, to 650 in 2015, and 400 last year. Given the most current version of the iPhone is split between the iPhone X and iPhone 8, and more people are purchasing their phones online or through the iPhone upgrade program, our best guess is that lines will be less than half as long as we observed in 2016. In addition, the 5th Avenue New York store is undergoing major renovations, and has been moved to an adjacent building which will likely impact the 5th Avenue line count. These shorter lines don’t change our expectation that iPhone unit growth for this next cycle will be 9% versus 3% for FY17.

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.

AAPL Model Update: Factoring In iPhone X Delay, Higher ASP’s and Apple Watch a Net Positive

Following Apple’s product event yesterday, we have updated our AAPL financial model, which can be viewed here.

iPhone X Delayed, ~10M Units Pushed Out; Full Year Units Unchanged

iPhone X will ship on November 3rd, which is roughly six weeks after we had previously expected. We do not anticipate the delay will affect total iPhone demand for FY18, and are maintaining our 237m unit estimate (up 9% y/y), compared to the Street at around 240m.  To factor in the iPhone X delay, we moved 10m units out of the Sep-17 and Dec-17 quarters into Mar-18 and Jun-18. In FY18 we expect iPhone X will account for 20% of all new iPhone sales (we’re modeling the iPhone 8 and 8 Plus to account for 26% of units)

Historically iPhone Buyers Have Been Willing to Pay Up. Investor concern following yesterday’s event revolves around consumers’ willingness to pay a higher price for the iPhone X. Last year Apple’s flagship iPhone (7 Plus) started at $769 compared iPhone X at $999, or a 30% price increase. The best price increase analog was the 15% price increase from the iPhone 5S to the iPhone 6 Plus in 2014. At that time investors expected adoption of the iPhone 6 Plus to be limited due to the 15% price increase, but the opposite happened and the iPhone 6 Plus eventually accounted for over 50% of units pulling overall iPhone ASP’s up 12% during the iPhone 6 & 6 Plus cycle. This time the ASP jump is bigger, and the increase in screen size is smaller, so we’re expecting 20% of units to be the higher priced versions (15% the 64GB version and 5% the 256GB version).

Our Expectations By iPhone SKU. The table below outlines our iPhone estimates by SKU.

Changes To iPhone Estimates. High level summary of our iPhone unit adjustments is in the bullets below:

  • Decreased iPhone unit shipments in Set-17 qtr from 49.1M to 47.3M
  • Decreased iPhone unit shipment in Dec-17 qtr from 84.5M to 77.5M
  • FY18 iPhone unit shipments unchanged at 237.7M

Raising Apple Watch Unit Growth In FY18 To 59% From 9%. With the introduction of LTE to the Apple Watch Series 3, as well as reduced price of the Series 1, we have become meaningfully more bullish on demand for these products. Near term, we have increased our unit assumption from 3.5M to 5.1M, implying 60% y/y growth. Looking longer term, we believe this announcement will add ~10M incremental Apple Watch units in 2018, implying Apple Watch sales grow 59% y/y to 26M in FY18. Due to the reduced price of the Series 1 we have lowered our Apple Watch ASP to imply flat y/y growth in FY18, but due to the higher expected sales we are now modeling the company to record $11.7B (4% of sales) Apple Watch sales in 2018.

Consolidated Income Statement Adjustment. Following these adjustments, we have modestly lowered our Sep-17 revenue estimates from $52.1B to $50.6B due to the delay for iPhone X, but still anticipate revenues to be in the company’s previously guided range ($49 – 52B). Because of lower revenues our Sept-17 EPS assumption has been lowered from $1.94 to $1.86. Looking into FY18, our iPhone unit shipments are unchanged, but due to higher ASPs, as well as stronger demand for Apple Watch we have taken our FY18 revenues up by $9B. Our new revenue estimate is implying 15% year/year growth, which is slightly above the Street’s 14% estimate. High level model changes are below.

  • FY18 revenue estimate of $261B vs $252B prior estimate
  • FY18 EPS assumption of $10.81 vs. 10.46 prior estimate

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.

Quick Take: iPhone X Hints at a Post-Smartphone World

Apple introduced iPhone X as the future of the smartphone; and for good reason. The iPhone X has advanced 3D-sensing, display, camera, and augmented reality technologies that have never been available in consumer devices. These technologies solidify the platform on which Apple will retain and grow its user base for the next decade.

Impact of iPhone X. iPhone X will ship on November 3, roughly six weeks after we had previously expected. We estimate that some users (about 20% of all new iPhone buyers) will opt for the iPhone X over iPhone 8 and previous models. The ship date likely won’t have a material impact on the number of units sold, but will push some unit sales into the March quarter. Ultimately, roughly 10% of our previous iPhone unit sales in the December quarter will be iPhone X sales that are shifted into the March quarter.

AR Hints at a Post-Smartphone World. But we’re looking beyond the smartphone, wondering how the core technologies shown today will help Apple enable a post-smartphone world. To be clear, we expect the smartphone to remain a dominant computing platform for many years, but a transition to the future of computing is clearly underway. Underneath features like the new iPhone X unlock method, called Face ID, is a set of revolutionary 3D-sensing technology that will enable entirely new experiences with – and through – our devices. As Jony Ive said, “[Augmented Reality] will redefine what’s possible.”

“[Augmented Reality] will redefine what’s possible” – Jony Ive, Chief Design Officer, Apple

We were hoping to see advanced AR sensors on both the front and the rear of the new device, but the new, advanced sensors are primarily relegated to the iPhone X’s front. This means that the AR capabilities Apple introduced today will be, for the most part, accessible to and backward compatible with iPhones dating back to the 2015 iPhone 6s. Ultimately, this decision will accelerate the adoption of AR and the future of computing.

Freeing You From Your iPhone. Apple’s other big announcement, Apple Watch Series 3 with LTE connectivity, also shows us where the company is positioning itself to win in a post-smartphone world. Apple pitched Apple Watch Series 3 as a device that frees you from your iPhone. Stepping back, the capabilities of the device are astounding, and they hint at a future more dominated by wearable computing devices that enable most of what we can do with our smartphones today, and more.

Impact of Apple Watch. With the introduction of LTE to the Apple Watch Series 3, and the reduced price of the Series 1, today’s announcements could add 10M incremental Apple Watch units in 2018, implying Apple Watch sales of 26M units in FY18. This would bring our estimate for Apple’s overall revenue growth from 12% to 14% in FY18, in-line with street estimates.

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.