Apple Event Recap and Key Insights

Today, Carolina Milanesi and I will both be sharing our key insights from Apple’s fall launch event. Some of the topics here will be bigger picture points, as we intend to develop many of them deeper as individual articles.

Notes By Ben Bajarin

The Silicon Advantage
The single biggest thing I observed are not the external designs of the new iPhones, Watch, and Airpods but their internal designs. All have something incredibly significant in common — an Apple designed CPU and GPU (yes, a little known point is they customized their own GPU). In some cases, like with the camera ISP (Image Signal Processor) other components, beyond the CPU/GPU, are designed by Apple as well. All of this in an attempt (which they succeed at) to keep the experiential bar of their products at a level much higher than that of their competition. Bottom line, Apple’s products would be differentiated, thanks to iOS, more than their competitors even if they used off the shelf processors from someone like Qualcomm. But their differentiation in terms of what the software can accomplish would not be as far ahead of their competition if they didn’t design their own processors. To top it off, their chip designs rank among the best in the industry and Apple saves these best in class designs for themselves. This advantage can not be underestimated and is one of the main reasons the gap between them and their competition will remain large.

Tim Cook said the iPhone is the smartphone by which all other phones are measured. We don’t attend a single major smartphone manufacturer meeting or launch event where the vendor is not comparing their product to the iPhone. Apple’s initiatives in designing their own custom silicon to power and differentiate their hardware is a key reason Tim’s statement will remain true for some time.

We Will Miss you Headphone Jack. No We Won’t.
I understand why Apple felt they needed to take the time to justify their decision to remove a long copper hole from their smartphones. John Paczkowski got an exclusive interview with Apple execs to help frame the decision. Apple designs for the 80% of the market, the mainstream, not the 20% who are early tech adopters. Mainstream consumers will not be impacted by this move and we will hardly be talking about it in a few months. What matters here is what Apple was able to do with the additional space they got back from that long copper hole. One is space for a larger battery, which we will address in a moment, and second is the new and improved home button and Taptic engine.

There appears to be a mix of opinions on this new solid state home button (it is necessary for water and dust proofing) but it paves the way for future screen designs and potentially smaller bezels. Not pressing the home screen will take a slight second to get used to but personally, I immediately felt it was a superior experience. The new and improved functionality of the Taptic engine and the new developer APIs which will let developers do new things with it, will yield positive experiences. I’m certain consumers will find the trade-off worth it.

Better Battery Life
Let’s call this the potential sleeper feature. Apple is saying roughly two hours more battery life with iPhone 7 and one hour more battery with iPhone 7 Plus. I have a feeling these are conservative estimates as Apple tends to do that and real world results will be much better. Also, their new A10 Fusion architecture (which includes four cores, two high-performance ones and two lower performance efficiency cores) will also help in attaining better battery life overall. The low power cores can run simple tasks, likely even power the display at times and more, all while keeping the two higher performance cores turned off. The result will be much better battery life as more tasks can be run on the low power cores. I expect this architectural concept to continue as Apple increases the performance of the cores in future designs.

Those of you who follow technical semiconductor details will note this concept is similar to ARM’s big.little architecture approach. It is not exactly the same, since Apple designs this architecture not ARM, but it is similar in concept to how it works with a few notable differences I will dive into at a later time.

The Big Question
I saved the big question on everyone’s mind until last. Will these products help Apple return to YoY revenue growth or not? Much of this depends on a big portion of the north of 600 million iPhone base to be convinced to purchase a new phone. So, to help explore this question here is what we know. In both of Apple’s largest markets, China and the US, roughly 40% of iPhone owners in each market respectively are currently on a phone about two years old. Apple’s true super cycle, which was an anomaly, was when the 6 and 6 Plus were launched. With sales of the 6s and 6s Plus being soft, we see a larger portion of the base on 6 and 6 plus, resulting in a large number now on two-year-old phones. Granted, many of those phones are perfectly good and do not need to upgraded, except that consumer study after consumer study yields similar results that nearly half of that installed base intends to keep their ~24 month, or roughly two-year, replacement cycle.

It is true replacement cycles are lengthening but only by a few months. We are seeing the average move from 26 to 28 months (but shorter in several markets like China). But the idea everyone is now holding onto their smartphones for three years is not correct. We still see predictable cycles among many in the smartphone market. So there is a strong base of two-year-old iPhones in the market and many customers indicate they intend to keep to the two year pattern. Now, all those upgrades will not come at once but between the annual buyers (roughly 11% of the market) and the bi-annual buyers (38% of the market) we should expect another strong season of iPhones sales.

Notes By Carolina Milanesi

It is All about the Experience

As often it is the case with Apple events, the full impact of what was announced will become clear over the next few weeks. For some features, the ultimate goal might only become clear in a few years. What continues to be overwhelmingly obvious to me is the overall experience in what Apple offers is how ultimately it retains customers and gains new one. While dubbed by many as a boring recap, Apple starting points of these events is always a reminder of how the ecosystem is doing. Today was no different and adding Super Mario to iOS and Pokemon Go to Watch were two examples of how developers continue to go iOS first.

Differentiating to Cater to a Broader Audience

One of the key takeaways related to both Apple Watch and iPhone launch was how Apple is catering to a wider audience.

With Apple Watch Series 2, Apple is providing a solid upgrade to current owners as well as a good solution to users who have been waiting for GPS integration and or “swim proof” design.

Doubling down on fitness makes sure Apple reaches the widest possible audience as it remains the biggest hook for consumers. Other features such as notifications are discovered as one uses the device and adds to overall satisfaction but fitness remains, without a doubt, the biggest purchase driver. The partnership with Nike for an exclusive Watch design and set of workouts speaks to the many who continue to use the Nike Plus app but have not yet invested on a wearable.

Because fitness is an underlying factor having a Sport edition makes less sense. So, while the original Watch is replaced by Watch Series 1, it will get a bump in CPU and GPU equal to what Series 2 models get but drops in price to $269. This is an attractive proposition for those consumers who, while interested in trying out an Apple Watch, might not have been convinced by the return on investment. Updating the CPU and GPU is not just a nice touch by Apple. It is a necessary step to assure buyers have the best experience when running apps. Not everybody needs integrated GPS but everybody needs to experience apps that do not lag.

Similarly to the Watch, the iPhone portfolio now needs to cater to a much wider and diverse audience and it seems Apple is well aware of that. We have had the iPhone SE as a step into the ecosystem as well as a step up from older devices. Yesterday, Apple added more differentiation to the Plus family, recognizing the higher end of the iPhone base is also not as homogeneous as people think. While the key selling feature for the Plus model was the screen size, it seems Apple created a Pro-like experience without wanting to change the name.

For many consumers, the dual-lens camera will be a good enough reason to upgrade from the iPhone 6s Plus while, for some iPhone 6s owners, the camera of the 7 Plus will outweigh the fact they are not fans of the larger screen. The drop in price and the added storage of the iPhone 6s and iPhone 6s Plus will also guarantee, as in previous years, sales of the new models are not the only revenue driver Apple can count on for the next twelve months.

The Value of the Apple Upgrade Program Starts to Sink In

The Apple Upgrade Program in the US will help Apple in two ways. There will be consumers who signed up to it last year that will take advantage of it for the 7 and 7 Plus as well as consumers who will want to sign up now so they do not have to sit out the 7 to wait for the tenth anniversary iPhone in 2017. Adding China and the UK to the Upgrade Program is clearly a strong added benefit to Apple and, while this is happening now due to the logistics of setting up the agreement in the different countries, it does seem to make more sense to stagger the impact the Program could have on overall sales.

AirPods Could Turn Into Siri Best Friend

With AirPods, Apple stressed the portfolio of products that more and more consumers are owning. Right now, the new AirPods will pair with your iPhone, Watch, Mac associated with your iCloud account. Yet, over time, it is easy to see how these could be used in conjunction with any products, including Apple TV, when I interact with Siri.