I’ve been doing investor calls on Apple the past few weeks. Mostly post-earnings as most investors are trying to form a new, better, narrative on Apple. I’ve been loosely theming my comments to investors around Apple’s next five years. While I go into much greater detail in the course of a 90 min call, I’ll briefly highlight some key points. There are three technology fundamentals Apple will bring to market which will be the foundation for hardware, software, and services innovation over the next five years which will set the foundation for a much longer timeframe.
It’s funny the pushback I get when I talk about 5G. But, Apple can downplay its value for the moment and disingenuously come off as if it’s not a big deal but the reality is 5G is essential to Apple’s long-term strategy in wearables in particularly, but it also is a central element of Apple growing their services business. Basically, if Apple is bullish on their services business then they must also be bullish on 5G.
Today, some news emerged that Apple is organizing its in-house modem team (the worst kept Apple secret) under Johny Srouji’s group. I’ve known for many years that Apple has been working to see how far they can get on their own with a modem. This effort stems not just from their desire to have multiple options open to them when it comes to a modem supplier but, more critically, because it is essential for Apple to integrate a modem onto their A-Series SoCs. Doing so is not only more efficient, from a battery life perspective, but also necessary when it comes to Apple’s miniaturization strategies which are key for their wearable strategy.
Things like Apple Watch, AirPods, and any future AR glasses, will all require an integrated modem onto the core SoC Apple designs for these products. The 5G part of this will be interesting since Apple will need some IP/licensing assistance and my bet is still that Apple buys Intel’s modem business from them.
There is a lot of talk about Apple and a rumored AR glasses product in the 2020 time frame. I’m personally more skeptical on this timeline and if I had to bet I’d wager Apple will bring a foldable iPhone to market in the 2020 time frame and not AR glasses.
I say this for a few reasons. Firstly, a pocketable iPad (which is what a foldable iPhone would be) is a much more attractive consumer proposition on the short term horizon than AR glasses. Consumers and specifically Apple’s customer base would gravitate to a foldable iPhone in mass and a hurry much faster than an AR headset. In a time when Apple’s annual iPhone sales are declining and slowing, the single biggest thing that could inject new life and potential growth to that business is a foldable design.
Having seen many foldable concepts, and lab designs of different folding/bending screens, I’m quite bullish on this concept. As I mentioned, a product that can be both an iPhone and an iPad and fit in your pocket seems like a no brainer for Apple. Apple would see an enormous ecosystem benefit if they can get all of their ~850-900 million customers onto big screen hardware. We know from our research that consumers that own an iPad, or a Plus size phone are more engaged in Apple’s ecosystem, consume more services, and more satisfied customers. I’ve long argued Apple needs to keep trying to get their base into bigger screen devices because of the whole of their business benefits when they do. This is why a foldable iPhone could bring an entirely new growth opportunity for Apple.
Of course, AR Glasses are on the horizon. Just how close on the horizon is the question. I remain convinced, having tried every best of breed AR experience that exists both publicly and non-publicly, that AR is still a ten year or longer mass consumer adoption cycle. I do not foresee, nor are we predicting, mass adoption on the five-year timeline. How it plays out in the five to ten-year timeframe is a much more realistic conversation.
That does not mean Apple won’t release some kind of glasses experience in the next five years. However, if they do, it would be wise to think of what they would bring to market in that time horizon as an accessory to the iPhone rather than an iPhone replacement. And, when Apple starts rolling out foldable iPhones and the base starts adopting them in masse, an AR glasses accessory to a foldable iPhone would make for a pretty complete personal computing experience. Bring in Apple Watch, and AirPod’s and almost all aspects of computing are covered at a personal level.
The three things I mention here, in each of their ways, set the groundwork for hardware, software, and services in new ways than anything Apple has today. They can each, respectively, represent core parts of Apple’s growth strategy and if executed properly, Apple could ride another wave of computing just as large as the iPhone wave. This is, of course, never a guarantee but we have to imagine Apple is looking to the next big wave in a post iPhone world.