July 29, 2013

Once Upon a Muse - Apple as Ongoing Mobile Innovation Tech Monster


Last week, when Apple announced its Q2 2013 earnings, we were deeply caught up in our Wearable Tech Expo and Conference that took place last Wednesday and Thursday. The conference was enormously successful, and, though it did take up most of our time, we were still able to reflect on what Apple reported last week. Our colleague Steve Anderson provided a look at the Apple Q2 2013 earnings numbers we usually cover from our end, and much to the "unenlightened" surprise of the pundit community, Apple more than held its own and more than met its goals for revenue and units shipped.

We're not surprised!

In the meantime, the stock has magically moved forward about $50 per share since last Tuesday, moving from a low of roughly $395 in late June to almost $450 today as we write. This rise comes in the face of Apple presenting guidance for the next quarter that is decidedly sober in nature. But analysts who are hanging their hats on next quarter projections as being indicative of Apple's health are simply barking up the wrong tree.


Image via Shutterstock

Let's look at the next quarter (July 1, 2013 - September 30, 2013). Here is what Apple will not have in hand relative to anything that can possibly affect Q3 2013 revenue:

  • No new flagship iPhone
  • No new flagship iPad, mini or otherwise
  • No large screen iPhone (and let's not confuse any such thing with the flagship iPhone)
  • No collection of multi-color, lower end iPhones
  • No new, massively cool apps that leverage iOS 7
  • No wearable tech of any sort

There's more we can add but this list will suffice. Now let's look at what Apple will introduce either towards the end of its next quarter or at the very beginning of the holiday quarter (October 1, 2013 - December 31, 2013):

  • The new flagship iOS 7 iPhone, possibly with a 4.7 inch display, possibly utilizing next generation IGZO-based, highly power-efficient displays, and likely with a fingerprint scanner. Our prediction is that it will be super light and thin and jewel-like; it will be luxurious; it will own smartphone cachet; and it will result in a huge upgrade cycle for all current iPhone users
  • The new, thinner flagship iPad, and an iPad mini that may not yet have a retina display (although recent rumors suggest that it will)
  • Large screen, 5+ inch iPhones that are not based on the new flagship iPhone but that will be based on the current generation iPhone 5. Our prediction is that any iPhone user who grudgingly switched allegiance due to screen size limitations will flock back to the iOS ecosystem en masse
  • A new low end iPhone available in multiple colors that will be the "expensive" inexpensive option -- cheap enough to make a frictionless buy, expensive enough to give Apple some profits and low end cachet
  • New, massively cool apps that significantly leverage iOS 7, including updates and upgrades to older apps
  • No wearable tech of any sort -- can't have everything in time for Q4 2013 and for Apple to be successful here the priority will be on creating a luxury collection of wearables, which will take time for their new fashion expert to cohesively pull together

The underlying foundation to our list noted above is that we fully believe Apple will regain its innovation mojo as it moves towards announcing its new mobile device product lineup. We believe that Tim Cook and his senior team will be able to make the transition from a certain perception of "Tim Cook as staid and corporate supply chain expert" to revealing "Tim Cook as full-fledged and certified Apple magician." Cook's team will be responsible for delivering, but Cook will get the credit as the new magician in residence. We're convinced this will happen.

As the overall sense of Apple magic is restored, so, too, will Apple's stock price be restored. As November and December 2013 begin to unwind and it becomes clear that Apple's shipments will dominate, we will head into Apple's January 2014 earnings call for its Q4 2013 period with significantly renewed enthusiasm for Apple from a financial perspective. Look for the stock to climb back up the ladder to loftier heights.

As we begin to approach Apple's show and tell, look for significant leaked images and general product details to appear. Given recent history the leaks will very likely be accurate in what they suggest. What the leaks will not be able to predict or really show will be the actual look and feel of what will become Apple's flagship device. The fanatical attention to detail and the jewel-like luxury that will define Apple's flagship will need to wait until the show and tell event actually takes place.

Apple's key competitors -- Samsung and HTC -- are already reshuffling themselves in light of perceived market saturation for high end smartphones. HTC is now going through a re-org that will allow it to more specifically "focus on devices" (we thought they were already doing so ourselves), and Samsung has begun to preach the importance of its semiconductor and chip manufacturing businesses as being critical to overall Samsung profits. The bloom looks to be off the Samsung rose.

Finally, the other legitimate challenger to Apple, Nokia, may be developing problems related to Microsoft's inability to keep pace with the need to release operating systems versions more frequently than it now does. Even with its new Lumia 1020 flagship Nokia will remain a niche player for the foreseeable future. We'll leave Huawei and the rest of the Chinese players off our scope here but they will have limited visibility outside of China itself and will more directly compete with Samsung and Nokia than with Apple. Those looking for Apple products -- whether cheaper phones or large display phones -- will buy Apple regardless.

That leaves us feeling quite bullish on Apple. We believe we'll see the necessary mobile innovation arrive in time for the 2013 holiday season. And we believe we will see Apple wearable technology appear immediately following, setting the stage for a significant period of newly sustained Apple product domination in 2014. Our only remaining concern is that Apple needs to significantly step up its marketing and its ads. The current "feel good" soft commercials the company is playing are awful -- there needs to be a major return to product focus and dynamic Apple users putting those products through their fun paces. We hope Paul Schiller is listening.




Edited by Rich Steeves



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