FundamentalsWritten by Ophir Gottlieb, 10-28-2015
The iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaks. In terms of its impact on the industry, the iPhone is less relevant.
- Matthew Lynn Bloomberg, 2007
That exact ridiculous sentiment is still, today, echoed in today's media to the point of total absurdity.
Apple is humiliating Wall Street's analysts and the main stream media because both lack the lexicon to understand what's actually happening in technology, and that goes for Google, Facebook, Amazon, Microsoft and dozens of technology and biotechnology companies. But this reality is especially apparent when it comes to Apple and the firm is making a fool out of many analysts and journalists.
Here's a fact for you that you won't hear elsewhere. Apple's spending in research and development (R&D) is up 90% in the last two-years. Hello?
Apple is investing in a lot of innovation which I will discuss below, but one massive innovation has gone quietly unnoticed by main stream media. Long ago the company created its own chips 'A-chips' which have been a remarkable success. Here's a snippet from The Motley Fool:
The 'iPhone mini' is also coming from Apple with an additional 20 million -30 million iPhone sales next year. More on this topic later in the article, but it's yet another innovation that zero analysts saw coming.
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Here's the video recap of this article, with fleshed out details below in the write-up.
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I'm going to introduce example A-1 of how the media just doesn't understand technology. And fear not, at the end of this article, I will introduce you to some people in the media that are excellent follows.
"Carl Quintanilla: A phone company. Now more than ever"
YIKES! Friends, the iPhone is not a phone! It's the embodiment of a new language, a new vocabulary that Apple has brought to the social vernacular. iPhone is the control center, the digital extension of ourselves to grow the largest company in the world, with the largest earnings ever into an even larger colossus. It's not a phone, it's a 5oz., 2 billion transistor, networked, digital tool chest.
The main stream media simply doesn't have the lexicon to understand breaking technology. It just doesn't. Get free news alerts (once a day) from us and you will be the expert in the room.
When a person holds their iPhone in their hands, they aren't holding an upgraded Ericsson flip phone from 2003. They're holding their wallets. They're holding their keys. They're holding their TV remote. More iPhones means more of Apple in the middle of everything we do. Here's an image of the iPhone as a control center.
Here was my response to Carl.
The iPhone is not a phone. Its a facility for Apple to dominate mobile pay, wearables, TV, music, Car and more. https://t.co/fOpeoW9d6N— Ophir Gottlieb (@OphirGottlieb) October 27, 2015
That's right, iPhone is the bulldozer. The iPhone is the evolution of all the "tools" that have differentiated primates since the opposable thumb.
As I said on live TV and in several reports:
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What Apple is Doing
Apple's colossal success has been achieved through a seamless ecosystem that focuses on ease, style, and marketing. Apple reinvented itself with the iPod, and people called it an mp3 player company but of course, the iPod's real power came from the synergy between music device <-> music store <-> control hub (apple/mac computer).
Apple is repeating history. This time the iPhone is the driver, and your watch, tv, credit card and car is the synergy. Welcome to the warm, fuzzy, techno-blanket Apple will wrap its hundreds of millions users in.
This is why Carl and most of Wall Street is simply dead wrong and will likely continue to be on most things tech and biotech related: they lack the vocabulary to understand it.
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A New Language
Apple's new language through its iPhone communicates to its market place a vast array of products that will soon (or already do) dominate the landscape. And it sure as sh* isn't a "phone."
iPhone Powers Apple Pay
The mobile payment segment of technology will be enormous. It already stands at an expected $8.7 billion for 2015 and is expected to grow to $27 billion by 2016 and $3 trillion by 2022.
The largest banks are not only aware, but are in bold support of the shift to mobile payment. To the extent that a mobile platform like Apple's increases payment volumes, the banks are ecstatic. Almost every major bank in the world is now an explicit partner to Apple Pay and most have happily agreed to cut transaction costs. In fact, here's a snippet from Bank of America:
This is not a small adjunct, this is a huge, future business line that in and of itself is easily worth $100 billion in market cap.
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iPhone Powers Apple Watch
How many Apple Watches will be sold? Who knows, but we do know it's some percentage of iPhones because the iPhone is the hub and Watch is the extension. One thing we must recognize that the main stream media just can't help but get wrong over and over (and over) again is that version one of Apple products are not the end game.
Expectations are that Apple sold one million watches in its first day. Here are some product reviews to remind us of how wrong and dangerous it is to follow main stream media and Wall St. for direction. They lack the vocabulary, and here's yet more evidence:
Source: The Motley Fool
Apple Watch is one of the few products that could have a substantial impact on Apple revenue and earnings this year and Wall St. has yet again, discounted it to essentially zero. Here's a headline for you. "Wall St. was wrong about the Apple Watch." That will be posted in about a year, and the publisher will be every major news service in the world.
The Apple Watch with the iPhone as its facility for distribution is going to be large enough to be an entire stand alone firm, much like Apple Pay.
The main stream media simply doesn't have the lexicon to understand breaking technology. But you can. Get free news alerts (once a day) from us and you will be the expert in the room.
iPhone Powers the Apple Car
September 21st the Wall St. Journal reported: "Apple Inc. is accelerating efforts to build an electric car, designating it internally as a "committed project" and setting a target ship date for 2019, according to people familiar with the matter" (Source: WSJ).
The self-driving car market will take a few years to materialize, but if you're looking for another "iPhone" size product, this is it, possibly several-fold over.
Navigant Research states:
The average selling price for new cars in 2014 was $33,560 per USA Today. While that number includes trucks, we can use it as some sort of base. If 6.4 million EV sell by 2023 at an average price of $35,000 that's a $224 billion industry. Again, the Apple Car will live in a segment that could easily be an entire company, ya know, like, say, Tesla.
The iPhone Powers the Apple Car -- it is the ecosytem that connects the consumer to the vehicle. The Apple Car is a part of home, and home is built on the foundation of the iPhone.
iPhone Powers Apple Music
On October 20th, 2015 Tim Cook revealed that Apple Music service has 6.5 million paid subscribers with another 8.5 million users who are still in their three-month free trial period. As a comparison, Spotify has 20 million subscribers (Source: Fortune).
Bigger: Before Apple entered the smart phone realm, in the full year of 2006, worldwide smart phone deliveries totalled 64 million units. By 2014, 1.2 billion smart phones were sold . Further, Apple sold 74.6 million iPhones in one quarter last holiday season, larger than the entire worldwide smartphone industry in 2006. Apple explodes segments an order of magnitude larger just by entering.
Apple isn't looking for 20 million Music subscribers, it's looking for some massive multiplier and we have every reason to believe it will get it. And how will people listen to their Apple Music? The iPhone of course.
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iPhone Powers Apple TV
Tim Cook also just reported that Apple began taking orders for the new Apple TV on October 26 and that it will start shipping the product later that week (Source: Fortune).
A review of Apple TV from WSJ has such a good title, that I'll just leave right here: Apple TV Review: A Giant iPhone for Your Living Room. And a quote:
Barron's reported on Global Equities Research's Trip Chowdhry when he said that the Apple TV platform "provides strong indication" that Apple TV will come with its own software development kit and its own app store, i.e. its own Apple TV ecosystem. And there's the problem for Netflix, he argues, since in this ecosystem Netflix would be just another app, or a "second-class citizen." (Source: New Apple TV Platform Is Bad News For Netflix: Global Equities).
Yes, the Apple TV is real, and it has huge upside. And yet again, we watch TV at home, and it's the iPhone that creates the facility for home (and thus the TV).
iPhone Facilitates iOS
Let's get a little techy for the purpose of getting a lot smarter.
Tim Cook made a stunning and rather violent attack on the entire mobile advertising world and especially an attack on Google. Here's what just happened:
Apple released iOS9 and in that operating system users can implement ad-blocking apps that prevent mobile advertisements from appearing in the Safari browser. We can say instantaneously that 20% of Google's advertising business is now in dire straits.
Apple didn't just set out to kill Google's mobile revenue, it decided to go ahead and take it for itself. Check this out from Benzinga:
And yet one more piece. With websites and ads now living inside the iOS9 ecosystem, search will be done through the iOS search. Yes, Apple has now entered search as well.
Apple has instantly entered the advertising the world. A quarter ago, it didn't even have an advertising arm. And the facilitator for iOS is of course, the iPhone.
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For the Record, Don't Worry About the iPhone
iPhone sales broke every record conceivable last year, and for the calendar fourth quarter of 2014, Apple broke an all-time record for the largest profit ever by any company. While people were awed by the results, Wall St. couldn't help itself to then turn to the comparisons for this year versus last and how inconceivable it would be for the firm to repeat its success.
Guess what?... Apple is going to break that record again. Every quarter this year Apple has sold more iPhones than it did last year, and by rather staggering amounts. Last quarter Apple sold over 20% more iPhones than the same quarter last year. As Bastian said in the NeverEnding Story, "But that's impossible!"
Well, it's impossible if you listen to sources that don't understand technology beyond headlines and click bait. It's impossible if you believe Apple is a "phone company." Apple's iPhone is a home, it's not a phone (I know, I just created an E.T. pun there). Don't listen to the noise.
And by the way... Rumors have it that Apple will be releasing a 4 inch iPhone, with names varying from iPhone 6c, iPhone 7c to iPhone mini or iPhone Air. But all reports point to it being in a metal casing, not a cheaper plastic version of the device. Research suggests there is still substantial demand for a smaller iPhone and all the other handset makers have moved away from smaller phones. Apple is winning. Again.
Estimates for 2016 put this new, massively upgraded small iPhone at 20 million - 30 million units.
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Other People Providing Knowledge (in Finance) at an Extraordinary Level
@barronstechblog (Tiernan Ray)
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@fhoro (Frances Horodelski)
@michaelsantoli (Michael Santoli from Yahoo! Finance)
@aarontask (Aaron Task from Yahoo! Finance)
@serwer (Andy Serwer, EiC at Yahoo! Finance)
@RyanDetrick (Ryan Detrick)
@benzinga (up and coming)
@business (Bloomberg Business)
@MrTopStep (Danny Riley)
@adamfeuerstein (Adam Feuerstein; biotech everything)
Many others -- no hurt feelings here, this is not a comprehensive list. Also, there are some brilliantly talented day traders on twitter which I have not included in this list since it's off topic. Just see who I follow and you'll find them.
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