AAPL - Apple Inc.

[Liberty]

http://recode.net/2014/08/31/apple-9-9/

 

This mentions American Express and Visa. If true, doubt Mastercard would want to be left out, so that's basically everybody.

[txlaw]

http://recode.net/2014/08/31/apple-9-9/

 

This mentions American Express and Visa. If true, doubt Mastercard would want to be left out, so that's basically everybody.

 

And this article mentions all three:

http://www.bloomberg.com/news/2014-08-31/apple-said-to-team-with-visa-mastercard-on-iphone-wallet.html

 

It's nice to see this finally happening. 

 

I always talked about how disappointed I was that Apple did not incorporate NFC into their handsets like Samsung and other Android manufacturers because I thought that would really help push forward mobile payments.  There would be push back where people would say, well, the reason Apple hasn't incorporated NFC is that they believe the user experience is not right yet or, taking Apple's spiel directly, it wasn't clear that NFC was the solution to any problem.

 

Well, I never bought into those explanations.  While I do think it makes sense to combine TouchID and NFC payment, I personally think that Apple was primarily holding off because they were trying to negotiate with the big payments provider companies and the telcos on how they would get a split of the payments pot.  And so they were willing to sacrifice pushing things forward (some might say innovation) for business reasons, which is perfectly rational if you're in Apple's position.

 

Anyways, I'm looking forward to this next release. 

 

The bigger screen and NFC will be enough for me to consider upgrading from my iPhone 5, though I am still also considering switching to Android.  If they revamp Apple TV to work even better with iPhone and the Mac, a lot of people are gonna be buying both iPhones and AppleTVs this coming holiday season.  And if they increase their game distribution (how awesome would it be if Apple could get Nintendo to release all old games onto iOS/AppleTV), that's also gonna have a huge effect on sales.  I would expect a pretty good 4th quarter for Apple this year.

 

Regardless of whether you think Apple is a good bet as an investment, they do remain a great company that releases great products.

[Liberty]

I kind of expected the market to react negatively to the hacking scandal. It was bound to happen someday -- who hasn't been hacked? No complex software is without holes, and if you're popular enough you have a target on your forehead. Microsoft's OS had been a swiss cheese for over a decade with hundreds of millions of PCs full of spyware and malware and viruses despite them releasing patches every 2 seconds and everybody running bloated anti-virus software, and pretty much all mobile malware is on Android... Apple's ecosystem is pristine by comparison.

 

But it looks like what the market saw was: Hey, all those celebrities seem to prefer iPhones. That's a pretty good endorsement, I suppose  8)

 

I'm kidding. Who knows why the market does what it does on any single day? It's fun to make up reasons ex post facto like the media does, though ;)

[KCLarkin]

I kind of expected the market to react negatively to the hacking scandal. It was bound to happen someday -- who hasn't been hacked? No complex software is without holes, and if you're popular enough you have a target on your forehead. Microsoft's OS had been a swiss cheese for over a decade with hundreds of millions of PCs full of spyware and malware and viruses despite them releasing patches every 2 seconds and everybody running bloated anti-virus software, and pretty much all mobile malware is on Android... Apple's ecosystem is pristine by comparison.

 

But it looks like what the market saw was: Hey, all those celebrities seem to prefer iPhones. That's a pretty good endorsement, I suppose  8)

 

I'm kidding. Who knows why the market does what it does on any single day? It's fun to make up reasons ex post facto like the media does, though ;)

 

I think the Amex, Visa, MA partnership rumors are more material.

[roundball100]

It's not clear that this will cause any revenue loss, nor that the general public really cares very much about security until they experience personal loss (though a small minority, including engineers and security professionals, puts serious energy and attention to it). In my experience, most people are binary: security is not a concern to them at all, until it affects them personally.  People want free software, load up free or very low cost aps, and expect security as part of the free (or very low) price; then they are surprised when they get what they pay for.    But people also have short memories. 

[Liberty]

I think the Amex, Visa, MA partnership rumors are more material.

 

Look at the last line of what I wrote. I wasn't serious :)

[Liberty]

It's not clear that this will cause any revenue loss, nor that the general public really cares very much about security until they experience personal loss (though a small minority, including engineers and security professionals, puts serious energy and attention to it). In my experience, most people are binary: security is not a concern to them at all, until it affects them personally.  People want free software, load up free or very low cost aps, and expect security as part of the free (or very low) price; then they are surprised when they get what they pay for.    But people also have short memories.

 

Alternatives also matter. Even with this (the hole is almost certainly patched by now), iOS is still a lot more secure than Android, so if you care about security, you won't switch.

[Liberty]

Apple press release:

 

https://www.apple.com/pr/library/2014/09/02Apple-Media-Advisory.html

 

Update to Celebrity Photo Investigation

 

We wanted to provide an update to our investigation into the theft of photos of certain celebrities. When we learned of the theft, we were outraged and immediately mobilized Apple’s engineers to discover the source. Our customers’ privacy and security are of utmost importance to us. After more than 40 hours of investigation, we have discovered that certain celebrity accounts were compromised by a very targeted attack on user names, passwords and security questions, a practice that has become all too common on the Internet. None of the cases we have investigated has resulted from any breach in any of Apple’s systems including iCloud® or Find my iPhone. We are continuing to work with law enforcement to help identify the criminals involved.

 

To protect against this type of attack, we advise all users to always use a strong password and enable two-step verification. Both of these are addressed on our website at http://support.apple.com/kb/ht4232.

[Palantir]

On the bright side, all the people who are worth hacking into are using iPhones, not Android.  ;D

[ni-co]

For those of you who still don't follow Ben Thompson – a must read post:

 

This is an incredibly compelling lineup from a shareholder perspective:

• More people are on the new form-factor upgrade cycle than on the ‘S’ upgrade cycle
  
• New screen sizes are a very tangible reason to upgrade for those who have kept their phones longer than average
  
• Selling the top-end phone for $100 more will be a big boost to both the average selling price and to margins.
  

 

http://stratechery.com/2014/iphone-6-louis-vuitton-chanel/

[KCLarkin]

"According to a designer who works at Apple, Jonathan Ive..."

 

http://www.nytimes.com/2014/09/04/fashion/intel-and-opening-ceremony-collaborate-on-mica-a-stylish-tech-bracelet.html?_r=0

[Liberty]

http://www.nytimes.com/2014/09/05/technology/apple-smartwatch-and-bigger-iphones-to-be-introduced.html?_r=0

[Liberty]

http://bankinnovation.net/2014/09/apple-said-to-negotiate-deep-payments-discounts-from-big-banks/

 

Apple reportedly has reached deals to lower its card transaction fees with five of the largest financial institutions in the nation as part of the Silicon Valley giant’s to-be-launched payments venture.

 

The financial institutions are American Express, JP Morgan Chase, Citigroup, Capital One, and Bank of America. [...]

 

The first thing Apple has done is convince these four FIs to consider transactions from Apple’s upcoming payments venture — said to launch with its forthcoming iPhone 6 introduction — as “card present” transactions, which carry a lower discount rate than “card not present” transactions, because of lower fraud risk.

 

Beyond that, Apple has also managed to bump down the actual “card present” rate by 15 to 25 basis points, according to people with knowledge of the talks. Normal “card present” discount rates, which are shared by issuers and networks but determined by the network, are about 1.5%, which means that Apple appears as though it will get around a 10% discount on the processing rate it will pay.

 

Reports about the Apple payments platform continue to surface. Re/Code and Bloomberg reported that financial networks Visa, MasterCard, and American Express were in talks with Apple, and, on the merchant side, our report regarding discussions with Nordstrom led to a wave of reports on Apple’s retail partnerships.[...]

 

On Apple’s side, the deal with the issuers was the “polite” way of entering the financial services industry. We’ve heard of only one one other merchant that has received a price break similar to Apple’s (cough, cough Walmart). Who knows whether Apple’s deals will foster additional price reductions on card transactions for retailers.

[Liberty]

Another good one (Thanks EZ):

 

http://pando.com/2014/09/05/apple-reportedly-partners-with-banks-negotiates-deep-discounts-on-payments-processing-rates/

 

Not only will Apple get the “card present” rates, but according to BankInnovation, the company will get an additional 15 to 25 basis point discount on these already low rates, something that is incredibly rare within the industry. This means that while even the largest merchants in the world pay 1.5 percent to process payments when their cashiers can physically verify the card, payments processed through Apple’s new platform could cost just 1.25 to 1.35 percent. By comparison, PayPal, Braintree, and Stripe charge on the order of 2.7 percent for their card not present transactions.

 

[...] [Apple] also has a reported 800 million iTunes accounts with credit cards on file. Collectively, this represents an enormous (and still growing) addressable market. By comparison, PayPal is currently the mobile payments leader with “just” 150 million users worldwide, and a reported 50 million users in the US. Apple eats that kind of audience for breakfast.

 

[...] But beyond its massive footprint, Apple has another major advantage in negotiating these unprecedented payments rates: its ability to authenticate transactions via access to biometric security data, via TouchID, as well as GPS-based and potentially NFC- and iBeacon-based location data. [...]

 

Apple is certainly not the only company with a large installed base and the ability to negotiate sweetheart deals with large financial institutions. Amazon could be described in a similar fashion. But until (unless) its mobile hardware takes off, the giant etailer will be relegated to a similar second-class citizen position as apps like PayPal on the bulk of the world’s mobile devices. Google too would seem to have an opportunity to compete in this space should it decide to roll out a similar payments platform for Android. But with device fragmentation and the alleged lower average demographic of Android’s worldwide userbase, it’s unclear how realistic or lucrative such a platform might be. Google also has the fewest credit cards on file of the three companies, and seemingly the lowest levels of trust among consumers.

 

A low-cost, convenient, and secure payment system would certainly be another way to add value to the ecosystem (esp. if can be done from wearable device too) and further differentiate and add value for customers. Entering a PIN didn't seem like a hassle until people got TouchID, and now it's hard to go back once you've gotten used to it. This could be similar (doesn't seem like a big deal until people get used to it, and then going back feels archaic and frustrating).

[learner]

If Apple was able to negotiate down the transaction fee to “card present” rates, I wonder who picks up the incremental fraud cost, perhaps the FIs with some caveats?  I think this is where it starts getting a little murky when these new layers (mobile device) are introduced into transactions.

While mobile payments might take off, it has been one of those things that people always believe will take off in the next 6 months.  Google Wallet, ISIS (now rebranded Softcard) and some smaller pilots by some big banks (Bank of America, Barclays, etc.) have all failed due to lack of consumer/merchant acceptance.  To accept mobile payments most of the merchant point of sale devices needed to be upgraded in the US, which is a significant cost (~$4,000-5,000/install). Merchants also need to train their sales associates to use it.  On the consumer side, using credit cards is just much quicker than logging into a mobile device every time.  Also, cell phone reception is spotty in many large retail stores without which most mobile wallets don’t work.  It will be interesting to see how it works out for Apple.

 

[ni-co]

If Apple was able to negotiate down the transaction fee to “card present” rates, I wonder who picks up the incremental fraud cost, perhaps the FIs with some caveats?  I think this is where it starts getting a little murky when these new layers (mobile device) are introduced into transactions.

 

They seem to be going to swallow it:

 

Remarkably, Apple has not only gotten these banks to agree to accept iPhone-linked payments, but it has gotten them to offer rebates of up to 0.25% of the amount of a transaction on the credit- and debit-card fees, known as "interchange," that Apple must pay. (Those rates vary widely, but you can think of them as averaging 1.5–1.75% of a transaction.)

 

In return, Apple will assume some of the risk of fraudulent transactions, using its TouchID biometric sensors, NFC, and geolocation data to assure itself and its bank partners that a customer really is the one conducting a transaction.

 

http://readwrite.com/2014/09/05/apple-payments-interchange-rebates

[Liberty]

While mobile payments might take off, it has been one of those things that people always believe will take off in the next 6 months.  Google Wallet, ISIS (now rebranded Softcard) and some smaller pilots by some big banks (Bank of America, Barclays, etc.) have all failed due to lack of consumer/merchant acceptance.  To accept mobile payments most of the merchant point of sale devices needed to be upgraded in the US, which is a significant cost (~$4,000-5,000/install). Merchants also need to train their sales associates to use it.  On the consumer side, using credit cards is just much quicker than logging into a mobile device every time.  Also, cell phone reception is spotty in many large retail stores without which most mobile wallets don’t work.  It will be interesting to see how it works out for Apple.

 

The reason why it hasn't taken off so far isn't some nebulous mystery. It's because nobody has done it right and offered something of value to customers and merchants.

 

If Apple can do something that is more convenient and more secure than the alternatives, they'll succeed. They weren't the first with a digital music player, smartphone, or tablet market either, but they got those things right. I think there's a very good chance that they'll do mobile payments right (putting your thumb on a fingerprint reader and tapping "ok" certainly is better than taking a credit card out, typing a PIN, waiting for it to validate, putting the card away). Merchants will certainly want to make Apple's very valuable users feel welcome in their stores... If Apple starts out with some big partners, who will then want to be the one left out who says "sorry, you can't pay with your iPhone/iWearable here"?

 

Oh, and you don't need cell reception to do this. Biometric data is stored locally in a secure enclave that isn't even accessible directly to the rest of the device, and the merchant is the one with the secure connection to the payment processor.

[Junto]

While mobile payments might take off, it has been one of those things that people always believe will take off in the next 6 months.  Google Wallet, ISIS (now rebranded Softcard) and some smaller pilots by some big banks (Bank of America, Barclays, etc.) have all failed due to lack of consumer/merchant acceptance.  To accept mobile payments most of the merchant point of sale devices needed to be upgraded in the US, which is a significant cost (~$4,000-5,000/install). Merchants also need to train their sales associates to use it.  On the consumer side, using credit cards is just much quicker than logging into a mobile device every time.  Also, cell phone reception is spotty in many large retail stores without which most mobile wallets don’t work.  It will be interesting to see how it works out for Apple.

 

The reason why it hasn't taken off so far isn't some nebulous mystery. It's because nobody has done it right and offered something of value to customers and merchants.

 

If Apple can do something that is more convenient and more secure than the alternatives, they'll succeed. They weren't the first with a digital music player, smartphone, or tablet market either, but they got those things right. I think there's a very good chance that they'll do mobile payments right (putting your thumb on a fingerprint reader and tapping "ok" certainly is better than taking a credit card out, typing a PIN, waiting for it to validate, putting the card away). Merchants will certainly want to make Apple's very valuable users feel welcome in their stores... If Apple starts out with some big partners, who will then want to be the one left out who says "sorry, you can't pay with your iPhone/iWearable here"?

 

Oh, and you don't need cell reception to do this. Biometric data is stored locally in a secure enclave that isn't even accessible directly to the rest of the device, and the merchant is the one with the secure connection to the payment processor.

 

Mobile wallets are a wasted effort at the current time. Merchant acceptance is slow and will continue to be slow. There is no material benefit for it outside of a fancier technology. The others  "a digital music player, smartphone, or tablet market" were actual game changers for a number of reasons that are much more material than saving a milisecond while paying for products and didn't require as much of a forced change in consumer behavior.

[Liberty]

Mobile wallets are a wasted effort at the current time. Merchant acceptance is slow and will continue to be slow. There is no material benefit for it outside of a fancier technology. The others  "a digital music player, smartphone, or tablet market" were actual game changers for a number of reasons that are much more material than saving a milisecond while paying for products and didn't require as much of a forced change in consumer behavior.

 

Let's revisit this comment in a year's time.

 

Obviously a payment system is a feature among many others, not a product like an iPhone or an iPad, so it won't have the same impact. But the same principle applies to products as to features; it's not enough to have a good idea, implement it badly and then say "see, nobody wants it". To reveal its true potential, it has to be done right (fingerprint sensors have existed everywhere for a long time, but it was mostly a gimmick that worked badly that only people forced by their employers used). Features like this might not be the main course, but they're what differentiates products, so they're quite important.

 

For what it is, I think such a payment system can be a really great feature that people will have a really hard time dropping once they get used to it, like TouchID. And once your wallet becomes truly digital, there's a lot of other nifty things you can do other than just the actual payment part...

[Liberty]

Apple just hired one of the world's most renowned designers:

 

http://www.vanityfair.com/online/daily/2014/09/marc-newson-apple-jony-ive

 

and more rumors on big partners:

 

http://recode.net/2014/09/05/apple-iphones-mobile-payments-expected-to-include-cvs-and-walgreens/

[txlaw]

While mobile payments might take off, it has been one of those things that people always believe will take off in the next 6 months.  Google Wallet, ISIS (now rebranded Softcard) and some smaller pilots by some big banks (Bank of America, Barclays, etc.) have all failed due to lack of consumer/merchant acceptance.  To accept mobile payments most of the merchant point of sale devices needed to be upgraded in the US, which is a significant cost (~$4,000-5,000/install). Merchants also need to train their sales associates to use it.  On the consumer side, using credit cards is just much quicker than logging into a mobile device every time.  Also, cell phone reception is spotty in many large retail stores without which most mobile wallets don’t work.  It will be interesting to see how it works out for Apple.

 

The reason why it hasn't taken off so far isn't some nebulous mystery. It's because nobody has done it right and offered something of value to customers and merchants.

 

If Apple can do something that is more convenient and more secure than the alternatives, they'll succeed. They weren't the first with a digital music player, smartphone, or tablet market either, but they got those things right. I think there's a very good chance that they'll do mobile payments right (putting your thumb on a fingerprint reader and tapping "ok" certainly is better than taking a credit card out, typing a PIN, waiting for it to validate, putting the card away). Merchants will certainly want to make Apple's very valuable users feel welcome in their stores... If Apple starts out with some big partners, who will then want to be the one left out who says "sorry, you can't pay with your iPhone/iWearable here"?

 

Oh, and you don't need cell reception to do this. Biometric data is stored locally in a secure enclave that isn't even accessible directly to the rest of the device, and the merchant is the one with the secure connection to the payment processor.

 

Mobile wallets are a wasted effort at the current time. Merchant acceptance is slow and will continue to be slow. There is no material benefit for it outside of a fancier technology. The others  "a digital music player, smartphone, or tablet market" were actual game changers for a number of reasons that are much more material than saving a milisecond while paying for products and didn't require as much of a forced change in consumer behavior.

 

Saving a millisecond while paying for products isn't really the main benefit of mobile payments.  IMO, it's the security benefits that go along with mobile payments that is the real benefit.

 

There have a been a number of high-profile data breaches that have occurred in the last year, with Target being the most high-profile one of them all.  As a result, there is increased awareness among the public and regulators of lapses in security by merchants.  This is resulting in increased commercial liability for these merchants and regulatory pressure to adopt new security technologies.  For example, one of those technologies is secure chip credit cards, which at this time are not really being used much in the US.  But because of the data breaches that occurred (and the resulting financial consequences), big merchants are finally starting to update their POS systems and harden the security of their back end systems that handle payments.  So there is an incentive to spend the money on upgrades now.

 

Now, mobile payment systems that incorporate mobile hardware-based "secure elements" are, in my opinion, a leapfrogging step because not only do you have the secure storage of payments info on unique mobile hardware (instead of on relatively insecure credit cards), but you also have the following:

 

- Decreased percentage of "card not present" transactions

 

- Locational checks and tracking that can be implemented by the telcos and tech cos to add an additional layer of security (a bit scary for privacy concerns, though, I would say)

 

- Reduction of "things" you need to carry around to authenticate payment transactions (and other transactions where you need auth)

 

- Potentially a single point of contact -- say, Apple or your telco -- for dealing with payments issues (e.g., suspending all credit card payments when one's phone gets stolen by contacting that single point of contact rather than all of your issuing banks)

 

So there are definitely a lot of benefits to having mobile payments.  And if anybody can make NFC payments finally start happening in North America, it would be AAPL. 

[peter1234]

If you can pay faster, you can buy more stuff and spend more money during the same time.

 

Does this mean that you have less money at the end of the month to buy Apple products?

 

???

[abitofvalue]

Apple invites fashionistas to the event :

 

http://mobile.reuters.com/article/idINKBN0H10AJ20140906?irpc=932

 

At this point not releasing a wearable will be a massive PR disaster.  Got to think the confidence internally is sky high on the iwatch.  What with the quotes about switzerland and now inviting fashion bloggers.  They sure know how to build the hype.

 

On payments - do you guys think apple's closed ecosystem helps viz a viz an anroid wearable? I am not sure it matters as either would have to be pretty secure.  Probably what helps apple more is they already have one of the largest databases of credit card numbers. just a matter of getting those numbers linked to the new device now.

[Liberty]

 

On payments - do you guys think apple's closed ecosystem helps viz a viz an anroid wearable? I am not sure it matters as either would have to be pretty secure.  Probably what helps apple more is they already have one of the largest databases of credit card numbers. just a matter of getting those numbers linked to the new device now.

 

I think Apple has a big advantage there because they control the whole stack (including touchID, secure enclaves on their SOCs, existing iTunes payment system, relationships with banks and credit cards, etc).

 

If you have to get a bunch of companies to work together, try to get deals done with financial companies and retailers, all with their own hardware implementations and security processes, etc... Much harder to get it right. And will Samsung be happy to offload all the payment stuff to Google and lose a way to differentiate and make money? Will Google treat all its partners fairly or start competing with them again like they did when they bought Motorola, creating tension in the relationship? Apart from Samsung's very inferior fingerprint sensor, who can even claim to have a way to do this securely and conveniently?

 

Another question we can ask now that wearables are a thing: How good are companies like Google and Samsung at making fashionable things?

[Viking]

iPhone is Apple's most important hardware category, driving the majority of the companies profits. At least for the next few years, how iPhone goes is how Apple's profits will go and how Apple's stock price will go. I have been trying to understand how the iPhone 6 will sell to better understand Apple's current stock valuation.

 

Currently it looks to me like analysts expect Apple's total sales in fiscal 2015 (Oct-Sept) to increase about 9%, versus growth of about 5% expected for fiscal 2014. This is good growth and suggest expectations are the new iPhone will sell a little better than the 5s.

Apple's Annual Sales: F2013 = $171 billion; F2014 = $180 est; F2015 = $197 est

 

Based on all the leaks, it looks like Apple will indeed be releasing two larger screen phones on Tuesday. One of these will likely sport a $100 higher price which should help increase average unit selling prices. There also looks to be a lot of pent up demand for the larger screen phone that suggest this upgrade cycle may be much better than the last couple of years. From a competitive standpoint, Samsung looks to be falling out of favour (by not being able to innovate the past two years with their smartphones).

 

It looks to me that Apple is positioned to beat current expectations from analysts for iPhone units sold and total revenue in fiscal 2015. Should this be the case, earnings estimates will move higher and this should also push the stock price higher (assuming it maintains it's current multiple of 15 x est F2015 earnings).