AAPL - Apple Inc.

[DooDiligence]

If the next Apple watch has LTE & a decent battery life, would you want one?

 

If so, do you think you'd use the watch more than your iPhone?

 

How long would it take before the watch + Airpods cannibalized the iPhone?

[LongTermView]

If the next Apple watch has LTE & a decent battery life, would you want one?

 

If so, do you think you'd use the watch more than your iPhone?

 

How long would it take before the watch + Airpods cannibalized the iPhone?

 

Yes, hopefully my Nike Watch 2 can be traded in for one.

 

No, I'll use the iPhone more than the watch.

 

Not sure about the last question.

[DooDiligence]

If the next Apple watch has LTE & a decent battery life, would you want one?

 

If so, do you think you'd use the watch more than your iPhone?

 

How long would it take before the watch + Airpods cannibalized the iPhone?

 

Yes, hopefully my Nike Watch 2 can be traded in for one.

 

No, I'll use the iPhone more than the watch.

 

Not sure about the last question.

 

Yeah, I think the last question will be answered in hindsight...

[johnny]

The aWatch : iPhone :: iPhone : iPod analogy is overblown. The aWatch isn't a superset of phone functionality, it's a subset--and its like an order of magnitude off. It is, and will remain for the next 5 years, an accessory. It will be in a state of permanent feature-lag relative to the Phone, for reasons of physics alone. So this Jetsons future people are contemplating is quite a ways off.

 

The more relevant concern is that a lot of people may have something like a relatively inelastic "Applestuff" budget and that as more accessories come in that people like (Airpods, etc.) the replacement cycles on core products will get more stretched out.

[KCLarkin]

...a relatively inelastic "Applestuff" budget...

 

It will be interesting to see if they can break out of the consumer tech budget. They tried to get into the payment network budget, the cable TV budget, the home entertainment budget. This is the only way they are going to materially increase revenue. They've had some success with the App Store.

 

Apple Watch will get really interesting if it ever breaks into the healthcare budget.

[johnny]

I wouldn't give them any credit for "new business" lines that are completely and totally and unambiguously dependent on iPhone sales: this is just iPhone revenue being extracted in novel ways: iCloud Drive, App Store, Apple Music etc.

 

If Disneyland came to you with the exciting news that their soda and t-shirt sales show that they're decreasingly reliant on the fickle theme park business, you'd probably stop listening to Disneyland's management's thoughts on the topic.

[KCLarkin]

I wouldn't give them any credit for "new business" lines that are completely and totally and unambiguously dependent on iPhone sales

 

App Store is dependent on the installed base not sales.

[marcosc]

I wouldn't give them any credit for "new business" lines that are completely and totally and unambiguously dependent on iPhone sales

 

App Store is dependent on the installed base not sales.

 

App Store revenue should arguably be a function of installed base and sales, both of which drive developer interest for the platform and affect quality/availability of apps.

 

There are strong spikes in App Store sales in the months following new iPhone/iOS updates, which incorporate new hardware and software features that developers can take advantage of (eg: Core Location/Metal/HomeKit/Siri third party/ARkit/etc), which drive incremental purchases of apps and services.

 

I would tend to agree that Services segment growth, while not entirely linked to iPhone sales growth, is a function of the state of the iPhone/iPad ecosystem. Hence why I would argue one can't model a SOTP scenario where iOS sales plateau and start declining (even if installed base keeps rising) and project Services to grow indefinitely.

[johnny]

I wouldn't give them any credit for "new business" lines that are completely and totally and unambiguously dependent on iPhone sales

 

App Store is dependent on the installed base not sales.

 

Are you trolling me? Or do you think the ~base~ gets ~installed~ by some mystical corporate mechanism other than selling iPhones?

[KCLarkin]

Or do you think the ~base~ gets ~installed~ by some mystical corporate mechanism other than selling iPhones?

 

Assume iphone sales drop 10% this year. What happens to installed base?

[rkbabang]

Or do you think the ~base~ gets ~installed~ by some mystical corporate mechanism other than selling iPhones?

 

Assume iphone sales drop 10% this year. What happen's to installed base?

 

There isn't enough information in your stated scenario to answer the question.

 

Possibilities:

 

a) Installed base goes up, but not as much as it would have if iPhone sales were better.

 

b) Installed base goes down, because more people switched to Android than bought iPhones.

 

c) Installed base stays the same, because as many people bought iPhones as switched to Android.

 

[johnny]

Or do you think the ~base~ gets ~installed~ by some mystical corporate mechanism other than selling iPhones?

 

Assume iphone sales drop 10% this year. What happens to installed base?

 

Probably something very similar to what happened when Blackberry sales tipped in 2013--the installed base rapidly evaporates while every value investor posts about how sticky the platform is. So what multiple do you put on "installed base earnings" when your product has a 2-3 year life cycle? Think carefully.

[KCLarkin]

Probably something very similar to what happened when Blackberry sales tipped in 2013--the installed base rapidly evaporates while every value investor posts about how sticky the platform is. So what multiple do you put on "installed base earnings" when your product has a 2-3 year life cycle? Think carefully.

 

You are right that life cycle is a key part of the "installed base" calculation. I am simply stating that App Store, media, payments, healthcare, etc could come out of a different budget so your concept of an inelastic "applestuff budget" is flawed.

[johnny]

You are right that life cycle is a key part of the "installed base" calculation. I am simply stating that App Store, media, payments, healthcare, etc could come out of a different budget so your concept of an inelastic "applestuff budget" is flawed.

 

Well, the back half of the categories you listed aren't meaningful revenue areas for Apple. Apple has historically been pretty insistent that the App Store is a breakeven operation, which means it's an operation that exists solely to support the iPhone, and isn't a line of business.

 

When it comes to media, this is what illustrates my point best. They don't have competitive or even objectively good offerings in this space. What they have are "good enough" offerings that iPhone users just tolerate because its slightly easier than dealing with the alternative. The moment somebody switches from Apple to Android, they're dropping Apple Music and going to Spotify.

 

You have a point that users probably don't fully consolidate monthly charges for platform support services (like iCloud storage) into their TCO for iPhone buying, which is of course why Apple is probably doing this stuff--easier to extract $3/month for photo storage than just bump the ASPs up by another $20. But there's a natural psychological limit to this sort of stuff, which is again why I think it's very foolish to buy into the presentation of this "service revenue" as representing some awesome thing that we can reasonably expect to grow at 20% for the next two decades. Dealers charging car buyers for undercoating *works*, but it's also a phenomenon that many people understand rationally as being sort of a scammy way of trying to make cars look more affordable than they really end up being.

 

I am not proposing that Apple is near that point, only that it's the sort of contraint that doesn't get captured when we call something "service revenue" and bury the reality of the revenue: that it's simply an alternative way of monetizing iPhones.

 

Sorry for being rude earlier, I had a hangnail and it made me cranky.

[John Hjorth]

I just viewed the Apple New Products Presentation on apple.com. I must say that new iPhone X is just awesome. It goes for DKK 8.899 / DKK 10.249 here.

[rkbabang]

I just viewed the Apple New Products Presentation on apple.com. I must say that new iPhone X is just awesome.

 

I agree.  $1149 is pretty steep, but I think I'll probably upgrade my 6S.  I was hoping it would be available sooner though.  It won't be available until November. I wonder if they will be widely available in November or will they be hard to get before the end of the year?

 

 

[rkbabang]

Everyone should go ahead and buy new Apple iPhones asap. And then buy again next year. You guys know you want it. My AAPL holdings need love.

 

I'm gonna continue using my 4+ year old Nexus 4. Don't tell anyone.

 

That's too bad about your Apple holdings, needing some love.  My Apple holdings are already doing pretty well, they are near their all time highs.  I guess I must have picked better AAPLs than you or something.

 

[John Hjorth]

Everyone should go ahead and buy new Apple iPhones asap. And then buy again next year. You guys know you want it. My AAPL holdings need love.

 

I'm gonna continue using my 4+ year old Nexus 4. Don't tell anyone.

 

I'm also sitting here glaring at my about 4 years old Samsung Galaxy S4 trying to make up my mind, if it is worth postponing my master plan of becoming the controlling shareholder of Berkshire. Quite irritating when a Berkshire investment also aims high and thinks big and makes me loose focus.

[Viking]

What really impressed me is how they have a complete line of solid devices priced from US $349 to $999.

[rkbabang]

What really impressed me is how they have a complete line of solid devices priced from $349 to $999.

 

$349 to $1149 for the 256MB iPhone X.

 

[Liberty]

Good overview hands on video of the X:

 

[johnny]

Feels like the big risk for Apple is that a lot of people don't buy the 8, telling themselves they'll get the X, but will have talked themselves out of the X by the time units start shipping in real volume. This is why the price bump on the "normal" line of iPhone 8s really surprised me. Seems like it is going to push no small number of natural 8 buyers into a zone of indecisiveness that could result in them deciding not to upgrade at all.

 

On the other hand, the 7 cycle was pretty uncompelling and probably has put quite a few people into deep upgrade territory (many 6 and 5s owners)

 

Will be interesting to see how the quarter shakes out, or more importantly whether the market reacts positively or negatively to a guidance miss.

[racemize]

I skipped the last upgrade cycle, mostly due to the headphone insanity (still annoyed at this--to use my iphone with my macbook pro, I now need a headphone converter and a USB converter, so much for "it just works". Even if I buy the airpods, which are too expensive for how often I use headphones, I'll still need to pack a backup set of headphones for movies on the plane.)

 

Anyway, if you skipped, you are buying one, and for me the choice is obviously the X. Also, I suspect most people probably do the installment plan, so the extra cost isn't that much more since it is spread over 24 months.

[abyli]

I skipped the last upgrade cycle, mostly due to the headphone insanity (still annoyed at this--to use my iphone with my macbook pro, I now need a headphone converter and a USB converter, so much for "it just works". Even if I buy the airpods, which are too expensive for how often I use headphones, I'll still need to pack a backup set of headphones for movies on the plane.)

 

Anyway, if you skipped, you are buying one, and for me the choice is obviously the X. Also, I suspect most people probably do the installment plan, so the extra cost isn't that much more since it is spread over 24 months.

 

Get the AirPods, that is the best money I have spent ever. You will be surprised how often you use them.

[racemize]

I skipped the last upgrade cycle, mostly due to the headphone insanity (still annoyed at this--to use my iphone with my macbook pro, I now need a headphone converter and a USB converter, so much for "it just works". Even if I buy the airpods, which are too expensive for how often I use headphones, I'll still need to pack a backup set of headphones for movies on the plane.)

 

Anyway, if you skipped, you are buying one, and for me the choice is obviously the X. Also, I suspect most people probably do the installment plan, so the extra cost isn't that much more since it is spread over 24 months.

 

Get the AirPods, that is the best money I have spent ever. You will be surprised how often you use them.

 

I use headphones once a week for phone calls, if that, and on airplanes.  So airpods really won't do me any good.  Even if I do get them, they don't work for half my use case.