What Lies Ahead for Apple?

Unless you’re living under a rock, you would’ve heard about Apple’s [NASDAQ:AAPL] latest iPhone release last week.

The iPhone X (pronounced ‘ten’) came with typical Apple fanfare.

It marked the 10th anniversary since the original iPhone release. A fact which surprised me a little. It feels like these phones have been around forever, such is their intrusion into everyday life.

The launch took a familiar routine.

A series of pre-release strategic ‘leaks’ to build up the excitement. Then a ‘Tony Robbins’ style presentation in front of a packed auditorium of Apple fan-boys and –girls, all cheering.

It’s a well-oiled PR machine, that’s for sure.

Behind the hype though there were a number of remarkable things about these phones.

I’ll get to these shortly.

But first let’s look at some remarkable aspects of Apple itself.

A company with some big decisions ahead…

Loyalty may be tested

Apple is probably the number one brand in the world.

For at least the 10 years since the launch of the original iPhone, Apple has enjoyed brand loyalty the depth of which few companies have ever attained.

Indeed, so loyal are Apple’s legions of fans that the company has become nearly synonymous with the very idea of brand loyalty.

Now combine this intense loyalty with multiple products in several fast-growing tech ecosystems.

I’m talking smartphones, computers, tablets, music and TV streaming, and payments through Apple Pay. With all of that, you can see why some analysts are still very bullish on Apple’s prospects.

Right now, they are sitting on a huge cash pile of a quarter of a trillion dollars.

This gives them a number of decisions to make. And opportunities to take.

I’ll come back to this. But back to the new iPhone X for a second.

As I said, there was a bit to get the fans excited.

Some things were at the superficial end of the spectrum.  Like wireless charging, improved cameras and new colour rendering technology formerly only available on iPads.

But one feature appears ground-breaking. It could be crucial to the long-term future of Apple.

Deep inside the phone lies a new chip called the ‘neural engine’. We’re talking artificial intelligence capabilities. Or at least the first step in that direction.

Apple said the neural engine would power algorithms that recognise your face to unlock the phone, and transfer your facial expressions into animated emoji.

It also said the new silicon chip could enable unspecified ‘other features’.

Intriguing!

Chip experts say the neural engine could become central to the future of the iPhone. It could enable moves into areas such as augmented reality and image recognition, which rely on machine-learning algorithms.

But such technology comes at a steep price.

An eye watering US$999 to be exact. Apple is the first major phone maker to get close to the US$1,000 threshold for a ‘base model’ phone.

Yep, that’s just the base model.

If you want more memory you’re looking at US$1,149-plus.

This marks the widest gap between the most and least expensive iPhones ever. It signals an intent to segment their product and customers more. Probably in a similar way that car manufacturers do.

Prices Spread between Most And Least Expensive iPhones Per Year 19-09-17
Source: Crunchbase
[Click to open new window]

Price rises like this may test the legendary loyalty of the Apple fan base, though.

Time will tell whether or not the company has gone too far this time.

But personally I think Apple know what they’re doing here. Smartphones have evolved to become the hub of a person’s life. Whether that’s through games, socialising, infotainment or work.

In Asia, the phones represent a status symbol as well. Much in the same way cars do — or used to. So an expensive price tag may actually stimulate sales here. As long as the brand maintains its lustre.

What will Apple do next?

With $246 billion burning a hole in their corporate pocket, Apple has a few options to consider.

The first thing to note is that most of this cash is parked offshore, away from the prying hands of the US taxman.

If Trump announces a tax holiday — a deal for US companies to repatriate offshore funds to the homeland in return for concessional tax breaks — the likely answer is to simply return the cash to shareholders.

But there are also some big rumours out there.

The biggest one is a potential ramping up of their video streaming unit. Apple are reportedly planning on spending $1 billion to launch their own original content service in 2018.

That’s chump change to Apple, but will be a big threat to existing providers who will be scared of Apple’s wide global reach and seamless product integration.

But producing your own original content is not easy.

A fact that has brought about the wilder rumour that Apple could even buy out the ‘original content’ pioneer in the industry, Netflix [NASDAQ:NFLX].

Or we could see more moves into the highly profitable financial space. With the lessons of Apple Pay still fresh, the company may be in a position at some point to further integrate their technology into your financial life.

An Apple Bank would probably be outrageously successful in picking up customers.

They would certainly have an eager following of millennials — who have famously low levels of loyalty to existing banks — quick to join them.

Whatever Apple does next, it will have large effects throughout the global economy. A company this big, with a product this ubiquitous, can’t help but create ripples with every move it makes. Watch this space, I say…

Good Investing,

Ryan Dinse,
Editor, Money Morning

PS: Apple is one of the most recognisable consumer tech companies in the world. But for investors, the largest gains may already be past. Today, some of the best profits to be made from Apple may come from other tech companies. Companies who benefit from the ripples Apple sends through the tech space. To learn more about investing in tech companies that the mainstream hasn’t caught onto yet, click here.


Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:


Money Morning Australia