Google – One armed bandit pt. III.

Reply to this post

 

 

 

 

 

Google has very little chance in China.

  • Google has made its first return to the Chinese market since 2010 but I think its new map offering is going to struggle against the better equipped and far more entrenched local rivals.
  • Following its investment in the Chushou, a Chinese version of Twitch for mobile phone gaming, Google has returned Google Maps to the Chinese market.
  • In order to do this, Google has created a Chinese version of its map that I am certain is completely separate to the rest of its maps and resides solely on a server in China.
  • It has also created an app specific for Chinese smartphones which will almost certainly work with this map only and nothing else.
  • Google is using Alibaba’s AutoNavi for the map and is unable to provide directions as the request redirects the user to the AutoNavi app itself.
  • This is a very far cry from the excellent Google Maps which offers best in class integration with Google Search, transport and other services.
  • It is these add-ons rather than the quality of the map that makes it compelling, as in many areas Google’s maps are inferior to those of its arch-rival HERE.
  • To make life harder the competition it is going to be up against is already very strong as:
    • First: RFM estimates that Baidu Maps is already comfortably north of 500m users on smartphones.
    • Second: NavInfo and HERE already have a co-operation in place to provide HERE with maps in China and Baidu is using HERE maps for its international aspirations.
  • None of these competitors are subject to the same restrictions as Google and so my view that Google will be competing with one arm tied behind its back remains the same as it was 20 months ago (see here).
  • Consequently, I don’t think that this mapping service is likely to gain any meaningful traction nor does it represent a threat to the existing local players.
  • However, it is the first concrete signal in a while that Google intends to return to the Chinese market in some form or other.
  • Google’s ecosystem is strong outside China as a result of its world leading search service, best in class AI, and the complete integration of all its services and data (RFM Law of Robotics No. 6).
  • However, if the maps service is anything to go by, none of these strengths will be applicable to any of its Chinese offerings.
  • Furthermore, China is already a highly developed Internet services market where most users have already chosen where and with whom they want to live their digital lives.
  • Consequently, I still think that Google’s services will be uncompetitive in China and will remain widely shunned by the vast majority of the population.
  • Visitors may be able to benefit from these services but even at around 55m per year, their short visit times mean that they are unlikely to be able to make a dent.
  • I continue to think that China will remain a market for Chinese Digital Life services provided to Chinese users by Chinese companies leaving no space for Google.
  • In China I think that Google represents no threat to the BATmen of whom Tencent remains my favourite.

Facebook – No altruism

Reply to this post

 

 

 

 

 

Facebook’s move is about securing the long-term.

  • Facebook’s move to put its users ahead of its shareholder’s is not born from altruism, but instead reflects the need to maintain user loyalty as it transitions to becoming a fully-fledged ecosystem.
  • In the midst of the maelstrom that was CES, Facebook announced that it would overhaul its user experience to prioritise interactions from the user’s friends and groups and less from businesses, brands and media.
  • This also means that the passive types of interaction such as watching videos or reading articles will be de-emphasised in favour of more active types of engagement.
  • Facebook’s own research (which correlates with my own observations) shows that users are far more engaged with content created by users they directly know or groups with which they have a connection.
  • It is these types of interaction that Facebook is aiming to prioritise as it is these that drive the network effect which makes the service so valuable and provides its barrier to competition.
  • Videos and articles do not require interaction from any other user and so I do not think that they really contribute to the stickiness of Facebook’s services.
  • This, combined with user discontent with having their feeds too cluttered up with commercial content that generates revenue for Facebook, is what has lead to this shift.
  • This change is likely to lead to a decline in user time spent as interactions between users takes less time than watching videos, but this does not mean that they are less valuable in the long-term.
  • However, in the immediate term this means that there will be fewer revenue generating posts see by users on Facebook leading to a decline in revenue per user.
  • This, combined with the huge increases in expenses that are coming (see here), is making for a pretty grim outlook for 2018.
  • However, re-focusing on active engagement is likely to have a positive effect on the user experience that it offers and should increase the loyalty of its users.
  • This means that when it comes to rolling out new services such as gaming or services aimed at enhancing the community, willingness to adopt them will be much higher.
  • I have long believed that Facebook’s long-term growth is dependent upon its ability to entice its users to spend more of their Digital Lives within its services.
  • This means it has to increase its coverage of the Digital Life pie from the fairly low 36% that it now has, and having great user loyalty will be a major help in achieving that goal.
  • When that goal is achieved, it is likely to result in a major new burst of growth but until that time, the short-term issues are likely to weigh on share price performance.
  • Hence, I suspect that now is a good time to take some money off the table, for a little while at least.

CES Day 2 – Similar stories.

Reply to this post

 

 

 

 

 

Google shows the most progress at CES.

  • Apart from automobiles, the prevailing theme at CES is one of boredom.
  • Those looking for new trends have instead found the same stories as last year, albeit a bit more advanced than the last time that they were told.
  • This steady progress is the real theme of CES as hype has been wound up to fever pitch levels over the last few years and now the time has come to begin delivering.
  • The result is likely to be a steady year where autonomous vehicles inch closer to reality, where AR penetrates deeper into the enterprise but not where new trends rock the industry to its core.
  • AI is going to continue to be a theme, but I think that 2018 will be another year of very slow development.
  • Contrary to popular belief, RFM research has concluded that there has been very little progress in breaking down the really big problems of AI and without a new approach not much is going to change.
  • The current favoured technique, backpropagation, was discovered in 1986 and took 26 years to start producing decent results.
  • There are plenty of new techniques being worked on, but none of them have produced any results.
  • Consequently, I am pretty certain that 2018 will be another year of small increments dressed up as a big advance.
  • The one area where I have seen movement is in the smart home which I have discussed below.

Smart Home

  • Developments within the smart home have been steady but the options for developers and functionality has improved markedly.
  • This is because in addition to splashing Google Assistant over every available surface in Las Vegas, Google has been putting a lot of effort into pushing the assistant to developers.
  • Over the last 3 days I have spoken with or passed by the stalls of over 100 companies making a smart gadget of some description.
  • When I carried out this exercise last year everyone was supporting Amazon Alexa and almost no-one was supporting Google Assistant.
  • This year, everyone is still supporting Alexa but they have also either already included Google Assistant or have put it on the immediate roadmap.
  • This is a big change from 2017 and I think it substantially reduces the appeal of Amazon Alexa as Google Assistant remains a far better service.
  • The one exception is shopping and in this function Google is hopelessly outclassed.
  • However, Amazon is giving away the Dash Wand and I can see a scenario where users keep that stuck to the fridge for groceries and use Google Assistant for everything else.
  • Google’s position in the smart home has not improved quite as much as I was expecting, but its improvement combined with the way that users are interacting with digital assistants, leads me to change my position.
  • I think that Google now has the edge over Amazon is it has by far the better product and its native presence on smartphones means that it is dealing with far more inquiries than Amazon.
  • Hence, I think that Google should be able to continue to improve the assistant relative to Amazon thereby steadily increasing its relative appeal over time.
  • Furthermore, with a multitude of 3rd party products coming to market, this will no longer be a battle over hardware and sound quality but will become one fought in the ecosystem.
  • Here, I continue to think that Google has Amazon soundly beaten, the results of which I expect to see over the coming 24 months.

CES Day 1 – From hard to soft.

Reply to this post

 

 

 

 

 

Samsung and GoPro suffer from software shortages.

 Samsung

  • The best news for Samsung at CES was the failure by Huawei to close its deal with AT&T that would have seen its handsets sold by a major US operator for the first time.
  • Huawei’s absence from the US market is a major boon to Samsung and undoubtedly has been helping its market share as well as its pricing.
  • AT&T appears to have pulled its deal with Huawei after members of congress raised concerns to the FCC with regard to the security of Chinese manufactured devices running on US networks.
  • This has been a bugbear that Huawei has been unable to shake for many years and it looks like 2018 will be no different.
  • This good news was tempered with disappointment as Samsung’s guidance for Q4 17 missed expectations on both the top and bottom lines.
  • I suspect that most of this has been due to the very strong Korean Won which appreciated by 7% in Q4 17 against the USD.
  • Samsung’ agenda for 2018 is to bring intelligence into all of its devices such that they offer a deeper and richer user experience.
  • Unfortunately, this means Bixby which offers very little intelligence and is most kindly described as a voice control system for an electronic device.
  • Hence, I do not see this a mechanism of differentiation for Samsung and it’s position in consumer electronics is likely to continue being good profitability predicated on selling commodity devices in huge volumes.

GoPro.

  • The best time to announce bad news is when the cycle is jammed packed and I suspect that for many attendees at CES, GoPro’s surrender will have gone unnoticed.
  • GoPro has announced that it will exit the drone business effectively putting an end to the remote hope that it would be able to find a recovery in another consumer electronics segment.
  • The problem is that its chief competitor, DJI, has a better product at a competitive price with greater volumes and market share.
  • I have long believed that the battery issue that the Karma Drone suffered right after launch killed its chances of ever catching DJI meaning that an ignominious exit was inevitable.
  • GoPro may also have put itself up for sale which makes complete sense as I have long believed that acquisition was the most likely end game (see here).
  • This is a result of GoPro’s failure to develop software and services around its core proposition which should have created the desperately needed differentiation to fend off Chinese copycats.
  • As it is, Yi Technology and others now make cameras that are practically as good as GoPro’s but for half the price.
  • This combined with a flattish market spells real trouble for GoPro in 2018.I still think that both GoPro and Fitbit (see here) will make reasonable tuck in acquisitions (see here) for the larger ecosystems looking to extend their services or market position into new digital devices.I suspect that GoPro shares will continue to be weak but the timing looks right for potential buyers to take a serious look.I doubt that GoPro will exit 2018 as an independent entity.

CES Day 0 – Car show

Reply to this post

 

 

 

 

 

No Planes, no trains, only automobiles.

  • By far the strongest theme at CES 2018 is the digitisation of the automobile with drones, VR and so on fading somewhat into the background.

Byton.

  • Byton is an electric car start-up run by Europeans (ex-BMW) but financed and headquartered in China.
  • From the very first moment Byton had a tough hill climb as it was not so long ago that LeEco muddied sentiment towards Chinese EV start-ups with a glitzy event that was swiftly followed by a precipitous crash.
  • Byton’s launch looked very similar (including the gaffs) but it was at the badly attended Q&A event that my scepticism was partially dispelled.
  • Byton is not really about making an electric car as building one of these is going to be considerably easier than the internal combustion variety.
  • Instead, Byton has focused its efforts on solving the fundamental problems that arise when one attempts to digitise the vehicle.
  • These include addressing the issues that arise with traditional product cycles where the infotainment unit is 4 years out of date the minute it hits the market.
  • RFM research (see here) has uncovered a series of fundamental problems with the way OEMs design and build cars and to its credit, Byton has come up with a credible solution to all of these issues.
  • However, what it does not have is scale as its current $800m or so in funding (including the ongoing $350m B round) will take it to just 100,000 vehicles manufactured each year.
  • This is tiny volumes meaning that the bigger OEMs will be able to offer a better specification of EV than Byton at a lower price.
  • This means that Byton must differentiate itself on the digital experience that it offers which will be more difficult than it sounds.
  • The true Digital Life of the automobile requires the combination of both the Digital Life Pie on the smartphone or tablet and the Digital Sensor Pie (see here).
  • As an OEM Byton, will have full access to its Digital Sensor Pie but it will need to take that in context with the data generated by the Digital Life services of its users on their other devices.
  • In China, this means dealing with the BATmen and in the West, this means Apple and Google.
  • Byton is likely to go with an SDL like approach that uses an API to project smartphone apps and data onto the dashboard which requires the makers of those apps to support Byton.
  • This will be a tough sell as the volumes are so low that convincing developers that Byton is worth the effort will not be easy.
  • That being said, its innovative approach to the dashboard seems to be driving a lot of interest which might help it to drive support for its proposition.
  • Byton has clearly put a lot of thought into its vision, but now it must execute and this is by far the hardest part.

Baidu

  • At Baidu World, it was clear what most of the audience was interested in as about one third of them left as soon as the presentation moved away from autonomous driving.
  • I find this to be somewhat short sighted as when one is considering the importance of AI in Baidu’s future, I think its Duer OS platform is far more important.
  • This is because Apollo is just about cars while Duer OS is about everything else and also includes cars.
  • Baidu’s AI is centred around Baidu Brain (which does what it says on the tin) and Baidu Cloud which is where Baidu Brain lives.
  • There are two main platforms based on Baidu Brain which are Apollo, its autonomous driving effort and Duer OS which is Baidu’s equivalent of Amazon Alexa, Cortana, Google Assistant and so on.
  • Baidu has upgraded Apollo to version 2.0 (which I think is still pretty basic) as it can now drive on quiet urban roads bringing into line with what most of its Western competitors have been testing during 2017.
  • It also announced real vehicles with Chinese partners Cherry and King Long (busses) and Los Angeles based mobility provider Access.
  • Baidu also gave impressive growth figures for the traction of Duer OS and backed that up with a series of partner announcements and new devices.
  • The combination of Baidu Chinese search graph and its leadership in Chinese AI makes it by far the leading digital assistant contender in China which was clear for all to see when looking at the demos.
  • Baidu has also internalised the importance for cross device capability and its presence on phones, cars, TVs, speakers, lights, projectors, a mirror, a home robot and headphones is pretty comprehensive.
  • This gives the user the ability to interact with his devices from any of the others which is something that the Western leaders have yet to properly demonstrate.
  • However, Duer OSs’ international ambitions remain quite limited as it has launched a product only for Japan with Japanese language support but of English, Spanish and so on, there is no sign.
  • Baidu has extended its leadership in AI in China but remains a fairly distant second behind Google which I still see as the global leader.
  • That being said, Baidu’s recent travails have made it arguably the cheapest way to invest in AI in the global technology sector.

RFM 2018 – Top 5 at CES.

Reply to this post

 

 

 

 

 

RFM’s top 5 issues likely to prevail at CES and 2018.

Artificial Intelligence

  • I expect Artificial Intelligence to get top billing again this year as the both the hype and the flow of capital show no sign of abating.
  • Consequently, 2018 is likely to be a year of more feverish investment and hype making it more important than ever to separate real AI from those that are simply using statistics.
  • The three big AI problems remain mainly unsolved (see here) and RFM has concluded that progress in 2017 was very slow despite plenty of noise being made to the contrary.
  • I have no doubt that AI will become crucial for ecosystems trying to differentiate their Digital Life services from one another and the gap between the haves and the have nots is widening.
  • Google has distanced itself further from its competitors and in my opinion remains by far the leader in this field.

Google vs. Amazon

  • The battle of the digital assistants is likely to heat up this year and Google is clearly determined not to repeat the own goals of 2017 that allowed Amazon to dominate the market with an inferior product.
  • Signs of this are everywhere at CES with the Las Vegas Conference Center and the casino monorail fully decked out with entreaties to use Google Assistant.
  • Last year Google was nowhere to be seen at CES but this year I am hoping to see the results of its H2 2017 efforts through the inclusion of Google Assistant support by smaller developers in their smart home products and services.
  • Although, Amazon dominates the market for devices it is capturing only a tiny fraction of the voice requests as 91% of users that interact via voice use a smartphone compared to 17% that use smart speakers (see here).
  • Data is the life blood of AI and the data strongly suggests that Google is collecting far more than Amazon thereby ensuring that Google Assistant will continue to distance itself from Amazon Alexa in terms of ability.
  • If Google manages to close the gap in smart home this year, I think that this will put Amazon on the back foot and on a trajectory towards losing the smart home to Google.

Smartphones – Bezels, folds and the race to the bottom.

  • Bezel-less screens have become table stakes at the high end of the smartphone market meaning that 2018 will see this feature increasingly moving into the mid-range.
  • Samsung created the bezel-less market just like it did for large screens and now it must now look for something else.
  • The issue is that the Android user experience suffers from serious shortcomings compared to iOS meaning that it must offer othe features to compete at the iPhone price point.
  • Samsung has had foldable screens for some considerable time but poor yield and a lack of interest has meant that they have never been launched.
  • I have long seen the potential for foldable screens as a tablet form factor that can be folded away and slid into a pocket has the capacity to fundamentally alter both the tablet and laptop markets.
  • 2018 may be the year that Samsung feels ready to finally launch this as its options in terms of maintaining differentiation in an increasingly crowded bezel-less market are looking thin.

Automotive

  • The theme of digitisation in the automobile is in full swing but 2018 is likely to be another year where hopes and dreams substantially outstrip reality.
  • RFM’s analysis has shown (see here) that OEMs and tier 1s have not really digested the degree of change that is required for them to remain major players in their own industry.
  • For example, by locking the development cycle of the infotainment unit to the rest of the vehicle, the industry has ensured that units for which users pay thousands of dollars for, are four to five years out of date and hopelessly outclassed by $150 smartphones.
  • This combined with the almost universally awful user experience offered by automotive infotainment units puts the OEMs at risk of becoming also-rans in their own industry.
  • It also leaves the door wide open for ambitious new-comers like Byton which has launched an EV and Digital Life experience which shows some signs of having been given a lot of thought to the experience issues plaguing the vehicle.

VR/AR/Wearables.

  • With the exception of AR, very little is likely to change for both virtual reality and wearables in 2018 as the issues that hold them back remain unresolved.
  • Wearables are still a solution looking for a problem while the health use case continues to be limited by the quality and reliability of the sensors that they use.
  • Hence wearables will still be a recreational health and fitness market where users soon tire of their devices and consign them to cluttered junk drawers.
  • I would still be placing all of my attention on the companies that are working on making medical grade sensors that are both cheap and reliable to wake this segment from its slumbers.
  • I still see no real use case for VR beyond high-end gaming and events as the technical issues of cables, nausea and so on are still being worked on.
  • This leaves AR which I think is going to have a good year in the enterprise.
  • In the enterprise, the user experience matters less and the productivity use cases for AR in particular functions are numerous and demonstrable.
  • This is why many AR companies have pivoted towards the enterprise leaving Magic Leap as one of the few that is left struggling along in consumer AR.

Research Publication – Artificial Intelligence – Reality Bytes – Practitioners and Pretenders.

Reply to this post

January 5th 2018:  Radio Free Mobile updates its research on Artificial Intelligence with the publication of Reality Bytes Issue No.2 – Practitioners and Pretenders.

RFM research subscribers will receive their copy directly by email. 

Noise and speculation remain as high as ever but under the hood real progress remains painfully slow. The three goals of AI and Moravec’s paradox remain far from solved and may even cause progress to grind to a complete halt. Google DeepMind has produced what RFM considers to be real progress as its algorithms can thrash the best of the rest using far less than 1% of the resources. This has real implications for AI running in battery powered devices. Google Assistant has closed a lot of the gap to Amazon Alexa while Facebook will suffer financial pain from its weakness in AI.

  • Three goals & Moravec’s paradox. Progress has been slow with the big issues still unsolved. These are: 1) the ability to train AIs using much less data than today, 2) the creation of an AI that can take what it has learned from one task and apply it to another and 3) the creation of AI that can build its own models rather than relying on humans to do it. Moravec’s paradox refers to the fact that tasks that are hard for humans are easy for machines and visa versa. Progress remains very slow even by the best in the field.
  • Practitioners vs. pretenders. RFM continues to separate the practitioners from the pretenders by assessing understanding of and focus upon the three goals of AI as well as Moravec’s paradox. The practitioners are the ones that are likely to create the algorithms that result in long-term differentiation and profitability in digital ecosystems.
  • Dead end? Almost all AI is based on a technique called backpropagation which has been around since 1986. It requires vast amounts of data and is poorly understood. This raises the possibility that progress grinds to a halt until a new technique is developed. This would lead to commoditisation as the laggards would have time to catch up with the leaders.
  • Google & Deep Mind have made more noise than progress in 2017, but remain the real leaders in this field. RFM thinks DeepMind’s biggest achievement is the creation of an algorithm that can thrash anything and anyone at Go, Chess and Shogi but uses less than 1% of the resources. This has substantial implications for running AIs in smartphones.
  • Digital Assistants. Google Assistant has made up a lot of ground on Alexa, leaving Amazon’s only edge as shopping via Alexa. This will be very difficult for Google to compete against but given its superiority everywhere else, RFM sees a possibility that Amazon gets squeezed out.
  • Facebook’s weakness in AI will hurt financial performance as it has to recruit humans to do work that is much better done by machines. The result is likely to be only a minor improvement and a meaningful decline in profitability. AI remains the key risk to Facebook’s ambitions.

Google & Amazon – Second blood.

Reply to this post

 

 

 

 

 

Second blood goes to Google.

  • Google has scored a badly needed win over Amazon as Amazon has said it will start selling Google’s Chromecast devices once again which is almost certainly a bid to get YouTube back on its devices.
  • This is a sure sign that Amazon needs Google more than Google needs Amazon and further underpins how important the ecosystem is.
  • When I compare Google’s digital ecosystem against Amazon’s the results are night and day.
    • First, Digital Life: On RFM’s Digital Life analysis Google scores 40% while Amazon is on 30%.
    • However, if I look at the services that have hundreds of millions of users, then Google is miles ahead as outside of shopping the only service where Amazon has traction is Media Consumption (Amazon Prime Video).
    • It is clear that Google’s ecosystem is far more developed and more complete than Amazon’s.
    • Second, RFM 8 Laws of Robotics: These are the measures that asses the quality of these services and here the contrast is even more stark.
    • Google has problems around the user experience on Android driven mostly by software fragmentation and an inability to update software but outside of that it gets top scores across the board.
    • Amazon’s score indicates quite clearly that it has no real understanding of what is required to build a thriving ecosystem that users love and demand.
  • The result is that users of Amazon devices are likely to demand that Google services are made available on them with a good user experience and are less concerned with Amazon’s own services outside of shopping.
  • Failure to provide this could easily drive those users to buy other products as Amazon’s one Digital Life service that has some traction (Amazon Prime Video) is widely available on most streaming devices and smart TVs.
  • This is what has given Google the upper hand in this latest spat and I am certain that this is why Amazon has backed down.
  • This is a badly needed win for Google as in the smart home its digital assistant remains way behind Amazon’s Alexa despite being a superior product.
  • I still see Google as being on the backfoot when it comes to the smart home, but it has closed some of the gap to Amazon in terms of third party developer support and it remains a superior product.
  • This will be a key battle that is played out in 2018 and the level of support offered by device and service developers when they show their wares at CES in January will be a key indicator.
  • Market penetration remains very low and so there is still everything to play for but I still think that in the long-run Google should win as it has the better product.

Apple – Super cycle blues.

Reply to this post

 

 

 

 

 

Early data indicates that there is no super cycle

  • While it is too early to say for sure, the initial data suggests that the super cycle that the market is looking for to underpin the valuation of the shares is not occurring.
  • Mixpanel is an analytics company that tracks user interactions for the providers of apps and services on the web as well as mobile devices.
  • With 20,000 customers and 7tn data points collected every year, I think it is fair to say that Mixpanel is quite capable of collecting a data sample that is a good representation of reality.
  • The latest data from Mixpanel tracks the appearance of iPhone 8/8+/X devices in the data that it collects, giving an idea of how quickly the user base is switching to the new models.
  • In the two months since release (iPhone X one month only), the three devices have racked up the following share of the user base:
    • iPhone 8: 2.79%
    • iPhone 8+: 3.68%
    • iPhone X: 4.91%
    • This gives total penetration of the new generation of iPhones in the first two months of availability of 11.3% of the user base.
  • In comparison, the iPhone 7 and 7+ penetrated 23.5% of the user base within the first two months of availability.
  • This strongly suggests that the latest generation of devices is not generating the kind of super cycle that the market is looking.
  • I do not think that supply is an issue as I can order an iPhone X 64GB today and pick it up from the Apple Store in New York City or Palo Alto tomorrow. The iPhone X 256GB wait is four days.
  • To be as consistent as possible, it is necessary to adjust the data to reflect the fact that the iPhone X has only been available for a month.
  • If I take the penetration achieved in the first month by each model in the new generation, I end up with a total user base penetration of 8.8% after one month of availability.
  • By contrast after one month the iPhone 7/7+ had achieved 11.5% penetration of the iOS user base.
  • This is a strong indication that uptake by users of the new generation of devices is actually slower than it was for the iPhone 7.
  • It is important to remember that this is going to be offset by price as the data clearly shows that the iPhone X is much more popular than the iPhone 8, despite being 30% more expensive.
  • Hence, softness in unit shipment numbers could easily be compensated by the higher price being paid for the iPhone X.
  • However, I think that expectations for Apple for FY2018 are including both a strong replacement cycle and higher prices which is why I fear disappointment in the short term.
  • The caveats to this analysis are:
    • First, data: I have assumed that Mixpanel is a statistically significant representation of reality.
    • While the data quantity suggests that this should be the case, I have no hard data to prove it.
    • Second, availability: I have tested availability in NYC and California as they are places with the highest demand, but this may not be a true representation of supply.
    • Third, user base: The user base of iOS devices is larger this year than it was last year.
    • Consequently, it will require more devices to be sold in order to achieve that same level of penetration as the iPhone 7.
    • However, I do not think that differences in the size of the user base is enough to account for this discrepancy.
  • When I weigh up the findings of this analysis and take into account the caveats, I conclude the following:
    • First: uptake of the new generation of iPhone is slower than last year and there is no sign of the much hoped for super cycle.
    • I think this is mainly driven by the very high price of the most desirable product which will lead to many users waiting until the full screen penetrates to the lower priced segments.
    • Second: the higher price of the iPhone X will offset the impact on Apple’s revenues of a slower uptake compared to the iPhone 7, but it will not enable the company to soundly beat market expectations.
  • Consequently, I think that while demand for the iPhone X is clearly quite high, it is not high enough to allow Apple to beat the already very high financial expectations that have been set for it.
  • Hence, I can see disappointment coming through in Apple’s next few sets of earnings releases and think that the time has come to take some money off the table.
  • Tencent, Baidu and Microsoft are worthy candidates for consideration.