Snap (chat) – Spectacular experiment.

Reply to this post

RFM AvatarSmall

 

 

 

 

 

Snap’s new product is a mere toe in the water. 

  • Snapchat (now rebranded Snap) has launched spectacles that work in a similar way to Google Glass but try to deal with the many shortcomings of their predecessor.
  • The new glasses are aimed to be fashionable, can capture and upload 10-30 seconds of video and are priced to go at $130.
  • The problems with Google Glass were legion but chiefly comprised of:
    • First: They made other people uncomfortable.
    • Second: They were ludicrously expensive at $1,500.
    • Third: They looked dreadful.
  • Consequently, it came as no surprise that wearers were shunned by the general public and that the product did not sell well.
  • Snap’s Spectacles address the second and third issues quite well but I fear that its very young demographic might find it very hard to find even $130 for this product.
  • The product also makes a stab at addressing the first issue by using a bright LED around the lens that makes it clear when the camera is on.
  • How well this works remains to be seen but it is encouraging to see Snap acknowledging previous failures and trying to address them as well as leaving certain segments that are well covered by GoPro et al well alone.
  • Since the time of Google Glass, video uploading has become much more common place and maybe the time is right for Snap Spectacles.
  • However, no-one really knows how well this product will fare which is why Snap is launching this product very gradually.
  • This makes complete sense as there are still plenty of potential pitfalls that could prevent the Spectacles from shipping in big volumes.
  • At the end of the day this is an experiment and I suspect that even if the device ships in big volumes, Snap will not really make any money from it.
  • Instead I see the aim being to drive video traffic to its site rather than that of YouTube or Facebook by making the user experience much easier and more fun.
  • Facebook and YouTube dominate the market for mobile based video advertising revenues which is still growing very quickly and this is an important area for Snap as it moves into its monetisation stage.
  • If it fails, I doubt we will see an Amazon or Microsoft-like $1bn write down of inventory but rather an ending of the product with barely a ripple.
  • Snap has carved out a niche for itself but it must now find ways to monetise the traffic as it has a $20bn valuation to live up to.
  • It has already made a start down this path but I see it as still well adrift of an income statement that will make investors in the last round happy.

Verizon / Yahoo – Irrelevant challenge.

Reply to this post

RFM AvatarSmall

 

 

 

 

 

With Verizon, Yahoo likely to become irrelevant. 

  • Verizon is embarking on building an ecosystem but second rate assets are unlikely to get Verizon very far without inspirational management to make these assets shine.
  • On top of the $3bn it is paying for Yahoo’s core business, Verizon also appears to be in advanced discussions to purchase a video streaming start-up called Vessel.
  • This would take Verizon / Yahoo’s coverage of Digital Life to 51% putting it ahead of many of its competitors.
  • However, Digital Life is only a measure of whether an ecosystem has the right assets and makes no measure of quality or execution.
  • This is addressed with RFM’s 7 Laws of Robotics and it is on these measures that Yahoo falls over.
  • The problem at Yahoo is simple.
  • While it has good assets and good traction in the fixed Internet, it has been unable to migrate any of that traction into mobile.
  • Yahoo claims to have over 600m monthly active users on mobile and I suspect that almost all of these only use Yahoo Mail on the phones and nothing else.
  • Yahoo has invested large sums of money in digital assets during Marissa Mayer’s tenure but high management turnover combined with very poor execution has meant a very poor return for investors.
  • For example, RFM calculates that Yahoo has been able to monetise just 12% of the opportunity presented by the assets that it owns (see here).
  • The challenge for Verizon is to take these assets, add them to the others that it already owns and to create a thriving community on mobile devices.
  • Verizon has two big problems.
    • First: Second rate assets.
    • The assets that it has purchased are second rate in the eyes of users who prefer the services of Google and Facebook.
    • This means that Verizon has a lot of work to do to make these assets more appealing as well as ensure that they work well on both mobile and fixed.
    • Second: Bench strength
    • Yahoo’s management has shown that it is unable to execute meaning that it is up to Verizon’s team to turn the Yahoo assets around.
    • Unfortunately, I suspect that Verizon’s history as a provider of packets and capacity, means that it lacks the bench strength to make this acquisition deliver any of the potential that it offers.
  • Hence, I fear that the net result will be that Yahoo becomes increasingly obscure as more and more of the user’s Digital Life moves from the PC onto mobile.
  • Yahoo continues to offer an irrelevant challenge to Google, Facebook, Apple or even Microsoft each of whom are cementing their position in the digital ecosystems of life and work.
  • Of these I prefer Samsung, Microsoft and Baidu although Apple looks very attractive for a long term investor happy with the dividends and share buy backs.

Chinese Autos – Handsets on wheels.

Reply to this post

RFM AvatarSmall

 

 

 

 

 

Chinese automakers give away a crown jewel. 

  • The willingness of the Chinese automakers to give away digital differentiation to the BATmen (see here) clearly indicates they do not understand how important digital will probably become.
  • SAIC was the first to move (see here) in launching a car with the entire head unit powered by Yun OS (Alibaba) while eight other companies including BYD and Chiang are already intending to use Baidu’s CarLife.
  • The multinationals are also getting in on the act with Audi recently signing a deal with all three of the BATmen to add their services to the cars that it ships in China.
  • I am pretty certain that others will follow.
  • From a digital perspective, it makes no sense whatsoever for the foreign car companies to try and create digital experiences for their Chinese customers.
  • This is because like Google, Apple, Facebook, Twitter and so on the environment will make it almost impossible for them to succeed especially where their services compete against those of Chinese companies.
  • However, the Chinese car companies have no such limitation.
  • Hence, they are potentially giving away one of the big long-term differentiators and I am far from convinced that they have any understanding of the implications of what they are doing.
  • Fast forward 15 years to a world where autonomous vehicles are everywhere, it will be the brains of the vehicle that largely differentiates it from its competitors.
  • If the brains of that vehicle come from one of the BATmen then all vehicles will have access to those brains as it is in the BATmen’s interest to ensure as wide a distribution of their services as possible.
  • This could leave the Chinese car makers as commodities with all of the value accruing to the ecosystem owners, just as it does in the handset industry.
  • This just one facet of a huge problem that I see in China.
  • Outside of the internet industry, there is precious little understanding of how important software and services are becoming and so very little is being done to effectively combat commoditisation.
  • Many Chinese companies believe that they will be able to differentiate in hardware but the example of Android shows that any hardware innovation is rapidly copied failing to alleviate the problem.
  • There are a few exceptions to this but unless Chinese device makers really begin to internalise the importance of the user experience, a very bleak future awaits them.
  • This is how many industries in China remain wide open to the BATmen as the existing players have very little understanding of the threat that the BATmen represent to their long term livelihoods.
  • Consequently, in China Baidu and Tencent are the only place where I would feel comfortable for the long term.

GoPro – Almost a hero

Reply to this post

RFM AvatarSmall

 

 

 

 

 

GoPro almost gets it right. 

  • GoPro’s launch of its Karma drone and the update to its camera line with the Hero 5 Black and the Hero 5 Session are strong launches but once again GoPro falls over when it comes to software and service.
  • First: Karma Drone
  • This is now clearly the flagship product, offering both a drone and a handheld camera with stabiliser in a single package.
  • A vast amount of thought has gone into this product and GoPro has produced a drone that intends to be as easy to use and versatile as possible.
  • As a result, it makes some compromises between ease of use and advanced features.
  • However, I think that for almost all users, ease of use is the single biggest issue that they have with flying a drone.
  • What I think GoPro has done really well is to include as much autonomy into the product that it can without compromising reliability.
  • This is where DJI really falls over with the Phantom 4 which includes obstacle avoidance but in reality, it doesn’t really work as it should.
    • First: It won’t avoid all obstacles and will crash into things like power cables.
    • Second: The default position with this product is to hand control back to the user when it gets into trouble.
    • In many ways this is self-defeating as these are exactly the times when the user needs autonomy the most.
  • Karma’s autonomy is extremely limited and GoPro has done very well in avoiding the temptation to include features that will help sell the product but which won’t really work as the user expects.
  • The pickle that Lily Robotics has got itself into with its autonomous Lily drone is a great example of what a bad idea this is.
  • In this regard, I think GoPro has come up with a very competitive product although I think that the end market for drones is far from big enough to bring meaningful new growth to GoPro.
  • Second: Hero 5.
  • There are two products in the line-up the Hero 5 Black and the Hero 5 Session.
  • Both of these are solid updates and add image stabilisation, voice control as well as auto-upload of video to the cloud.
  • Third: GoPro Plus.
  • Unfortunately, this is where it all falls to pieces as I think that by charging for its cloud service, giving very limited capacity and only allowing GoPro camera content GoPro has ensured failure.
  • GoPro Plus is selling for $4.99 a month but it is limited to 35 hours of 1080p video or 62,500 12MP pictures.
  • I suspect that this is going to turn off the vast majority of users and it is likely that there will be a host of players, such as Google, that will offer this service for nothing.
  • This is where I see GoPro continuing to completely misunderstand what will drive its business over the next 3 to 5 years.
  • Its ability to differentiate in cameras has already evaporated and this use case for a drone will be quickly copied if proves to be popular.
  • I think that GoPro should have made its cloud service both free to use and open to non-GoPro cameras.
  • GoPro badly needs user loyalty and if it was winning hearts and minds in the cloud, there would be a much better chance of those users choosing a GoPro when they come to buy a new camera.
  • Furthermore, if everyone was using GoPro tools for editing video then there would be a lot of insight that GoPro would be able to draw on from using AI to analyse the data.
  • Furthermore, it would have built a community around its service that could in turn be monetised in ways other than selling cameras.
  • This is where Google, Amazon, Facebook, Baidu and Alibaba are likely to enter as they understand the value that owning the community can bring to them in the long-run.
  • Consequently, I fear that any bump in profits that these products provide will be short-lived as the ravages of Chinese competition have never been harder or faster.
  • The only device companies that I think have a sustainable position at the moment are Apple, and Samsung.
  • Investing elsewhere could prove very painful.

Twitter – Video star?

Reply to this post

RFM AvatarSmall

 

 

 

 

 

Only video can keep Twitter from $10. 

  • Twitter’s first attempt at streaming video has won some good feedback but the numbers need to be bigger to really move the needle against YouTube or Facebook.
  • The first of ten broadcasts of NFL games aired on 15th September and reached 2.5m users with around 250K online at any one time recording an average viewing time of 22 minutes.
  • In contrast, 15.4m people watched the game on CBS and NFL networks with 48.1m people watching at least 1 minute of the game.
  • In addition to Twitter, users could watch the game digitally using NFL mobile from Verizon or digital CBS but the vast majority appear to have used Twitter.
  • The feedback has been broadly positive but some users did notice that there was a delay between the live broadcast and the video seen via Twitter.
  • Twitter paid $10m to the NFL for the right to stream 10 of its games this year in a hope to encourage users to do more with Twitter than just blogging and Instant Messaging.
  • Blogging and Instant Messaging make up a total of 16% of the Digital Life pie which I have long believed that Twitter has already fully monetised.
  • I am convinced that this is the reason for its growth grinding to a halt (see here).
  • If Twitter can entice its 300m users to do more with Twitter beyond these activities, then there is scope for revenues to begin growing again as it will have more traffic to monetise.
  • The advantage that Twitter has is that it knows with great accuracy what its users like as they actively chose to follow issues compared to Facebook which is based on friends and hence, much more vague.
  • This means that the value of its targeting is very good but while users spend only a short time with Twitter, there are limits to the amount of money it can earn.
  • This is why the video strategy is so important.
  • Media Consumption makes up another 10% of the Digital Life pie and should Twitter generate significant traction from it, there should be significant upside from current revenue levels.
  • Without this growth, I still fear that Twitter’s shares will fall below $10 because even at these levels, with no growth, the shares are expensive.
  • At that point, I would expect an acquirer to step in and add Twitter to its ecosystem.
  • However, should Twitter gain meaningful traction in video, then it should be able to continue as an independent entity.
  • This is a big if as YouTube and Facebook dominate this segment and both Facebook and Alphabet are much bigger and much stronger than Twitter.
  • This is where Twitter’s very accurate targeting is important and I suspect that this is why the NFL chose to go with Twitter rather than Facebook or YouTube in this deal.
  • The first signs are moderately encouraging but the jury is still out as to whether this will drive a revenue increase for Twitter and so I would continue to view the shares at $19.11 with extreme caution.
  • Microsoft, Samsung or Baidu are better options in my view.

Spotify – Home free

Reply to this post

RFM AvatarSmall

 

 

 

 

 

Free users are the life blood of Spotify. 

  • Spotify’s recent jump to 40m paid subscribers demonstrates just how critical its free users are and why their numbers need to keep moving upwards.
  • Spotify has announced that it has hit 40m paid users gaining 10m users in the last 5 months (2m per month) compared to Apple which has 17m users gaining 4m in the last 4 months (1m per month).
  • Apple has a huge advantage over Spotify because its service is installed on the devices belonging to over 440m users with whom it already has a payment relationship and who can activate the service with the touch of a button.
  • Furthermore, on the Apple App Store, Spotify is a lot more expensive than Apple Music because of Spotify is forced to pass 30% of its revenues to Apple for distributing its service (see here).
  • Against this Spotify competes with a superior service but its key weakness to date has been its marketing because only people who already use the service really know that it is better.
  • This is why the free tier is so important.
  • Free users don’t pay anything but have to endure regular programming breaks so that Spotify can afford to pay the labels for access to the music.
  • This is often a bad business but in Spotify’s case, I think it is providing the company with a huge advantage to which the latest figures are testament.
    • First: Free users get to spend time with the service without paying for it, making it much easier to make these users understand why the service is better than anything else available.
    • In effect, it is like a trial that never expires and I think that increasing numbers of these users are becoming attached enough to the service to be willing to pay to get rid of the advertisements.
    • Second: These free users generate data which Spotify can use to train its algorithms which can in turn be used to make the service better.
    • Apple also has a lot of data but has not been nearly as good at turning raw data into actionable intelligence with which it can improve its service.
    • With the total user count now past 100m users, I think Spotify has hit critical mass and will soon be able to negotiate better terms with the labels to keep more of the revenues for itself.
    • I have long believed that it is the music labels that are making the most money from music streaming (see here) but I think that the balance will soon tip in favour of the music streaming companies and the artists.
    • This is because the time is rapidly approaching when the labels will need the music streamers and the artists more than the streamers and artists need the labels (see here).
    • This is why I remain unconcerned with the risk contract renegotiation with the labels as the risk will soon be in the other direction.
  • I think that the key issue for Spotify going forward is to maintain momentum of growth of its free users.
  • It is the free user pool that has been the source of its outperformance of Apple, meaning that it will be critical to keep the paid tier (where the real money will be made) increasing at this very healthy rate.
  • I continue to think that there is enough space in this market for 2 big players and with those spots filled, it is the fortunes of Pandora, Tidal, Deezer and so on that trouble me now.

Google Android – Useless genius

Reply to this post

RFM AvatarSmall

 

 

 

 

 

Another great service that is effectively useless. 

  • Google has launched a new service that has the potential to deliver incredible value to Google but the limitations of Android render this stroke of genius effectively useless.
  • Google has updated its search app on Android such that it can now search for and categorise content and data within apps and services that it does not own.
  • This provides the user with a useful tool for searching his device and gives Google the ability to collect data from Digital Life services that it does not own.
  • This is a variant of Google’s Now on Tap service which allows context based search from anywhere on the device (see here).
  • I have long believed that this is a stroke of genius as Google currently only has 41% coverage of the Digital Life pie but this feature allows Google to collect data as if it owned 100%.
  • The net result will be greater understanding of its users and better targeting of its advertisements meaning higher prices, driving revenues and better margins.
  • Unfortunately, this service requires low level changes to be made in the Android Open Source Package (AOSP) meaning that the device has to have version 6.0 (Marshmallow)or later in order for this service to work.
  • The “in App” search also requires Marshmallow meaning that it will effectively be useless for several years to come.
  • This is because although there are 920m Google Android users, only a tiny fraction of them have a device that runs Marshmallow.
  • Furthermore, RFM research indicates that the vast majority of Android handsets cannot be upgraded to the next major release of Android meaning that to get Marshmallow the user needs to replace his device.
  • This gives competing ecosystems plenty of time to study the innovation, download the source code, improve it and get it to market years ahead of Google.
  • This is why I have long been of the opinion that Google is effectively doing competition on behalf of its competitors.
  • Furthermore, it means that it will be at least 2 years before any real benefits of this new feature make themselves felt on Alphabet’s bottom line.
  • By contrast, Apple is able to update over 90% of all its iOS devices within 3 months of a new version of the software becoming available.
  • This is how Apple was able to launch Apple Music to 400m users within 3 months with the touch of a button.
  • I have long believed that this situation, combined with the endemic fragmentation of Android is largely responsible for Google’s low Average Revenue Per User (ARPUs) on Android as well as the lower loyalty demonstrated by Android users.
  • I can see only one solution to this problem which is for Google to take complete control of the Android software effectively removing new versions of the code from open source.
  • This will allow Google to offer both a good user experience and also to ensure that improvements in its ecosystem are delivered to users in a timely manner.
  • This in turn should bolster revenues from Android but I think that the market is already discounting these revenues in the valuation of Alphabet’s shares.
  • This is why I remain cautious on the performance of Alphabet going forward and why I prefer Samsung, Microsoft, Baidu and even Apple from an investment standpoint.

Apple Auto – Titanic shift

Reply to this post

RFM AvatarSmall

 

 

 

 

 

Project Titan suddenly looks more sensible. 

  • I think that the scaling back of Apple’s ambitions to produce an electric car heralds the realisation that making a car is much more difficult than it sounds and that a vehicle was never going to work for Apple financially.
  • The change of guard at Project Titan earlier this year appears to have gone hand in hand with a change in strategy that has resulted in around 50 people leaving the project.
  • I understand that the focus is no longer to produce a vehicle but to focus on some of the underlying systems as well as autonomous driving.
  • I think that this means that Apple will work on two areas.
    • First: Infotainment.
    • I have long been of the opinion that an in-car infotainment system makes much more sense for Apple than to make the entire vehicle (see here).
    • This is because the infotainment unit is where the car will intersect with all of Apple’s other products and where Apple’s key strengths are by far the most relevant.
    • Furthermore, Apple might just be able to make 40% gross margins on the infotainment unit whereas it will be almost impossible to show this kind of profitability on brake pads, wheels, pressed aluminium and so on.
    • Failure to produce a product with high gross margins is likely to have very serious implications for Apple’s already lowly valuation.
    • This why I still believe that if Apple is going to launch any hardware for the auto, it will be an infotainment unit.
    • The problem with this strategy is that, Apple will have to get the automakers to play along, all of whom, have become increasingly wary with regards to Apple and especially Google over the last 9 months.
    • Second: Autonomous driving
    • While this is a hotbed of investment at the moment, I struggle to see why Apple should be a leader in this field.
    • RFM research indicates that a successful autonomous driving offering is likely to require a combination of skills and assets.
    • These are: a very high quality map, many millions of miles driven and first class artificial intelligence to control the vehicle.
    • Combine this with the huge issues I see with the regulatory environment (see here) as well as liability (see here)and I think it will be a very long time indeed before this is in the mass market.
    • Furthermore, I do not see Apple as a leader in any of these skills, leaving Google way out front with Baidu leading in China.
    • Uber, HERE and most of the auto makers are all working on this but I suspect that it will be Google that gets there first.
  • Consequently, from a pragmatic standpoint, the likelihood of Project Titan reviving Apple’s growth sometime in the next 5 years looks to be extremely remote which is what I suspect prompted this rethink.
  • This leaves the dilemma for Apple unchanged in that there is nothing on the horizon likely to restore growth in the short to medium term.
  • For long-term value investors, I continue to think that there is substantial value to be had in Apple shares but for the short-term I continue to prefer Microsoft, Baidu and Samsung.

Sony – Achilles heel

Reply to this post

RFM AvatarSmall

 

 

 

 

 

User experience remains a huge risk in the next generation. 

  • Sony’s launch of two new PlayStation 4 consoles broadens the appeal of the platform nicely but these devices do nothing to alleviate the issue that could cost Sony its lead in the console gaming market.
  • Sony launched two new consoles at an event in New York on Thursday, each of which is aimed at spreading the appeal of the platform more widely.
    • First: PS4 update.
    • This is a slimmer, sleeker PS4 with all the same specifications as the original except that it comes in a smaller box with a lower price tag.
    • This is selling at $299.99 and is aimed at bringing new gamers into the world of PlayStation.
    • Second: PS4 Pro.
    • This is device is roughly the same size as the original, except that the graphics have been beefed up to support 4K, HDR as well as higher frame rates.
    • This is aimed at hard core end of its fan base which is always looking for ways to enrich the gaming experience.
    • Developers are already creating downloadable patches that will upgrade existing 1080p games to 4K as well as expanding the colour gamut and frame rates.
    • The 4K will also support video streaming services like Netflix which are already moving to 4K.
    • This device will be priced at $399.99 pretty much where the old PS4 was selling for.
  • These updates are great for widening the appeal of the PS4 for playing games but they nothing to improve the user experience.
  • Sony and Microsoft have carved up the console market between them with Sony doing extremely well in the current generation taking roughly 2/3 of all gamers onto its platform.
  • I have long believed that this was more due to mistakes made by Microsoft at the launch of the Xbox One (see here) rather than the PS4 offering a substantially better gaming experience.
  • Microsoft scrambled to fix these issues but the damage had already been done resulting in PS4 outselling Xbox by 2 to 1.
  • However, I think that the next generation could be very different because then the user experience and the ecosystem will be much more important and here Microsoft utterly destroys Sony.
  • When I compare the Xbox One’s rich and fun user experience to the bare bones of Sony, there is simply no comparison.
  • The PS4 experience appears to be aimed at allowing the gamer to launch the game and little more.
  • Furthermore, doing basic things like uploading a gamer photo, changing a password or setting up payment is tortuous and frustrating. (see here).
  • When one is trying to develop an ecosystem, the user experience has to entice the user to stick around and explore what else is on offer.
  • This is how user loyalty will be generated and how an ecosystem will get its users to spend more time within its community.
  • Furthermore, the look and feel of that experience can then be replicated across other devices creating a feeling of ease and of being at home.
  • With the Sony PS4 user experience it is almost a relief to fire up a game as Sony has provided the user with no reason whatsoever to hang around and explore.
  • This will be much more important in the next generation as most games will be available on both platforms meaning that how well the device delivers other functionality could be the deciding factor.
  • Microsoft is languishing when it comes to its Digital Life ecosystem but the assets themselves are in good condition and Microsoft has long understood what it needs to do to make its console appealing.
  • Furthermore, Microsoft is unlikely to repeat the mistakes it made at the launch of the Xbox One meaning that Sony really needs to pull its socks up.
  • Unfortunately, software is not something that Sony does very well and the company has a habit of ceding commanding market positions with very little resistance.
  • I see no signs of Sony working on improving its user experience and I fear that Microsoft will take a large bite out of its market share when the next generation consoles launch.
  • This is one reason why I fear that Sony’s improved fortunes may end up being short-lived as I think that Hirai-san has applied a Band-Aid rather than addressing the root of the company’s woes.
  • Hence, I would be very wary at getting involved with Sony’s stock even though it remains the only Japanese consumer electronics company with any real chance of longevity.

Apple – A stern test

Reply to this post

RFM AvatarSmall

 

 

 

 

 

The iPhone 7 is a stern test of Apple’s brand. 

  • Removing the headphone jack will be a tough test of whether Apple’s brand is strong enough to wean consumers off a connector that they have loved for over 100 years.
  • Apple launched two new products and one new accessory at its annual launch event on September 7th.
    • First: iPhone 7.
    • The new device no longer has the 3.5mm headphone jack but comes with an adaptor in the box.
    • Users wanting to use traditional headphones will no longer be able to listen and charge at the same time.
    • The device also sports a brighter display, much improved camera (with wide angle and telephoto cameras on the 7+), a new home button as well as water resistance to 1m of immersion.
    • With the exception of the headphone jack, there is not much here that does not already exist on competing products although I suspect that when it comes to the camera, Apple’s combination of software and hardware will create a top notch experience and image results.
    • The iPhone 7 doubles the capacity of previous versions with the top size now being 256GB but the price is staying the same as the previous generation.
    • Second: AirPods
    • These are wireless Bluetooth headphones that automatically pair with the iPhone and Apple Watch with some very nice features that should create a great experience when used with Apple’s products.
    • They will also work with non-Apple products meaning that it the AirPods are using standard Bluetooth and so it will be important to see how well the audio quality measures up to wired headphones.
    • The AirPods also allow use of Siri with a double tap as well as voice calls and easy device switching.
    • The AirPods are very expensive at $159 and I expect them to sell only to the real top end of Apple’s fan base.
    • At the same time, Beats is incorporating the new technology into a range of its devices at more reasonable prices giving consumers more choice.
    • Third: Apple Watch 2.
    • Apple updated the Apple Watch adding water resistance to 50m making it good for swimmers as well as adding GPS to allow full activity tracking without the iPhone being present.
    • These went hand in hand with a nice new ceramic case and a version of the device which has Nike running software embedded at the factory.
    • However, what Apple did not do was provide an answer to the most asked question at the Apple Watch tables which remains: “Why should I buy it?” not “How much is it?”.
    • Hence, I do not see the Apple Watch 2 lifting the smart watch market out of its current decline and I remain very cautious on the outlook for wearables in general.
  • Apple is certainly taking a step forward in removing the headphone jack but at the same time it has given competitors material for marketing their products.
  • It also makes the device even more proprietary than it already was which is likely to anger some users.
  • The biggest risk here is not whether Apple will lose users to Android but whether users looking for a new phone will buy the 6s which is almost as good and still has the beloved 3.5mm jack rather than the 7.
  • If all goes well then I expect ASPs and gross margins to hold steady but should users shun the 7 for the cheaper 6s then ASPs, revenues and profits will come under pressure.
  • This is the big gamble that Apple is taking where clearly it is hoping that its brand is strong enough to force the industry and users to move on from something they have been using for many years.
  • I do not think that there is nearly enough here to drive a real replacement cycle (like the iPhone 6) but there should be enough to keep the ship steady while Apple searches for the next revolution.
  • Hence, I continue to think that Apple is a great long term investment as it offers great value but there is nothing from these launches that is going to drive revenues back to growth.
  • Samsung, Microsoft and Baidu are my top short-term picks.