RFM 2015E – Top 5

The PC market is likely to offer the biggest surprise in 2015E

Wearables

• The technology industry is likely to continue scratching its head over what to do with wearables.
• It is a segment where there is a clear opportunity but nobody seems to have any idea what the real use case for these devices is.
• Even Apple, which is legendary in its innovative capacity, has produced a device that is little more than a remote control for a smartphone.
• Most of the noise at CES 2015 is likely to centre on these devices but the criteria for success have yet to be met.
• These criteria are:
  • Small OS optimised for device function.
  • Battery life measured in months not hours
  • Bluetooth Low Energy (BLE) radio only.
  • Small, fashionable and unobtrusive form factor.
  • Robust and reliable.
• The only device that I have seen that comes close to meeting these criteria is the Misfit Shine pedometer and sleep tracker.
• It comes as no surprise that this device sells in reasonable volumes and is the only one that actually makes money.
• For wearables to take off an exciting use case needs to be combined with these criteria.
• I fear that the real growth in 2015E will be in the population of the wearables graveyard.

Xiaomi

• Xiaomi rocketed into the general consciousness with 61m units shipped in 2014A and a fundraising at a crazy $45bn valuation (see here).
• However, despite significant scale, the company is probably still only making EBIT margins of around 3%. (see here)
• People are assuming that it is the next Apple, but being a commodity Android maker outside of China is going to put pressure on profitability.
• This, combined with a great need to invest in developing its ecosystem in China, will mean that investments will have to continue growing.
• Consequently, I can’t see margins expanding until its ecosystem is wildly successful and Xiaomi can start raising the prices of its devices.
• This will take time and money which will not be what its new shareholders will want to hear.

Ultra HD TV

• One of the highlights of CES 2015 is likely to be bigger and bigger TVs with higher and higher resolutions.
• 4K or UHD made all the running last year and this year I am expecting to see 8K prototypes demonstrated.
• This is yet another attempt by the TV industry to halt the ravages of commoditisation and competition which has caused the prices of TVs continue to collapse.
• For example, Samsung is currently selling a 55 inch 4K TVs for $980 upon which I doubt it makes any money at all.
• Furthermore, 4K does nothing for the consumer because in order to even begin to see a difference between 1080p TV and 4K the consumer needs a 70” TV at the normal viewing distance of 9 feet.
• The average TV size in the US is 36”
• To get the full benefit of 4K the user needs to sit 5 feet away from a 100” TV.
• In my opinion this renders 4K next to useless for almost all consumer applications.
• This will make user unwilling to pay for the TVs and broadcasters unwilling to bear the huge increase in transmission costs that 4K requires.
• I do not see any real recovery in profitability in the television industry this year.

PCs

• 2015E should see the beginning of a replacement cycle of the obsolete laptop form factor.
• The Surface Pro 3 has shown the way for where mobile computing needs to go but the Intel Core M family should take this one step further.
• This will enable a tablet weighing 650g (1.4lb) to have the power and utility of a desktop computer. (see here)
• This is 200g less than the superb Surface Pro 3 currently weighs.
• This enables the user to have a far better user experience offering the full ergonomics of a desktop while out of the office.
• The device can also be used as a tablet when needed without having to compromise either function.
• The problem is marketing, as the marketing departments of Intel and Microsoft do not yet seem to have realised the opportunity that their R&D has created.
• Until the user is properly informed, the replacement cycle of laptops will continue to disappoint my ambitious hopes.

Mobile Payments

• Mobile payments have languished for years.
• The combination of vested interests and proprietary systems has meant that the user experience has been ignored.
• The result has been a series of attempts at offering payments with mobile phones that have been more cumbersome and awkward than digging in one’s pocket for a credit card.
• The launch of Apple Pay has given this fledgling industry a wake-up call as this system is a cinch to use and everyone who uses it, loves it.
• In order to preserve the exclusiveness of its hardware (and its margins), Apple will only make Apple Pay available on its devices leaving 87% of the global market for everyone else.
• As is did with the smartphone, Apple has shown the industry the way forward but has also left plenty on the table.
• Consequently, I suspect that 2015E will be a scramble to offer an Apple Pay like experience on Android and other devices.