Apple – Form over substance

Apple launches more of same.

• When the most exciting product launch is aimed at a tiny minority of the user base it becomes clear that Apple is struggling to find ways to get the mass market to buy a new device this year.
• The net result is that the iPhone 14 and Apple Watch 8 are unlikely to be able to offset the impact of the macro-economic malaise meaning that the seasonally strong Q4 season is likely to disappoint this year.
• Apple launched 3 new products in a beautifully crafted presentation that apart from a few bright spots was very thin on new innovations that will drive users to buy its products.
  • First, iPhone: As in previous years, all the innovation was reserved for the iPhone Pro but even these were fairly incremental in nature.
  • The A16 Bionic chip is a bit better and consumes less power while the camera gets a bit better, captures more light, and offers improvements in features that have already been on iPhones for a few years.
  • The notch is still there but is now smaller and has become a hole and Apple has added functionality around it that will attempt to convince users that it is a feature rather than a bug.
  • The hole can expand and contract (Dynamic Island) to include notifications coming from other apps which will now interfere less with what the user is doing when the notification arrives.
  • Apple has also finally added an always-on display at least 5 years behind Samsung but to be fair, Apple’s implementation of it is excellent.
  • The most significant new feature is the emergency assistance via satellite for those that get into trouble off the beaten track.
  • Although this will hardly ever be used, it is a feature that will market very well to prospective buyers although it will be a chargeable service after 2 years of iPhone 14 ownership.
  • Second, Apple Watch 8: There is very little that was new or had not been done before.
  • The most significant new feature is more advanced menstrual circle tracking which only half of the user base is going to care about.
  • This left pretty much all the running to be made by the new Apple Watch Ultra which is a highly ruggedised version of the Apple Watch aimed at serious athletes and explorers.
  • This device is taking a square shot at the premium fitness market as well as the dive computer market as in conjunction with Apple, Oceanic will be producing an app that turns the Watch Ultra into a recreational dive computer.
  • As a recreational diver in need of a new dive computer, this instantly becomes an interesting proposition.
  • However, serious athletes and divers represent a tiny segment of the buying population and so outside of aspirational purchases, I can’t see how this will move the needle.
  • Third, AirPods Pro: which are an incremental upgrade on the first version.
  • They offer better audio, noise cancellation and battery life and a few user experience tweaks but other than that are more of same.
  • However, in this category, Apple has broken all of the rules and still fared incredibly well.
  • Apple will remain a dominant force in this space but the second version is not a game changer.
• This was probably the least exciting launch event I have seen for some time which is not what Apple needed.
• Apple needed to wow the user base such that they immediately rush to the store or the website and buy all of the new products.
• Its failure to do this means that it is going to feel the full sting of the weak macroeconomic environment as there is simply not enough here to lead me to think that it is going to buck the industry trend.
• Hence, I think that the coming buying season for smartphones is going to be disappointing and that Apple will fare in line with most of the rest.
• Against this backdrop, the shares are not particularly cheap and there are plenty of other options to look at that offer far higher growth at a lower multiple although they are riskier propositions.
• That is where I am focusing my attention.