Apple – Slow roller

Apple makes lemons from lemonade.

• The master of marketing will be at work drumming up excitement via increased scarcity for a product that has no long-term future in this iteration even if the Metaverse does take over and replaces the smartphone.
• The FT is reporting (see here) that Apple has been forced to make substantial cuts to its production numbers for the Apple Vision Pro VR headset due to production issues as opposed to any weakness in expected demand.
• The problem is relatively simple in that this device is an entirely new take on the Metaverse and with Apple’s demands for the user experience, it has to use cutting-edge components.
• This is something that Apple does not typically do but given that Apple is moving early on this device category, and it needs a good user experience, it has no real choice in the matter.
• In order to recreate reality as accurately as possible, the device uses 2 micro-OLED screens and there have been real problems in achieving decent yields given how novel the manufacturing process is.
• This is one of the reasons why the device is so expensive as the cost to manufacture screens that are defective and have to be discarded has to be paid for somewhere.
• Forecasts started at around 1m units in 2024 which were then cut to 400,000 and now stand at something closer to 150,000 or so.
• This is the first sign of trouble with this device, and I suspect it will not be the last.
• This is just one reason why I think that Apple has gone too early with its product as I see no reason why Apple has to launch this product now.
• I have long been of the opinion that Apple has to address the Metaverse at some point because it needs to be present just in case the Metaverse really takes off.
• That way it has a good chance of transitioning its iPhone revenues into the Metaverse thereby avoiding Nokia’s fate between 2007 and 2015.
• This is what I refer to as Apple’s insurance policy (see here) and I think it is money well spent even if the Metaverse is a total failure.
• However, given that it is likely to be another 5 years at least before the Metaverse takes off in any meaningful way, there is no reason why Apple needed to launch now.
• It already has the strongest digital ecosystem by far which has been shown to be willing to embrace new device categories although none as far-reaching as this one.
• Hence, I think that a launch in 2025 or 2026 would have been perfectly fine and because the technology will be more advanced by then, these sorts of problems will be much less likely to occur.
• Despite these issues, I think Apple will be able to turn this to its advantage by utilising the scarcity of the product to generate marketing buzz and hype.
• By all reports, those that have tried it, say that it is far better than anything else that they have seen to date but no matter how good it is, this category has no long-term future.
• This is because although Apple says that it believes that augmented reality (AR) is the right path, the Apple Vision Pro is a VR device that digitally recreates reality to allow it to interact with the virtual world.
• Hence, at some point, Apple is going to have to flip its offering into a product that superimposes the virtual world viewed through a transparent lens (i.e. glasses) as everyone else does.
• Currently, this is impossible to do with anything like the quality of user experience that Apple requires which is why it has taken this route.
• The net result is that this production cut is not really a big deal, and I am pretty sure that Apple will use the increased scarcity to whip up excitement for its new venture.
• However, this will have no bearing on the valuation of the shares as The Metaverse remains many years away (if at all) and so Apple remains a story about iPhones and to a lesser degree the other devices that exist in orbit around it.
• Apple has surpassed a valuation of $3tn but that is no reason to own the shares in my opinion which continue to look expensive compared to many other options out there.