Apple – Non-event.

YouTube live stream is the biggest surprise.

• It is that time of year again (10th September, 10 am PT) and the biggest surprise is that the whole event will be live-streamed on YouTube in another sign that, Apple may be starting to abandon its isolationist attitude when it comes to its ecosystem.
• The new iPhones have been widely leaked and unless everyone is wrong, the new devices will sport an ugly square camera array on the back that I am pretty certain will have made ex-lead designer Jony Ive cringe.
• Consequently, there are very unlikely to be any surprises at all in what looks set to be yet another incremental update.
• However, for the first time, Apple will be live-streaming its event on YouTube which will make it easier for the maximum viewership to be achieved.
• A few years ago, the live stream could only be watched using Safari on an Apple device which was recently relaxed so that Chrome on a PC could be used.
• This combined with the iPad’s (and likely iPhone) move to USB-C, Apple TV in non-Apple hardware is signalling a softening of the historical insistence on Apple hardware and software for almost every aspect of the ecosystem.
• To date, this has been a highly effective way of ensuring that the quality and profitability of its ecosystem was first-rate but, with its scale and Google being unable or unwilling to bring Android into line, this is becoming less critical.
• Furthermore, if Apple really intends to make services the majority of its business, it will need its services to have much wider appeal than they currently do.
• In the USA, around 50% of smartphone users are in the ecosystem, but globally this number is closer to 13%.
• Consequently, to really make services big, it needs to appeal to the 87% of the market that it currently does not address.
• Apple has a very long way to go if it wants its growth to be driven by services, but ensuring wider appeal of its content subscription offerings would be a good start.
• It could even serve as a segway to entice more users to become full members of the iOS ecosystem as somethings are always going to work better on hardware that has been explicitly designed for it.
• The good news is that Apple has plenty of time to work on this.
• There is no competitive challenge on the horizon with Android being unable to compete in terms of quality.
• This means that although the hardware business will struggle to grow, it should remain very profitable.
• This will result in tens of billions of dollars of free cash flow that will become available for investments in services and a slow migration plan over a period of many years away from hardware and towards software and services.
• Unfortunately, the market wants fireworks from Apple on cue every year meaning that no growth will dampen share price performance.
• This is why I am fairly neutral on Apple.
• There is not much upside because services revenue will take years to reach a scale where it can really move the needle company-wide.
• However, at the same time, there is not much downside either because there is no competitive threat on the horizon meaning that it should weather stock market and economic uncertainty very well.
• Apple now looks a lot like Nokia did when it was at the height of its power, and there is no disruptor on the horizon.
• The empire will survive and thrive for now.