Apple – Under the hood.

The real action is inside the new products.

• The new, universally leaked, devices are pretty dull on the outside but it is what Apple has done on the inside, particularly around the camera, that makes them worthy of note.
• The devices were so widely leaked (probably deliberately) that there was nothing that caused any real surprise with three new iPhones, all using the full front display design of the iPhone X.
• These devices are the iPhone Xs at $999, iPhone Xs Max starting at $1,099 and the iPhone Xr starting at $749.
• Apple also launched an update to the Apple Watch with a larger screen, the ability to take an FDA approved electrocardiogram (ECG) and a thinner overall form factor.
• However, the real innovation that Apple has put into these devices lies in the usage of the new A12 Bionic chip combined with software and the camera module.
• These features are:
  • First, depth of field: The improvements that Apple has made here are startling and it is mostly software and processing based.
  • Using the dual camera, the ability to calculate the foreground and background of a picture has been significantly improved and the quality of the photographic blur is exceptional.
  • Furthermore, Apple has been able to do what Lytro never managed and offer the ability to adjust the blurring after the photograph has been taken.
  • These were some of the best demonstrations I have ever seen from Apple and I am curious to see how good it will be in the wild in the hands of amateurs.
  • It was also clear that this is where Apple really wanted to have the most impact as Phil Schiller was truly animated when presenting this feature and dull as ditchwater when talking about the outside of the new devices.
  • Second, HDR: High dynamic range is a technique by which a series of pictures are taken at different exposures to ensure that both the dark and light areas of a picture are properly exposed.
  • These are then combined to bring together the best exposures from all of the pictures and achieve the best photograph
  • Combining these automatically is a difficult feat to accomplish, especially to do so in a way that produces a picture that is both pleasing and looks real.
  • Here, the demonstrations were again top notch and we saw animated presenters rather than dull monologues.
  • Third, battery life and eSIM: The efficiency of the A12 Bionic chip has come into play increasing the iPhone Xs life by 30mins and the Xs Max by 90 mins.
  • There is now support for eSIM to provide a dual SIM function but this requires the co-operation of the operator and outside of the US, there are precious few of these.
• I think it is pretty clear that the leaking of models, form factors and pictures was deliberate.
• This served to keep the maniacal coverage so focused on the ordinary stuff, that no one was prepared for the real stuff that Apple wanted to surprise with.
• I think this strategy worked extremely and the substantial improvements that have been made to both photography and videography act as a pretty good reason to make the upgrade.
• This really throws down the gauntlet to Google which came up with a better portrait mode last year and putting pressure in it to deliver in October with the Pixel 3.
• It also puts Apple ahead of Samsung when it comes to this key feature.
• The net result is that Apple has done enough to keep the sales of its products brisk, keep competition at bay and steadily increase the average selling price.
• Hence, I would expect some marginal growth in revenues and profits from Apple over the next 12 months on the basis of price and margin but not unit volume.
• This leaves the shares at a fair level where I am happy to hold them as in the face of the privacy backlash going on at the moment, Apple remains the most protected, given its focus on privacy and security.