Ap­ple searches for the next big thing

Muscat Daily - - FINANCIAL TIMES -

Cap­i­tal Mar­kets, one of the first on Wall Street to sug­gest its shares might rise that high. “But it’s not that un­rea­son­able to think there’s an- other 20 per cent up­side in Ap­ple’s stock.”

Brian White, an­a­lyst at Drexel Hamil­ton, whose US$202 tar­get price im­plies a US$1tn val­u­a­tion, is bet­ting that the next iPhone will prove more durable in its sales, af­ter last year’s de­clines. “I don’t ex­pect the boom-bust cy­cle that we saw in fis­cal 2015, which re­ally hurt Ap­ple,” he said. “It’s still so cheap, for a com- pany that gen­er­ates this much cash.”

Ap­ple added al­most US$30bn in mar­ket cap­i­tal­i­sa­tion in a sin­gle day on Wed­nes­day - about as much as HP is worth and more than Dell’s price tag when it was taken pri­vate a few years ago. Its shares jumped five per cent, briefly hit­ting a new all-time high of US$159.75 and a val­u­a­tion above US$810bn, af­ter last Tues­day night’s fore­cast of ac­celer- at­ing sales growth.

To main­tain this growth, some new inno- va­tions are al­ready in the works. At least one model of the next iPhone is ex­pected to in- clude wire­less charg­ing, and 3D cam­era sen- sors that will al­low own­ers to un­lock the de­vice sim­ply by look­ing at it. Some fea­tures were ap­par­ently con­firmed this week when Ap­ple ac­ci­den­tally posted source code on- line.

Some in Sil­i­con Val­ley, how­ever, be­lieve these rep­re­sent merely in­cre­men­tal im­prove- ments and that the lead­ing smart­phone mak- ers have be­come con­strained by hav­ing to pro­duce more than 200mn de­vices a year.

“As Ap­ple and Sam­sung have op­ti­mised for profitabil­ity, con­sumer choice has gone down and in­no­va­tion has gone down,” said Nic­colo De Masi, pres­i­dent and chief op­er­at­ing of­fi­cer of Es­sen­tial, a new con­sumer elec­tron­ics start- up co-founded by Android cre­ator Andy Ru­bin. “When the grand­par­ents have the same phone as the grand­kids, the phone is a com- modi­tised util­ity.”

With Ap­ple’s vast scale, though, comes vast re­sources. As the iPhone ma­tures, Ap­ple has be­gun to place bets on a wider range of mar- kets, from wire­less head­phones and speak­ers to the au­to­mo­tive and ro­bot­ics tech­nol­ogy.

While Daryanani be­lieves Ap­ple might reach that US$1tn val­u­a­tion off the back of in- creased iPhone prof­its alone, White said it needs to look be­yond the smart­phone to new in­no­va­tions. “There has to be some­thing on the hori­zon that peo­ple can dream about,” he said.

Ap­ple’s an­nual R&D in­vest­ment has in- creased ten­fold since 2007. At UD$8.6bn in the first nine months of the 2017 fi­nan­cial year, it is now five per cent of rev­enues, its high­est ra­tio since 2005. In reg­u­la­tory fil­ings this week, Ap­ple said the rise was ‘driven pri­mar­ily by an in­crease in head­count-re­lated ex­penses to sup­port ex­panded R&D ac­tiv­i­ties’.

Cook teased in­vestors this week with a hint that its work on ‘au­ton­o­mous sys­tems’, be­ing tested on the roads of Cal­i­for­nia in its self-dri- ving car pro­to­type, could be used in ‘a va­ri­ety of ways - and a ve­hi­cle is only one’. Ap­ple is mak­ing a ‘big in­vest­ment’ in au­ton­omy, he said. ‘We do have a large project go­ing’.

That had an­a­lysts spec­u­lat­ing about what the mys­tery new project might be, from fly­ing drone cam­eras to do­mes­tic ro­bots.

A walk­ing, talk­ing Siri may be hard to en- vis­age given Ap­ple is seen as lag­ging be­hind ri­vals such as Ama­zon and Google in the trend for ‘smart speak­ers’. None­the­less, Ap­ple of­ten works on many dif­fer­ent projects - and is not afraid to ex­per­i­ment in­ter­nally and then kill some ideas be­fore they ever see the light of day.

Former em­ploy­ees liken it to a ven­ture cap- ital com­pany, rather than a tra­di­tional process-driven in­dus­trial con­glom­er­ate. While some worry that its in­creas­ingly broad prod- uct range risks di­lut­ing co-founder Steve Jobs’ im­per­a­tive to fo­cus on do­ing a few things well, others ar­gue Ap­ple has re­tained his abil­ity to say ‘no’ to things in order to pri­ori­tise.

A par­tic­u­lar area of ex­per­i­men­ta­tion, peo- ple fa­mil­iar with the mat­ter say, is a pair of AR glasses that might move cam­eras, sen­sors and screens from the smart­phone to the face. Yet de­spite the ex­cite­ment sur­round­ing ARKit, in- ter­nally the com­pany is still not sure what the most com­pelling ap­pli­ca­tion for such a head- set might be.

As a re­sult, there are still sev­eral dif­fer­ent kinds of pro­to­type be­ing ex­per­i­mented with, ac­cord­ing to peo­ple close to the com­pany. One group of engi­neers is said to be ad­vo­cat­ing for a pair of glasses that have 3D cam­eras but no screens, leav­ing the iPhone as the hub and main dis­play.

Such a de­vice might have more in com­mon with Snapchat’s US$130 video-cam­era Spec- tacles than Mi­crosoft’s bulky and ex­pen­sive HoloLens AR head­set, which shows dig­i­tal holo­grams which can be ma­nip­u­lated us­ing hand ges­tures. How­ever, no fi­nal de­ci­sion has been made on the prod­uct’s fi­nal for­mu­la­tion. Ap­ple de­clined to com­ment.

“What Ap­ple has is the ca­pa­bil­ity to work on a cer­tain type of prod­uct - now much more so than ten years ago,” said Bene­dict Evans, part­ner at Sil­i­con Val­ley in­vestor An­dreessen Horowitz. “Glasses fit squarely into that capa- bil­ity but the self-driv­ing part of cars, some- what less so.”

Un­like the devel­op­ment of the iPhone, when there was a sin­gle team work­ing in se- cret on its break­through touch­screen tech­nol- ogy, to­day’s Ap­ple has a broader dis­tri­bu­tion of the ‘com­puter vi­sion’ ex­per­tise that un­der- pins both AR and au­ton­o­mous sys­tems, in­sid- ers say.

As it pours its re­sources into a wider range of core tech­nolo­gies, Ap­ple’s de­sign­ers and engi­neers are con­tent to wait for the right mo- ment to launch a new prod­uct, rather than force it out to meet Wall Street’s quar­terly earn­ings sched­ule - but then move quickly when the mo­ment ar­rives for Ap­ple to make what it de­scribes as a ‘mean­ing­ful con­tribu- tion’. The team tin­ker­ing with a minia­turised hard drive, for in­stance, did not re­alise that it would one day up­end the mu­sic in­dus­try as a key com­po­nent of the iPod.

“Every hand­ful of years, there is a win­dow of op­por­tu­nity,” one former em­ployee said, re- call­ing a les­son taught at Ap­ple Univer­sity, its in­ter­nal train­ing scheme. “Our job at Ap­ple was to be the best pre­pared, not to pre­dict ahead of time what it will be. If you are the best pre­pared, you can dive into it.”

Re­search firm IDC pre­dicted this week that spend­ing on AR and vir­tual re­al­ity prod­ucts and ser­vices will soar from US$11.4bn in 2017 to US$215bn in 2021.

App de­vel­op­ers such as Walker are opti- mistic that AR could be­come the next big com- put­ing plat­form af­ter smart­phones. “I think glasses will be a new way of in­ter­act­ing like touch­screens were ten years ago,” he said.

How­ever, Ge­off Blaber, an­a­lyst at CCS In- sight, pre­dicted it could take an­other ten years for AR glasses to be­come a mass-mar­ket prod- uct like the iPhone.

“I don’t think we can rely upon a ‘next big thing’ in the next 12 months,” he said. For now, Ap­ple’s next big thing is still the iPhone. For some in­vestors eye­ing that tril­lion-dol­lar val- ua­tion, that might be enough.

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