New iPhone makes Apple “ready for the metaverse economy”
R “Ray” Wang Constellation Research Principal Analyst & Founder and Author of “Everybody Wants to Rule the World” provides takeaways from Apple‘s fall event.
ADAM SHAPIRO: We’re going to keep talking about where all this is headed because, as our next guest points out, they expect to ship almost 240 million devices this year. Let’s bring into the stream R. Ray Wang, Constellation Research Principal Analyst and Founder, as well as the author of “Everybody Wants to Rule the World.”
And let me pick up on that expected shipment of 200 and almost 40 million devices. It’s part of that supercycle replacement a lot of analysts have talked about. And yet, despite all the gizmos and gadgets on the new iPhone 13 and other products, we’re seeing shares sell off. Shouldn’t people be paying more attention to the replacement cycle and not so much the gadgets and gadgets?
RAY WANG: They should be paying more attention to two things. One is the replacement cycle. That’s important. This is like the iPhone 6 supercycle. But the second thing that is just more important is the services revenue that’s here. Apple‘s new phones make them ready for the metaverse economy. You see it with the faster chips. You see it with the better displays. You see it with the better battery life. And more importantly, you can see the AI and the AI actually putting themselves into action, making things a lot more easier for users.
And so the services growth is the number I’m looking at. Most people are looking at the shipments of units. And I think it’s more important to think about how Apple is now a media company in terms of fitness, Apple TV, health, education. And that’s why I say these advancements are getting them to be metaverse ready.
SEANA SMITH: Ray, I guess, though, the big question, though, going into this holiday season, we know the holiday season is so important for Apple. So now they have these new products. They’ve posted very, very strong numbers, especially in their last quarterly earnings. Is it enough, though, do you think to keep that momentum alive?
RAY WANG: Yeah, I think so, barring another issue in terms of a variant or closure somewhere there. We’ve seen how they’ve been resilient. The other issue that would have to worry about is really chip shortages that might have an impact to them. But we’ve seen some shifts, right? The iPad has gone from content consumption to content creation, right?
We’ve seen, you know, price points that aren’t necessarily cheap price points. You see form factors, massive choices on form factors. You want a smaller version? It’s not a cut rate one. It has the same amount of features. It has the same amount of capabilities. And it’s basically inclusiveness at all price ranges and form factors, right?
So I see, you know, we see this as, you know, something ready for the holiday season for people who hadn’t gone through the iphone-12, people who want a better camera, who are looking for that experience, and of course, some of those other features that Dan was talking about, Seana.
ADAM SHAPIRO: Are people going to spend $999 for a base model? I mean, they love their Apple products, but there is a point where you say too much, isn’t there?
RAY WANG: No, but they might come in at a 599 model for something else. They might come in with more services that they subscribe to. That services number at some point we think in the next four years might even get to about 35% of total revenues. That’s the one that’s most interesting to watch because that’s the highest margin. Hardware gets you in the door. Services keeps you in with the margins on a subscription basis.
SEANA SMITH: Ray, when you take a look at iPads, Apple announcing some new iPads today, iPads, the sale of iPads clearly has ticked up over the last year and a half because of the pandemic. I guess, how much more important is the iPad lineup and now to Apple, given the changes that we’ve seen over the last year and a half?
RAY WANG: You’re right. I mean, with remote work, Seana, what’s happening is people are using the iPad more for content creation than content consumption. And being able to take all different form, shape– form fits– like, the iPad Mini is something that I might just pick up because it’s light, it’s easy to use, and I’ll use it, you know, to be able to use it for content creation in a way I wouldn’t have done before. It’s slightly– you know, it’s got the same capabilities that are out there.
And, you know, if I’m in a meeting, if I’m trying to take a video call, it’s very easy to use. And it’s perfect for me to put just inside, you know, inside your jacket or to carry with you in a backpack, you know, and not have to worry about it. So it’s stuff like that that’s actually allowing for hybrid work to occur. And you’re also going to see more use of this, you know, as people– you know, as applications and, you know, media and content are being created for the iPads.
ADAM SHAPIRO: Hey, Ray, real quick, does Apple have an advantage and avoid a chip shortage because they have their chips manufactured? I realize it’s still kind of outsourced, but do they bypass all of the headlines about shortages?
RAY WANG: I don’t know if they’re completely immune because that’s related to total fab capacity. And when we look at capacity, I mean, those are three to five years out, as people build new plants. So they are not completely immune, but they definitely have first priority in getting their chips.
ADAM SHAPIRO: All right. R. Ray Wang, Constellation Research Principal Analyst and Founder, also the author of “Everybody Wants to Rule the World.” Good to have you here. Thank you.