Keynote 2017

Apple Keynote 2017 – First Thoughts

The worst kept secret of the year was finally unveiled tonight.  Apple are indeed releasing a ten-year anniversary iPhone, dubbed the iPhone X (Ten).  This will sit alongside (or above, given the price) the standard range update of the iPhone 8 and 8 Plus.  No doubt there will be 64,000 articles written on this by the end of the week, and I’d not be so presumptuous to assume I offer any new insight, but as a shareholder of AAPL I have a few thoughts.

Keynote 2017

Apple are, of course, a behemoth of the business world.  There is a strong likelihood that they will become one of, if not the first, trillion dollar company.  And I think tonight they have done enough with the keynote to allow them to continue the upward trajectory they have been on for a number of years now.

I am, by default, a cynical git.  I cannot but help look upon the annual pilgrimage to the Apple keynote with a sense of derision at the almost cult-like status attributed to it.  And ultimately the whole event seemingly never quite lives up to the hype.  But that doesn’t matter.  Apple have done enough once again.

There were some plus points.  I thought the Apple Watch was a significant enough upgrade to warrant a respectful nod of the head.  Incorporating cellular technology into the device (meaning you can leave your phone at home and still make & receive calls) has a practical application that I can appreciate.  Adding sport to the Apple TV seems a sensible foray into the business of delivering content, which I’m sure we’ll see more of.

But largely I was underwhelmed.  The animated emojis.  Granted I am 32 (and of course a cynical git), but the sheer effort put into demonstrating the use of using facial recognition to turn your face into a chicken made me cringe.  A 4k Apple TV should be par for the course, as should wireless charging capability (admittedly being able to charge all devices via their AirPower device was impressive).  The cameras on the iPhone 8 Plus has once again been improved, which is great.  You can now take photos that look like they’ve been shot with studio lighting.  Two things arise from that, for me.

One, this is very unlikely to cause professional photographers to ditch their expensive kit and just use the phone.  Nothing can fully replicate a photography studio.

Two.  Photos are only as good as the person taking them, and the average smartphone photographer is, well, not good at taking photos.  Certainly not to the quality of photos demonstrated in the keynote tonight.

As to the phones in general, the iPhone 8 and 8 Plus were largely unremarkable in my eyes.  The necessary offering to those caught within the upgrade cycle looking at replacing their two-year-old phone.  There’s nothing revolutionary, but they’ve done enough.

However, it was the iPhone X is what everyone was waiting for.  The price is suitably premium (Apple is premium, whether you like it or not), it looks very pretty and I’ve no doubt it’s powerful.  It has an edge-to-edge display, Face ID (to unlock the phone and pay using Apple Pay), and the illustrious ‘Home’ button is no more (you unlock the phone by ‘swiping’ up.  This was demonstrated far too many times).

Naturally one of the biggest announcements was that you can now unlock your phone with your face.  Despite appearances this is not revolutionary, and as with most iPhone features has already been done elsewhere.  (I just hope it is more secure than some other phones which can be unlocked simply by holding up a photo of the owner!).

But none of this is the point.


Apple is a luxury goods manufacturer.  They are better than any of their peers at embedding their customers into their own ecosystem, and because of this it is very hard to leave.  It occurs to me that Apple are well on their way to becoming a luxury consumer staples business.  The phones need not improve by a magnitude each year (even though we all pretend they have), they just need to improve enough.  Consumers will continue to upgrade when their contract ends, or their phone becomes outdated, or just because they have the money and they can.  For many iPhone users, upgrading their phone will become as common (though less frequent) as buying toothpaste.  I’d argue this is already the case somewhat.

If you own an iPhone, you may likely own an Apple Watch, or an iPad, or a Mac, or an Apple TV, or a HomePod speaker, or AirPods.  You may now want to buy an AirPower charging unit to charge it all.  You listen to music via Apple Music, and you buy apps through the App Store.  Your photos are stored on the iCloud.

Breaking out of that system is very difficult.  Which is why I’ve lost count of the people I’ve seen walking around with cracked iPhone screens, usually covered in tape.  So long as the phone is the centre point of the Apple ecosystem, this will continue to be the case.  You’re far more likely to own the other peripherals if you have an iPhone as well.  Until we truly do see the smartphone market disrupted as a whole, the iPhone will remain king.

And lest we forget, Apple is a cash generating machine.  Forget that they have over $260 billion in cash alone.  They also generate over $50 billion a year in free cash flow.  $50 billion after all capital expenditure.  The big money of course remains in the sale of iPhone handsets.  I believe there’s a strong likelihood this will continue for the reasons outlined above.  But the areas I’m keeping an eye on are software and services.  The company are now generating meaningful revenue from the App Store.  They are going up against Amazon and Netflix in making investment into original content, and believe me, they have the firepower.  It is in software and services that they can make the next leap.

Happy investing!


Leave a comment below, or find me on Twitter @BritishInvestor.

Disclosure:  Apple is a constituent of the portfolio.

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