Above Avalon Articles

Above Avalon articles include Apple analysis from a business and technology point of view. Articles are available to everyone.

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Recent Articles (past three months)

*NEW* Apple Deserves More Credit for Wearables. The wearables era at Apple began years ago. However, Wall Street and Silicon Valley are only now slowly starting to pay attention to what Apple has been building. Apple is the undisputed leader in wearables, and they are pulling away from the competition. Given how Apple’s wearables strength continues to be underestimated, the company deserves more credit for what it has achieved and where it is headed.

Apple 3Q19 Earnings Expectation Meters. Apple finds itself in a financial tug-of-war as declining iPhone revenue is being offset by growth in every other product category. While the press remains infatuated with the storyline that slowing iPhone sales are driving Apple to become a services company, which isn’t true, such an intense focus on services is leading to a lack of attention being given to the incredible growth seen with Apple’s wearables platform and the turnaround story underway with the iPad business.

Jony Ive, Jeff Williams, and a Larger Apple. One question that continues to plague Apple is the company’s ability to grow. Wall Street and Silicon Valley are unsure of the company’s business strategy and ability to foster innovation. The press thinks Apple is turning into a different kind of company in an effort to chase additional profits. Thrown into this volatile and polarizing cocktail of opinions, the recent Jony Ive and Jeff Williams news has been met with mixed reactions. The leadership changes neither signify a company moving away from design or hardware nor suggest that management is facing some kind of growth crisis. Upon closer examination, the Jony Ive and Jeff Williams news are byproducts of Apple evolving into a much larger design company.

Apple's Product Strategy Is Changing. This year’s WWDC felt different. While every WWDC keynote is filled to the brim with new features, this year’s announcements included highly anticipated items like a new Mac Pro and differentiated iPad software features. In addition, there were some genuine surprises such as SwiftUI (a big deal with wide-ranging implications for Apple’s ecosystem). Despite there being no discernible change to the grand vision behind Apple’s product development, there does appear to be a noteworthy change to strategy.

Apple’s Billion Users. Apple’s ecosystem is massive. Approximately a billion people are using more than 1.4 billion Apple devices. Even as iPhone sales decline, Apple is bringing tens of millions of new people into its ecosystem each year. However, we are getting to a point where it is prudent to begin thinking about what user growth actually means to Apple.

Tech's Tectonic Plates Are Starting to Shift. For the past decade, the giants (Amazon, Apple, Facebook, Google, and Microsoft) have been able to grow while staying out of each other’s lanes. This dynamic has been nothing short of remarkable. However, things are starting to change.

Apple 2Q19 Earnings Expectation Meters. Based on Apple’s revised financial disclosure, the Above Avalon expectation meters have received a makeover for 2Q19 earnings. Unit sales meters have been retired and replaced with revenue meters. In addition, an entirely new expectation meter is being included to reflect Apple’s changing business as non-iPhone revenue now plays a larger part in Apple’s growth story.

Apple’s $400 Billion Buyback Program. One of the more certain items found with Apple’s upcoming 2Q19 earnings is that the board will approve increases to the company’s share buyback authorization and the quarterly cash dividend. The two capital return initiatives continue to be polarizing topics as Apple holds more than $100 billion of excess cash on the balance sheet. A closer look at Apple’s buyback and dividend trends suggests the company’s board still has a strong incentive to increase Apple buyback authorization in a big way next week. (Published: April 24th, 2019)

Curated Archive

Jony Ive, Jeff Williams, and a Larger Apple (July 17th, 2019)

Apple’s Billion Users (May 30th, 2019)

Apple’s Declining Capex (March 12th, 2019)

AirPods Have Gone Viral (February 11th, 2019)

The Gray Market’s Impact on iPhone Pricing (October 22nd, 2018)

Connecting the Apple Dots (September 19th, 2018)

Apple Is Figuring Out What’s Next (June 20th, 2018)

The Apple Services Machine (May 15th, 2018)

An Apple R&D Bonanza (March 15th, 2018)

Apple Watch Is a Bridge to the Future (January 23rd, 2018)

A Stationary Smart Speaker Mirage (November 30th, 2017)

Apple Is Facing a Double Standard (October 26th 2017)

Apple’s Grand Vision (October 18th, 2017)

Apple Has the Best Business Model for Generating Cash (August 15th, 2017)

Apple Glasses Are Inevitable (July 27th, 2017)

Apple Isn’t a Tech Company (April 26th, 2017)

The Mac Is Turning into Apple’s Achilles’ Heel (April 12th, 2017)

Grading Tim Cook (January 19th, 2017)

Skating to the Apple Car Puck (November 17th, 2016)

iPhone Warning Signs (May 2nd, 2016)

The Car’s “iPhone” Moment (April 20th, 2016)

The Grand Unified Theory of Apple Products (December 2nd, 2015)

Peak iPad Mini (November 24th, 2015)

Apple Uses Good Design to Marginalize Industries (October 13th, 2015)


Full Archive

2019

Apple Deserves More Credit for Wearables. The wearables era at Apple began years ago. However, Wall Street and Silicon Valley are only now slowly starting to pay attention to what Apple has been building. Apple is the undisputed leader in wearables, and they are pulling away from the competition. Given how Apple’s wearables strength continues to be underestimated, the company deserves more credit for what it has achieved and where it is headed.

Apple 3Q19 Earnings Expectation Meters. Apple finds itself in a financial tug-of-war as declining iPhone revenue is being offset by growth in every other product category. While the press remains infatuated with the storyline that slowing iPhone sales are driving Apple to become a services company, which isn’t true, such an intense focus on services is leading to a lack of attention being given to the incredible growth seen with Apple’s wearables platform and the turnaround story underway with the iPad business.

Jony Ive, Jeff Williams, and a Larger Apple. One question that continues to plague Apple is the company’s ability to grow. Wall Street and Silicon Valley are unsure of the company’s business strategy and ability to foster innovation. The press thinks Apple is turning into a different kind of company in an effort to chase additional profits. Thrown into this volatile and polarizing cocktail of opinions, the recent Jony Ive and Jeff Williams news has been met with mixed reactions. The leadership changes neither signify a company moving away from design or hardware nor suggest that management is facing some kind of growth crisis. Upon closer examination, the Jony Ive and Jeff Williams news are byproducts of Apple evolving into a much larger design company.

Apple's Product Strategy Is Changing. This year’s WWDC felt different. While every WWDC keynote is filled to the brim with new features, this year’s announcements included highly anticipated items like a new Mac Pro and differentiated iPad software features. In addition, there were some genuine surprises such as SwiftUI (a big deal with wide-ranging implications for Apple’s ecosystem). Despite there being no discernible change to the grand vision behind Apple’s product development, there does appear to be a noteworthy change to strategy.

Apple’s Billion Users. Apple’s ecosystem is massive. Approximately a billion people are using more than 1.4 billion Apple devices. Even as iPhone sales decline, Apple is bringing tens of millions of new people into its ecosystem each year. However, we are getting to a point where it is prudent to begin thinking about what user growth actually means to Apple.

Tech's Tectonic Plates Are Starting to Shift. For the past decade, the giants (Amazon, Apple, Facebook, Google, and Microsoft) have been able to grow while staying out of each other’s lanes. This dynamic has been nothing short of remarkable. However, things are starting to change.

Apple 2Q19 Earnings Expectation Meters. Based on Apple’s revised financial disclosure, the Above Avalon expectation meters have received a makeover for 2Q19 earnings. Unit sales meters have been retired and replaced with revenue meters. In addition, an entirely new expectation meter is being included to reflect Apple’s changing business as non-iPhone revenue now plays a larger part in Apple’s growth story.

Apple’s $400 Billion Buyback Program. One of the more certain items found with Apple’s upcoming 2Q19 earnings is that the board will approve increases to the company’s share buyback authorization and the quarterly cash dividend. The two capital return initiatives continue to be polarizing topics as Apple holds more than $100 billion of excess cash on the balance sheet. A closer look at Apple’s buyback and dividend trends suggests the company’s board still has a strong incentive to increase Apple buyback authorization in a big way next week. (Published: April 24th, 2019)

Why Apple Is Getting Into Original Content. One of the more crucial questions found with Apple’s Services event involves why the company is moving into original content in the first place. The answer speaks volumes as to how the content consumption landscape has changed in just a few short years. (Published: April 8th, 2019)

Thoughts on Apple’s Revised iPad Line. In what has become something of a trend, Apple once again unveiled a few iPad strategy adjustments in March. This year’s changes include an update to the 7.9-inch iPad mini and altering the 10.5-inch iPad Pro to arrive at a lower-priced and rebranded 10.5-inch iPad Air. The best way to analyze these updates is to look at Apple’s broader iPad strategy and the significant amount of change that the product category has undergone in just the past two years. (Published: March 21st, 2019)

Apple's Declining Capex. The most surprising revelation found in Apple’s recent 10-Q and 10-K filings is related to capital expenditures (capex). For the first time in 16 years, Apple expects its capex to decline during the current fiscal year. Declining capex is made that much more intriguing for Apple considering how Amazon, Alphabet, Microsoft, and Facebook are each experiencing significant increases in capex. Analyzing Apple’s capex and the potential reasons for its decline provides a look at how the company is being managed and how Apple is unique when compared to other Wall Street giants. (Published: March 12th, 2019)

Revamping Apple's Home Strategy. Last week, news broke that Apple had hired Sam Jadallah, a former Microsoft executive and most recently founder of a smart lock company, to lead its various home initiatives. The announcement raised a number of questions, including the most obvious: What is Apple’s home strategy? Consensus in the press is that Apple is far behind Amazon and Google in the race to control the home. I’m not so sure about that. Instead, the entire smart home genre appears to be floundering. Jadallah’s hiring points to Apple reassessing how to best get the idea of an intelligent home off the ground. (Published: February 21st, 2019)

AirPods Have Gone Viral. Apple has a hit on its hands, or maybe we should say in its ears. AirPods have become the second best-selling Apple product out of the gate of all time. More interestingly, there are signs of AirPods now becoming a cultural phenomenon. AirPods do a superb job of demonstrating Apple’s competitive advantages with wearables, a product category that will come to define Apple for decades. (Published: February 11th, 2019)

Apple's Content Distribution Strategy. This past November, Amazon sent shockwaves across a number of industries by announcing Apple Music would be available on Echo devices. Earlier this month, Samsung announced Apple was bringing iTunes content to Samsung TVs. Apple also expanded AirPlay 2 support to include a wide range of high-end television sets. These announcements don’t represent some type of cultural shift away from hardware for Apple. Instead, the moves are part of Apple’s strategy to leverage its user base in an effort to establish one of the more formidable content distribution arms in existence. (Published: January 23th, 2019)

Apple Questions in 2019. Last year was a busy one for Apple, and all indications point to 2019 being another busy year. Earlier this month, Apple announced a rare negative revision to its quarterly revenue guidance due to an unforeseen sales drop in China. The news was quickly followed by announcements from the leading TV set manufacturers that Apple was extending AirPlay 2 support to smart TVs. In addition, Samsung announced Apple was bringing an iTunes app to Samsung Smart TVs. The moves are part of Apple’s long-standing ambition to strengthen its content distribution arm. (Published: January 14th, 2019)

2018

iPhone Hysteria. We are in the midst of an iPhone hysteria phase that has reached an inflection point. Attention is being given to data points that are not good indicators of the underlying strength of the iPhone business. Meanwhile, little to no attention is being given to the items that are genuine risks and concerns facing iPhone. We are now starting to see this hysteria and pessimism spill into how the rest of Apple’s business is perceived. (Published: December 19th, 2018)

Leveraging Apple's Share Buyback. Apple’s dramatic stock price drop is now leading to a surge in pessimism towards the company. An increasing number of Apple management’s actions are being questioned while criticism is being thrown at various Apple products. In reality, most of this criticism is nothing more than a byproduct of a declining stock price. This has happened before, and a closer examination of previous stock price drops suggest Apple management will use the lower AAPL share price to its advantage by leveraging its share buyback program. (Published: December 3rd, 2018)

Apple Outgrew Unit Sales. In 2014, Apple management surprised many by announcing they were not going to disclose Apple Watch unit sales once the product went on sale the following year. The decision was interpreted by many outsiders as Apple not thinking too highly of Watch’s prospects. As it turned out, nothing could have been further from the truth. Apple’s Watch disclosure decision ended up foreshadowing management’s recent announcement that it will no longer disclose iPhone, iPad, or Mac unit sales. While a number of factors are behind Apple’s decision, the simplest explanation for the disclosure change is that Apple outgrew unit sales. (Published: November 14th, 2018)

Apple 4Q18 Earnings Expectation Meters. Apple will report another good earnings report on Thursday. Revenue guidance for 1Q19 will be one for the record books as Apple will guide to its best quarter ever. However, when diving down deeper into Apple’s 4Q18 results, things may look a bit messier. The fourth quarter was one of transition for Apple as the company launched new iPhones and Apple Watches. It would not be surprising if demand for a number of product categories waned heading into September. However, stronger iPhone and Apple Watch ASP trends will more than offset unit sales weakness. (Published: October 31st, 2018)

The Gray Market's Impact on iPhone Pricing. The expanding gray market for refurbished and previously-owned iPhones continues to gain legitimacy and influence. According to my estimate, approximately 150M iPhones in use passed through the gray market. This means that nearly 20% of iPhones in the wild, including hand-me-down iPhones, were previously owned by someone else. Along with helping Apple expand its user base, the gray market is also impacting Apple’s iPhone pricing strategy in an unexpected way: by driving iPhone average selling price (ASP) higher. (Published: October 22nd, 2018)

Netflix Isn't Invincible. Netflix has been on a roll. The company is adding approximately two million paying subscribers per month while its original content portfolio grows by leaps and bounds. However, calls suggesting Netflix has won the paid video streaming war are grossly premature. In fact, the battle hasn’t even begun. We are still in the early stages of what will likely become a brutal stretch for many players as competition for paying subscribers and our time intensifies. New players, including Disney and Apple, are about to enter the scene as different direct-to-consumer business models are put to the test. Many prevailing assumptions about the paid video streaming industry will end up being proven wrong. (Published: October 10th, 2018)

Connecting the Apple Dots. Apple is following a clear and defined product strategy. Last week, Apple provided the latest look at this strategy by unveiling new iPhones and a redesigned Apple Watch. These products represent clues that help paint a picture of where Apple is headed. (Published: September 19th, 2018)

Poaching Tesla. Apple and Tesla share some similarities. Both companies possess remarkably strong brands, loyal customer bases, and products capable of maintaining that loyalty. Each also has a visionary product leader. Apple has Jony Ive while Tesla has Elon Musk. Accordingly, some have concluded that Apple should acquire Tesla as a way of quickly jumping into the transportation industry. A Tesla acquisition doesn't make sense for Apple. However, Tesla does have something that Apple has a use for: talent. (Published: September 6th, 2018)

Apple's Growth Story. Apple is on a roll. The company is seeing record high iPhone ASPs, strong momentum with Services, and a wearables platform connecting with the mass market. Revenue growth has accelerated for the past seven quarters. Apple's growth story has returned with a vengeance. Upon closer examination, it becomes evident that Apple's three primary growth levers are not created equal. While some growth levers are at risk of slowing, others are still just getting started. (Published: August 15th, 2018)

Apple 3Q18 Earnings Expectation Meters. The ingredients are in place for Apple to report an all-around solid 3Q18. If Apple reports more than $52.5B of revenue, 3Q18 would mark the company’s seventh consecutive quarter of accelerating revenue growth. A higher iPhone average selling price (ASP) driven by iPhone 8, 8 Plus, and X will likely represent the largest driver behind Apple's year-over-year revenue growth. Services and wearables are positioned to represent Apple's second and third largest revenue growth drivers, respectively. (Published: July 30th, 2018)

The iPad vs. Mac Juxtaposition. Apple has always publicly supported the iPad and Mac. However, that hasn't prevented questions regarding Apple's commitment to the two product categories from popping up. In recent months, Apple has shown a new level of openness when it comes to embracing both the iPad and Mac as unique and differentiated platforms for creative endeavors. The change is noteworthy when thinking about each category's future. (Published: July 26th, 2018)

The Race to a Trillion. An arbitrary race that many have been following on Wall Street is, which company will be the first to reach a trillion dollar market capitalization? Currently, there are four legitimate contenders: Apple, Amazon, Alphabet, and Microsoft. However, the race to a trillion dollars ends up hiding a much more interesting development that has been unfolding on Wall Street. (Published: July 11th, 2018)

Apple Is Figuring Out What's Next. Apple used this year's WWDC to demonstrate a number of areas in which it is playing offense. This isn't a company content with letting others control the user experience found with its devices. However, one of the major takeaways from the WWDC keynote was found with something not announced on stage. Apple finds itself announcing new technologies that make more sense on form factors that don't yet exist. Management is increasingly focused on what comes next, and the answer is smart glasses. (Published: June 20th, 2018)

Above Avalon Subscriptions Turn Three. Last week, I celebrated the third anniversary of launching Above Avalon subscriptions. Those who signed up on May 13th, 2015 began their fourth year as Above Avalon subscribers. In an environment where online publishing is being questioned and doubted like never before, Above Avalon subscriptions are working. Above Avalon is an independent source of Apple analysis, 100% supported by subscriptions. The lack of dependency on ads, sponsors, or other revenue streams has played a large role in what Above Avalon has become over the past few years. In addition, Above Avalon has given me a front-row seat for watching the changing Apple news industry. (Published: May 23rd, 2018)

The Apple Services Machine. Apple's services business is remarkably strong yet surprisingly mysterious. A closer look at Apple Services reveals an apparatus, which can easily qualify as a Fortune 100 company, that isn't what it seems from the outside. Apple isn't becoming a services company focused on coming up with a myriad of ways to milk existing users. Instead, Apple's services strategy primarily reflects the company's long-held ambition of becoming a leading content distribution platform. (Published: May 15th, 2018)

Apple 2Q18 Earnings Expectations. Wall Street has major jitters when it comes to Apple's upcoming earnings release. Sentiment has decidedly swung toward the negative as questions swirl around iPhone X demand. Despite the dramatic downturn in expectations, Apple's stock price has held up remarkably well. While many eyes will be on iPhone sales tomorrow, my suspicion is that the data point won't have as much influence as consensus assumes. Instead, Apple's capital return update has the potential to be the major takeaway from 2Q18 earnings. (Published: April 30th, 2018)

Making the Case for Doubling Apple's Share Buyback Pace. Next week, Apple will provide an update to its capital return program. In what has become an annual tradition, the announcement will include a sizable increase to Apple's share repurchase authorization and a hike in the quarterly cash dividend. Given recent management commentary, Apple's overall thought process regarding capital allocation is already known. The only way Apple will be able to accomplish its capital return goals is by doubling the pace of share buyback from current levels. (Published: April 26th, 2018)

Apple Found a Wall Street Narrative. After months of iPhone sales estimates being slashed by analysts, expectations have been reset. The iPhone mega upgrade cycle of 2018 that so many were calling for is not going to happen. One assumes such a reset would have been accompanied by a significant decline in Apple's stock price. Instead, Apple shares have outperformed the market and continue to trade near all-time highs. The resiliency in Apple's stock price reflects the company finally finding a narrative on Wall Street, and it's not centered on the iPhone. Apple has become a capital allocation story. (Published: April 18th, 2018)

An Apple R&D Bonanza. After a brief lull, Apple's R&D expenditures are once again exploding higher. Apple's 2Q18 financial guidance implies the company will soon report the largest year-over-year increase in quarterly R&D expense in its history. Management is on track to spend $14 billion on R&D in FY2018, nearly double the amount spent on R&D just four years ago. The dramatic rise in Apple R&D expenditures raises questions regarding the company's product pipeline and whether management's overall approach to R&D is changing. (Published: March 15th, 2018)

Apple's Strategy for Controlling Sound. September 2016 marked the start of Apple's latest battle in what has been a multi-decade war. This newest battle was going to look and sound different. Apple had unveiled new iPhones lacking dedicated headphone jacks. The controversial move was criticized by many as a sign of Apple going too far in flexing its power and killing off legacy technologies for the sake of change. However, Apple's move wasn't about headphone jacks or even iPhones. Apple had made a big bet regarding the future of "sound on the go," and headphone wires were the enemy. We now see Apple unveiling its revised strategy for controlling sound in the home. The best way to analyze products like AirPods and HomePod is to look at them as the latest weapons in Apple's battle for controlling sound in our lives. (Published: March 8th, 2018)

The iPhone's Turning Point. Later this year, Apple will unveil a 6.5-inch screen that runs iOS. Five years ago, such a product would have been introduced as the newest member of the iPad family. However, Apple finds itself on the verge of releasing its largest iPhone to date. In fact, the device will likely be one of the largest smartphones in the market. Upon closer examination, such a dramatic change in product strategy was ultimately driven by Apple's realization that iPad mini was the wrong bet. It marked a turning point for iPhone. (Published: February 28th 2018)

The Goldilocks Era for iPhone Has Begun. Not too hot. Not too cold. The iPhone is entering a new era that can best be characterized as status quo. The days of huge growth are over, and fundamentals aren't likely to improve significantly from current levels. However, underlying dynamics found with the iPhone business will likely prevent sales and revenue from dropping precipitously in the near term. We are in the iPhone's Goldilocks era. (Published: February 21st, 2018)

Apple 1Q18 Earnings Expectations. If Apple's 4Q17 amounted to a throwaway quarter, 1Q18 earnings will prove to be much more important for Apple. For the first time in six years, Apple's FY1Q results will reflect a full flagship iPhone launch. Typically, iPhone launches have been split between Apple's FY4Q and FY1Q. On top of it all, this wasn't just any iPhone launch as it was Apple's first flagship iPhone to begin at $1,000. The iPhone X will have a major impact on Apple's 1Q18 results. (Published: January 29th, 2018)

Apple Watch Is a Bridge to the Future. Something has changed inside Apple Retail stores. On a recent trip to my local Apple Store on a Sunday afternoon, it was actually difficult to get up close to the Apple Watch tables. People were looking at and buying various Apple Watch models and bands. It brought back memories of the early hoopla found when trying out iPad for the first time. Just two years ago, the lack of crowds around the Apple Watch tables led people to wonder if the Apple Watch was a misfire. Something is changing when it comes to the way people are thinking about Apple Watch. (Published: January 23rd, 2018)

Apple Questions for 2018. The beginning of January is a great time to embrace the unknown found with the new year. Instead of trying to manufacture clarity with a long list of predictions for the new year, there is much more value in embracing the unknown and asking questions. (Published: January 10th, 2018)

Grading Apple's 2017. Apple had an eventful 2017. Over the span of just a few months, the company updated nearly its entire product line. In addition, we saw Apple unveil a number of noteworthy strategy changes and even a pivot across its major product categories. The year concluded with a handful of high-profile problems including a serious macOS security flaw, delayed software and hardware releases, and the company getting caught in a crisis of its own making involving throttling older iPhones. (Published: January 4th, 2018)

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