Buffett Slashes AAPL Stake in Half, What’s Really Going On?, Removing the Buffett Overhang
Hello everyone. What a busy start to the week.
My initial thoughts on Apple’s earnings were sent to all you via email last Friday. We are going to take an unexpected detour to focus on Warren Buffett news that came out over the weekend. There is still much to talk about regarding Apple’s 3Q24 earnings release and conference call – we only touched upon the big picture takeaway. We will shift back to earnings review mode tomorrow.
Earlier today, a judge ruled against Google in the Google Search vs. U.S. trial. This was the trial that involved Google's default search deal with Apple. We will talk more about the development after I have had time to read through the 286-page ruling. For now, we can point back to the following daily updates regarding the topic:
October 11th, 2023 (U.S. vs. Google, Apple in the Crosshairs, Satya Nadella Cries Wolf)
October 16th, 2023 (Apple as a Search Trojan Horse, My Estimates for Google TAC Payments to Apple, Potential Court Impact on Apple Search Revenue)
Let’s jump in.
Buffett Slashes AAPL Stake in Half
Back in May, Berkshire Hathaway disclosed that it had trimmed its Apple stake by 115M shares (about 13% of its Apple holdings) in 1Q24. Berkshire, Apple’s largest single shareholder, had sold very small amounts of AAPL in the past. A 13% cut in three months was different.
Over the weekend, Berkshire reported 2Q24 earnings and 10-Q. While the company doesn’t break out its stock purchases and sales in 10-Qs, there is enough disclosure found in the document to assesses major portfolio shifts ahead of the quarterly 13-F filings (which will provide granular data on buys and sells).
In CY2Q24 (April to June), Warren Buffett sold approximately 50% of Berkshire’s remaining Apple stake. That brings the total reduction in the Apple stake to 58% versus the end of 2023. As of quarter end, Berkshire’s AAPL stack was worth $84 billion.
The 50% reduction is obtained using the following numbers:
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Apple’s 3Q24 Earnings, The iPhone Is a Powder Keg
Welcome to a special Friday edition of the Above Avalon Daily. We will begin our Apple earnings review. The discussion will flow over into next week. Let's jump right in.
Apple’s 3Q24 Earnings
The primary theme to our Apple 3Q24 earnings preview was that the setup facing Apple heading into earnings leaned more positive than negative. Business fundamentals were gradually improving. Meanwhile, last-minute Wall Street jitters surrounding Big Tech added a pinch of doubt and skepticism, tapping down expectations. That is pretty much exactly how things unfolded. Results were
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My Granular Estimates for Apple 3Q24 Earnings
We conclude my Apple 3Q24 earnings preview. Today’s discussion goes over my granular estimates for Apple’s 3Q24. We also look at my revised 4Q24 estimates heading into Thursday and a quick cheatsheet for Apple’s earnings release.
One quick item before we get to the second half of my Apple 3Q24 earnings preview.
Financial Models Add-on. To those members with the Financial Models add-on, my iPhone, iPad, and Apple Watch installed base models will be updated following Apple’s earnings. As a reminder, you can access the models at any time by logging into your Above Avalon membership account here and going to the Digital Package tab (shown below). My updated earnings model will be found in the same location (expect one to be posted in the AM ET tomorrow).
The Financial Models add-on is designed to be a perfect companion for AAPL investors wanting to take a deep dive into Apple’s financials as well as Apple competitors and suppliers needing to better understand marketplace dynamics. For pricing information and to purchase the add-on, check out this page.
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Setting the Stage for Apple’s 3Q24 Earnings
Hello everyone. We will begin preparing for Apple's earnings. The discussion will examine the broader environment surrounding Apple (and AAPL) ahead of Thursday’s earnings release. We will go over my granular estimates tomorrow (Wednesday).
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Spotify 2Q24 Earnings, Spotify vs. Apple Music
Happy Monday. This will be a busy week for earnings. We will begin preparing for Apple’s earnings release tomorrow. For today’s update, we focus on Spotify. It’s actually been nearly a year since we took a closer look at Spotify's financial performance. Let’s jump in.
Spotify 2Q24 Earnings
We will use a different method to quickly recap Spotify’s 2Q24 results. Here were year-over-year changes for several key line items that made up Spotify's 2Q24 income statement:
Revenue: +$630M (to $4.1B)
Cost of revenue: +$284M (to $2.9B) - for growth to come in less than revenue suggests better music licensing terms and improved monetization
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Alphabet 2Q24 Earnings
Happy Thursday.
A few follow-ups to yesterday’s Apple TV+ discussion.
We talked about a scenario involving an Apple user subscribing to Apple TV+ but then not following through in terms of knowing how and where to watch Apple TV+ content. Apple TV+ signups come through various channels including cable bundle deals as well as promotions.
While we can assume Apple has granular information on Apple TV+ consumption, the key piece of information wouldn’t be plain vanilla watchtime data. Instead, broader usage patterns involving Apple TV, the TV app, and finally Apple TV+ would prove more valuable. Interesting observations can be had from seeing how the average Apple user interacts with the three.
A marketing angle that we did not talk about was Apple using different brand marketing tactics to draw more attention to specific Apple TV+ shows and movies. On social media, there always seems to be people claiming to be unaware of certain Apple TV+ shows existing. Netflix has had success leveraging marketing to turn specific shows into something much more than just video content. These are lessons that Apple can learn from (Apple is the true new kid on the block here).
One last point: We shouldn’t understatement how the lack of a back catalog can negatively impact Apple TV+ watchtime. If Apple TV+ is all about great series with shows released weekly, consumption will trend differently versus a steaming service pushing binge watching.
Alphabet 2Q24 Earnings
This past Tuesday, Alphabet reporting earnings. Results for the quarter (April to June) were positive enough to earn an "OK/fine” label relative to recent Alphabet earnings releases. While growth and margin improvement impressed, the rise in capex spending took a bite out of free cash flow.
Revenue growth was 14% (to $85B) with good growth in Search and Cloud. Growth at YouTube slowed as the company began lapping the Temu / Shein etc. ad bonanza from last year. Operating margins moved higher (32% vs. 29% last year) thanks to cost management initiatives. Turning to free cash flow, the $13B total was dinged by a rise in capex and a one-time tax impact.
On Wall Street, reaction to Alphabet (Google) will likely be guided by the battle between two schools of thoughts:
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About the Apple TV+ Rumors, What’s Wrong With Apple TV+?, Apple’s Goal for Apple TV+
Hello everyone. Today's update will cover the Apple TV+ rumors that have taken over social media. Did Apple cut Apple TV+ spending? Is Apple TV+ engagement not doing well? What may be going on? Let's discuss.
About the Apple TV+ Rumors
Here’s Bloomberg’s Lucas Shaw:
“After spending more than $20 billion to produce original TV shows and movies that not a lot of people watch, Apple is starting to refine its strategy in Hollywood.
Based on interviews with more than a dozen people, including former employees, current employees and business partners, Apple services boss Eddy Cue has been having regular meetings with studio chiefs Zack Van Amburg and Jamie Erlicht to go over budgets, pushing them to exert more control over spending on projects. Van Amburg and Erlicht have told some of their top creative partners that they want to change their reputation as the biggest spender in town, according to these people.
Apple doesn’t buy the most projects in Hollywood — that is still Netflix. But it splurges on individual titles. The studio spent more than $500 million combined on movies from directors Martin Scorsese, Ridley Scott and Matthew Vaughn, and upward of $250 million on the World War II miniseries Masters of the Air, one of more than a dozen new series released this year.
Those pictures were all disappointments at the box office, and only Killers of the Flower Moon registered in Nielsen’s rankings of the most-popular streaming titles. Masters of the Air delivered a smaller US audience than House of Ninjas, a Netflix show in Japanese, according to Nielsen. Even so, it’s the only new Apple show this year to appear in Nielsen’s rankings.
Apple is spending billions of dollars a year on original programming that has received strong reviews and many awards nominations. But its streaming service is attracting just 0.2% of TV viewing in the US. Apple TV+ generates less viewing in one month than Netflix does in one day.”
In what may be the latest example of how doom sells, Shaw's article spread like wildfire on social media.
There is reason to be skeptical about several points found in Shaw's post. Some of it doesn't pass the smell test for me. However, let's assume the comment about Apple being more critical when it comes to how it spends cash on Apple TV+ programming is true. Would that even be a controversial development?
Apple has shown a willingness to bankroll certain ideas (movies) that other studios moved away from due to budget concerns. Accordingly, the idea that Apple is now dialing back its aggressiveness is certainly plausible. With the whole industry pulling back to a degree, there would
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Netflix 2Q24 Earnings, Netflix Growth, Wall Street Giving Netflix Green Light to Spend
Hello everyone.
There continues to be quite a bit of interest in what’s unfolding in video and music streaming. While Netflix (and Spotify) appear to be finding their strides, Apple's strategy is increasingly being drawn into question by the press and some users. There are various topics that we will discuss. For today, we will dissect Netflix's earnings.
Let's jump in.
Netflix 2Q24 Earnings
Like how we cover Apple earnings, there is value found in setting the stage before diving headfirst into Netflix’s numbers.
For the past few quarters, Netflix has seen very strong paid subscriber growth. Instead of growth being driven organically by Netflix expanding its installed base, the company has seen success in getting existing viewers to begin paying via a password sharing crackdown. The lack of installed base expansion is one reason why management has been trying to move Wall Street's focus away from subscriber growth and to engagement and revenue.
Another development to watch has been signs of consumers feeling fatigued from higher subscription prices. In countries that have the option of going the lower-priced ad-supported route, approximately 35% of new Netflix signups had been going in that direction (pre-2Q24). Netflix has been putting its thumb on the scale to drive that percentage higher.
For CY2Q24 (April to June results), Netflix grew paid subs by a healthy 8M (to 278M). As shown in the exhibit below,
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The CrowdStrike / Microsoft Outage Will Benefit Apple
Hello everyone. Today's update will be dedicated to discussing the CrowdStrike / Microsoft catastrophe which is still impacting the corporate world.
Let's jump in.
The CrowdStrike / Microsoft Outage Will Benefit Apple
Here’s the WSJ:
“The blue screen of death has been a dreaded symbol of technological failure since Microsoft’s Windows became the world’s dominant operating system in the 1990s.
On Friday, it showed up on millions of computers around the world at once, highlighting both Microsoft’s continued ubiquity in workplaces and decades-old design choices that allowed the actions of a little-known software company to disable millions of Windows machines. Some security professionals also say Microsoft hasn’t taken the vulnerability of its software seriously enough…
Friday’s outage was caused by a buggy update sent to corporate clients by CrowdStrike, one of hundreds of cybersecurity firms that have built a business promising to make Windows more secure. Microsoft has its own competing product, called Windows Defender…
Many people who showed up at work Friday morning knew only one thing though: Their PCs had the blue screen of death, while Macs and Chromebooks were still working. Searches for ‘Microsoft outage’ outranked ‘CrowdStrike outage’ on Google consistently from Friday morning through Saturday morning.
Friday’s meltdown brought a trade-off inherent to Windows into sharp relief. Its open design gives developers the freedom to design powerful software that interacts with the operating system at a very deep level. But when things go wrong, the results can be catastrophic, as millions discovered on Friday."
CrowdStrike provided some technical details here as to how a sensor configuration update led to what many are calling the largest IT outage in history.
The heart of the issue is CrowdStrike’s security software (Falcon) runs at the kernel level on Windows. As a result, a Falcon crash in the kernel level led to Windows machines crashing. As part of Endpoint Security Framework (an API toolkit), Apple deprecated third-party kernel extensions in macOS Catalina in 2019. Cutting to the chase, it wouldn't be possible for a company like CrowdStrike to bring down Macs around the world. Over at 9to5Mac, Bradley Chambers took a closer look at the kernel extensions change on macOS here.
The outage first came to my attention Friday morning. Upon waking up and grabbing my iPhone,
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Apple Looking to License Movies for Apple TV+, Warner Bros. Discovery Thinking of Splitting Itself, Skydance Merges With Paramount
Given a busy news flow, we are going to stay in video streaming land for one more update. We begin by going over a report pegging Apple as looking to license more movies for Apple TV+. The discussion then turns to Warner Bros. Discovery, Skydance, and Paramount.
Hello everyone.
Two quick notes:
1) With Netflix reporting earnings a few hours ago, the CY2Q24 tech earnings season has officially begun. We still have some time before preparing for Apple earnings. One thing that has been on my to-do list is take a fresh look at the business performance (i.e. cash flow) for paid streamers as they report this earnings cycle.
2) Earlier today, Apple issued a press release detailing new Apple Immersive Video content that will be coming to Apple Vision Pro. We briefly talked about the new series and films last month as they were highlighted during the WWDC presentation. As some Above Avalon members speculated would be the case, Apple timed the release to coincide with Apple Vision Pro being available internationally. If any interesting observations come from the new content, we will talk about them in these updates.
Apple Looking to License Movies for Apple TV+
Here’s Bloomberg:
“Apple Inc. is having discussions about licensing more films from major Hollywood studios as it looks to bolster its Apple TV+ streaming service, people familiar with the matter said.
The iPhone maker has spoken to several of the largest studios about acquiring more programming from their libraries to offer customers both in the US and abroad, said the people, who asked not to be identified discussing private negotiations. A representative for Apple didn’t respond to a request comment…
Apple licensed about 50 movies from Hollywood studios earlier this year in the US, adding classics such as Mean Girls and Titanic. That experiment went well enough that Apple has gone back to many studios for more, either to license those titles internationally or to add more.”
This is the type of rumor that can be easily misidentified and misconstrued. There is no evidence of Apple changing strategy and looking
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Churn vs. Engagement in Paid Video Streaming, Disney Looking to Boost Streaming Engagement, Implications for Apple TV+
We begin with a closer look at some churn vs. engagement data for paid video streaming. The discussion then turns to Disney looking to boost engagement within its streaming properties. We conclude with a look at some implications regarding engagement and Apple TV+.
Hello everyone. Today's update will take us to the paid video streaming industry. Let's jump in.
Churn vs. Engagement in Paid Video Streaming
In his Screentime newsletter, here’s Bloomberg's Lucas Shaw:
“There is a direct link between how much time people spend watching your [paid video streaming] service and how likely they are to keep paying, according to the research firm Owl & Co. (It got some help from our friends at Antenna.)
Those dots on the bottom right of this chart represent Netflix data for different quarters. People spend a lot of time watching every month and don’t cancel.
Every other service is up and to the left, meaning they generate a lot less viewership and have far higher rates of cancellation.
This may seem obvious, but it’s a key point. Many companies in Hollywood are cutting back on spending right now. If you cut spending, that means you offer customers less to watch, which means they will spend less time on your service.
The industry has spent many years criticizing Netflix for making too much. But by offering new series every week, Netflix ensures that customers always feel like there is something to watch.”
The theory that Lucas ends up supporting is that Netflix is winning by focusing on video quantity over quality as there is more content available to watch (which Owl & Co. says results in greater engagement and less churn). Going a bit further, Netflix apparently
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Apple Pushes Apple Watch for Kids, Apple Watch SE 3 Rumors, Apple Watch New User Trends
We begin by examining Apple’s new minisite: “Apple Watch For Your Kids.” The discussion then turns to Apple Watch SE 3 and its connection to Apple’s sales pitch to parents. The update concludes with a look at my Apple Watch unit sales growth figures, new user totals, and adoption figures.
Hello everyone.
It’s good to be back after a mini vacation. Over the coming days, we will gradually get back into the swing of things. Fortunately, the tech news flow has been rather light. This gives us time to pursue a few topics that grabbed my attention over the past week or so.
Apple Pushes Apple Watch for Kids
Last week, Apple launched a new minisite, "Apple Watch For Your Kids," dedicated to pushing cellular Apple Watches for children.
Here’s Apple:
“Set up any Apple Watch with cellular for your kids, even if they don’t have their own iPhone. Easy to call and text. Know where they are. Great ways to keep them active. It’s independence for them. And peace of mind for you."
The minisite is accessible via the Apple Watch SE page (shown below).
Although this is not entirely new messaging from Apple, it is a rebrand. Apple Watch For Your Kids is the new name for what was previously called Family Setup (introduced in 2020). Family Setup was billed as a way for “kids and older family members” without iPhones to use a cellular Apple Watch.
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Microsoft and Apple Give Up OpenAI Observer Board Seats, AI Regulation Silliness, A Few Apple TV+ Observations
We kick things off with my thoughts on changes to OpenAI’s non-voting observer board seats. The discussion then turns to why so much of these attempts to regulate AI come across as silly. We conclude with a few Apple TV+ observations that have been on my mind. “Dark Matter” became the latest Apple TV+ series to be placed on my watched list.
Happy Wednesday.
I will be taking two vacation days to make this upcoming weekend a long one. The next update will go out on Tuesday.
Microsoft and Apple Give Up OpenAI Observer Board Seats
On Monday, we talked about Apple being given an OpenAI non-voting observer board seat as part of the Apple Intelligence partnership with ChatGPT. One day later, that board seat, along with Microsoft's observer board seat, have been wiped away as a preemptive move to remove oxygen from growing regulatory scrutiny.
Here’s the Financial Times:
“Microsoft has given up its seat as an observer on the board of OpenAI while Apple will not take up a similar position, amid growing scrutiny by global regulators of Big Tech’s investments in AI start-ups.
Microsoft, which has invested $13bn in the maker of the generative AI chatbot ChatGPT, said in a letter to OpenAI that its withdrawal from its board role would be ‘effective immediately’.
Apple had also been expected to take an observer role on OpenAI’s board as part of a deal to integrate ChatGPT into the iPhone maker’s devices, but would not do so, according to a person with direct knowledge of the matter. Apple declined to comment.
OpenAI would instead host regular meetings with partners such as Microsoft and Apple and investors Thrive Capital and Khosla Ventures — part of ‘a new approach to informing and engaging key strategic partners’ under Sarah Friar, the former Nextdoor boss who was hired as its first chief financial officer last month, an OpenAI spokesperson said.”
We do have some deflection on Microsoft’s end. Instead of blaming regulatory scrutiny for giving up its board seat, Microsoft is saying the seat was actually no longer needed. Giving up the board seat just as regulators examine the ins and outs of having the board seat is just a coincidence?
As for that regulatory scrutiny, the item that seems to be at the crux of the issue is EU and U.S. regulators looking
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Amazon Unveils Updated Echo Spot, Amazon’s Data Center Spending Aggressiveness, Amazon’s AI Predicament
Today’s update will have an Amazon theme. We begin with my thoughts on Amazon bringing the Echo Spot back. The discussion then turns to Amazon’s shocking level of data center spending commitments. We conclude with Amazon finding itself in an AI predicament involving Alexa and AWS.
Hello everyone. Today’s update will have an Amazon theme. Let’s jump in.
Amazon Unveils Updated Echo Spot
In a press release issued yesterday, here’s Amazon:
“Introducing the all-new Echo Spot, the latest addition to Amazon’s lineup of Alexa-enabled devices. Echo Spot is a sleek new customizable smart alarm clock, featuring a variety of custom-designed clock faces and fun colors. It’s built for the nightstand, with a display that makes it easy to set and view alarms, see the time, weather, or song titles at a glance, and a directional speaker that delivers vibrant sound.
Echo Spot is available now in Black, Glacier White, and Ocean Blue, for $79.99—but Prime members can get it for just $44.99 through July 17, in celebration of Prime Day.
The all-new Echo Spot builds on what our customers loved most about the original product—like the semi-spherical shape, access to Alexa, and the compact and vibrant display—and reimagines it with even better visuals and improved audio quality.”
While the timing for a launch via press release is ludicrous – right smack in the middle of U.S. vacation season – the launch is being timed to coincide with Prime Day occurring in mid-July.
In addition to Amazon bringing the Echo Spot out of retirement (it was discontinued in 2019 after just two years on the market), it's the second new / updated device that Amazon is launching with Panos Panay heading the company’s devices division. The Echo Hub was the first back in February.
A few things jump out at me about this updated Echo Spot.
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Apple Given Observer Board Seat at OpenAI, A Phil Schiller Renaissance
We begin with my thoughts on Apple being given an observer board seat at OpenAI. The discussion then turns to Apple’s Phil Schiller, who reportedly will fill Apple’s seat on OpenAI’s board. In some ways, this new stage for Schiller comes across as something of a renaissance.
Hello everyone. Happy Monday.
Let's jump right into some news that came out last week.
Apple Given Observer Board Seat at OpenAI
Over at Bloomberg, here’s Mark Gurman:
“Apple Inc. will get an observer role on OpenAI’s board as part of a landmark agreement announced last month, further tightening ties between the once-unlikely partners.
Phil Schiller, the head of Apple’s App Store and its former marketing chief, was chosen for the position, according to people familiar with the situation. As a board observer, he won’t be serving as a full-fledged director, said the people, who asked not to be identified because the matter isn’t public.
The move follows Apple’s announcement in June that it would offer ChatGPT in the iPhone, iPad and Mac as part of a suite of artificial intelligence features. The board arrangement will take effect later this year, and Schiller hasn’t yet attended any meetings, according to the people.”
The news was later confirmed by other publications including the Financial Times.
Talk about a turn of events. Late last year, OpenAI went through one of the crazier stretches in Silicon Valley history as a board coup was attempted to kick Sam Altman out of the company. While the coup initially appeared to be going according to plan, Altman initiated one of the more masterful examples of leveraging social media and the press to win back control of the narrative. This eventually led to something of an OpenAI employee revolt that came across as more of a negotiation tactic. The Inside Orchard essay "Sam Altman Mania" went over my thoughts on how all of that went down. The end result was Altman regaining power at OpenAI while his primary detractors eventually left the company. The path for OpenAI to become a for-profit entity has never been more open.
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Wall Street Warms up to Apple, AAPL Valuation Update
Hello everyone.
Over at Above Avalon’s sibling site, Inside Orchard, my essay last week, "Big Tech Is Winning Over Wall Street," went over a Wall Street observation that has been on my mind for the past few weeks.
While NVIDIA was capturing many hearts and minds on Wall Street, a larger story was quietly unfolding in the background. Wall Street was turning decidedly more bullish on the broader Big Tech bucket (Microsoft, Apple, Alphabet, Amazon, Meta). The change in tone isn’t just attributable to AI either. That may come across as a shocking stance to hold - the Inside Orchard essay goes into more of my thinking.
For today, we will keep our focus specifically to how Wall Street is warming up to Apple. The discussion then turns to an examination of AAPL valuation metrics (forward P/E, EV/FCF, and free cash flow yield).
Wall Street Warms up to Apple
A few weeks back, we talked about the trading action seen in Apple shares following WWDC. The signs pointed to algorithm-driven program trading leading to a sudden move higher. It’s certainly possible that some market participants were swayed by other things like fundamentals, but the heavy trading volume suggests something more systematic. Another possibility that we did not explore was a pair trade involving
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More on Apple Device Longevity, iPhone Upgrading, Measuring Apple HW vs. Services Growth Potential
Given where we finished last week, there are a few follow-up discussions worth pursuing. We talk about how Apple devices are lasting longer. The discussion then turns to iPhone upgrading and the difference between iPhone average lifespan and upgrade cycle. We conclude with a look at where Apple’s growth potential is found (HW vs. Services).
Hello everyone. Welcome to July. Let's jump into today's update.
More on Apple Device Longevity
Last Thursday’s update was focused on the ramifications associated with Apple having industry-leading device longevity (improving secondhand value, longer product lifespans, and declining service rates). We also looked at some new clues for calculating the average iPhone upgrade cycle length (5 to 5.5 years when taking into account iPhones in the gray market).
One question that we did not address: How are Apple devices lasting longer?
There are three primary answers:
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Apple Talks up Device Longevity, Apple Provides New Clues for Estimating iPhone Upgrade Cycle, Google and Samsung Announce Product Events
Today’s discussion will begin with a new document that Apple published regarding device longevity. This will then bring us to the iPhone upgrade cycle. We conclude with somewhat lighter fare pertaining to tech product launches.
Hello everyone. This week flew by. Let’s jump right in.
Apple Talks up Device Longevity
Earlier this week, Apple released a document titled “Longevity, by Design,” outlining its philosophy on device longevity and its connection to device durability and repairability.
Here’s Apple:
“At Apple, we are always working to create the best experience for our customers, which is why we design products that last. Designing for longevity is a company-wide effort, informing our earliest decisions long before the first prototype is built and guided by historical customer-use data and predictions on future usage. It requires striking a balance between durability and repairability while not compromising on safety, security, and privacy.”
The 23-page document contained several interesting data nuggets and tidbits. For example, according to Apple, 85% of the US population is within a 30-minute drive of an Apple Store, Apple Authorized Service Provider (AASP) location, or Independent Repair Provider (IRP). For those in the United Kingdom, the percentage is 82% with a high 89% for Italy and Germany. There were also a few handy exhibits, such as the one below:
According to Apple, they are an industry-leader when it comes to device longevity due to three factors:
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Choose either a monthly or annual membership. Payment is hosted by MoonClerk and secured by Stripe. Apple Pay and other mobile payment options are accepted. After signup, use this link to update your payment information and membership status at any time. Contact me with any questions.
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An audio version of the newsletter is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here. Special Inside Orchard bundle pricing is available for Above Avalon members. Additional membership customization is available via the Financial Models add-ons.
Apple Warns of Feature Delays in EU, Apple Accused of Breaking DMA Rules
We begin with my thoughts on Apple warning of feature delays in the EU due to the Digital Markets Act (DMA). The discussion then turns to the European Commission finding Apple has broken DMA rules. We discuss a possible natural end state for the cat and mouse game.
Happy Wednesday. We will jump right into today's update.
Apple Warns of Feature Delays in EU
Heading into last week, we had good reason to assume Apple Intelligence’s rollout was going to be more gradual than consensus thought.
Apple had disclosed that the entire Apple Intelligence portfolio of features and services would be given the beta label (which also serves to avoid another Apple Maps launch debacle circa 2012). More interestingly, Apple also said Apple Intelligence would only be available in U.S. English and on select devices. Those factors told me Apple Intelligence won't be so much a September 2024 event but more of a late 2024 and 2025 event.
As it turns out, a number of features announced at WWDC may end up being delayed for Apple users in the EU.
Here's The Financial Times:
“Apple has warned that it will not roll out the iPhone’s flagship new artificial intelligence features in Europe when they launch elsewhere this year, blaming ‘uncertainties’ stemming from Brussels’ new competition rules.
The iPhone maker unveiled features two weeks ago, including a suite of ‘Apple Intelligence’ services and a partnership with OpenAI, in what chief executive Tim Cook described as its ‘next big step’ propelling the tech giant into the age of generative AI.
But Apple on Friday said complexities in making the system compatible with EU rules — which have forced it to make critical parts of its iOS software and App Store services interoperable with third parties — meant EU users will be denied certain features when they launch in other parts of the world later in 2024.
Apple said on Friday: ‘Due to the regulatory uncertainties brought about by the Digital Markets Act, we do not believe that we will be able to roll out three of these [new] features — iPhone Mirroring, SharePlay Screen Sharing enhancements and Apple Intelligence — to our EU users this year.’”
The way this news was framed on social media caught me by surprise.
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Apple Intelligence and Meta Integration Hoopla, Revisiting Apple Intelligence Integration Monetization
We begin with my thoughts on the WSJ’s and Bloomberg’s conflicting reports regarding Apple and Meta in discussions regarding AI integration. The discussion then turns to possible monetization paths for integrating third-party large language models with Apple Intelligence.
Hello everyone.
Before we jump into today's discussion, there is one quick follow-up to yesterday’s email involving Apple Retail.
When it comes to Apple’s retail store footprint strategy, growth is not so much centered on new country expansion but rather new city expansion. Said another way, Apple’s goal isn’t just to have Apple stores in more countries. If that was the singular goal, we would see more Apple stores being opened versus reality. Instead, Apple wants to establish brand embassies in the world’s leading cities.
Given economic trends, a city-focused retail store strategy does match an emerging markets focus. Many of the world’s greatest up and coming cities will be found in countries that fall under the emerging markets categorization. This doesn’t change anything about the stores themselves being Apple brand embassies and effective ways to improve the company's distribution and brand power. Instead, the takeaway is that Apple is being disciplined and deliberate in expanding its retail store footprint.
Apple Intelligence and Meta Integration Hoopla
In an article titled “Apple, Meta Have Discussed an AI Partnership,” here’s the WSJ:
“In its hustle to catch up on AI, Apple has been talking with a longtime rival: Meta.
Facebook’s parent has held discussions with Apple about integrating Meta Platforms’ generative AI model into Apple Intelligence, the recently announced AI system for iPhone and other devices, according to people familiar with the matter.
Meta and other companies developing generative AI are hoping to take advantage of Apple’s massive distribution through its iPhones—similar to what Apple offers with its App Store on the iPhone.
A latecomer to generative AI, Apple has developed its own smaller artificial-intelligence models but has announced it will turn to partners for more complex or specific tasks. When Apple Intelligence was unveiled earlier this month at the company’s Worldwide Developers Conference, OpenAI’s ChatGPT was announced as the company’s first partner.”
Given prior WSJ articles that were published about Apple, the publication’s credibility has taken a significant hit in recent years. All articles need to be approached with a heavy dose of skepticism given the high probability of bad actors (entities tied to Apple competitors) pushing certain stories to gullible WSJ writers and editors.
In this particular case, it is not difficult to see why Meta
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An audio version of the newsletter is available to members who have the podcast add-on attached to their membership. More information about the podcast add-on is found here. Special Inside Orchard bundle pricing is available for Above Avalon members. Additional membership customization is available via the Financial Models add-ons.