Apple’s New Hardware Rides the Digital Transformation Wave
Apple’s September 14 “California streaming” event will be the biggest day of the year for hardware announcements. On top of that, we expect Apple will host an additional hardware event in October, with the new models announced at both events accounting for about 40-50% of the company’s revenue over the next 12 months.
Like every year, the tech industry will focus on the new products specs and pricing. Apple customers, on the other hand, will elevate to a higher view; that is, the reality that they increasingly depend on Apple’s integrated family of products, services, and support to equip for work and learn from anywhere. Addressing that consumer need will benefit demand for the next one to two years. Beyond that, these products will be foundational to the multi-year digital transformation wave which will gain momentum with 5G and AR.
Tip: If you’re in the market to purchase any of these updates, order early. Chip shortages likely mean long lead times, with supply demand equilibrium likely coming in the March 2022 quarter.
From a spec standpoint, we expect little change this year given we will see the same 5.4-inch, 6.1-inch and 6.7-inch screen sizes as the iPhone 12. Like ever year, the devices will include updated camera resolutions and new filters, such as Portrait mode for video. The company will highlight that camera features are increasingly of Pro grade in order to comfort the typical iPhone buyer that a key use case of the phone is best in class. As for the rumored satellite feature, it will likely be used for emergencies to tap into first-responder networks. Rounding out the updates will be the latest A15 chip and a higher resolution display.
From an investor’s standpoint, the trajectory of the iPhone business over the next year has less to do about specs and pricing, and more to do with the age of the phone. Last year, we estimated the pool of iPhones three years or older to be 420m. That base will drive iPhone revenue growth in FY21 of about 40%, compared to a typical year of low single-digit growth. For next year, the Street is looking for 5% growth and 260m units. Given the pool of 400m iPhones three years or older iPhones, we see upside to the FY22 consensus growth estimate. The larger the upgrade pool, the bigger the potential tailwind.
The 16-inch MacBook Pro is the fifth Mac to get the new M1 chip, along with its first design update in five years. We believe the MacBook Pro accounts for about 3% of total revenue, and expect modest updates to the product this fall. We expect next year the Mac family (10% of revenue) will grow at 9%, compared to 24% in FY21.
We expect the first design change in three years to bring a slimmer profile and a fractional increase in the display. Overall, we expect Watch will account for 5% of sales next year, growing at 15% a year. We believe 13% of the iPhone base has a Watch, and that this percentage will increase to 35% plus in the years to come as more biomarkers are adding in the next couple of years, including blood pressure and working with third-party blood glucose monitoring applications.
Expect updated design for the entry-level iPad and iPad mini, with starting prices unchanged at $329 and $399, respectively. Overall, iPad accounts for 8% of sales and we expect the segment to grow at 8% next year.
Expect entry-level AirPods to add noise cancellation. We expect price to be unchanged at $159. AirPods is about 4% of overall revenue, and expected to grow at 18% next year.
Mark Zuckerg is all in on the Metaverse and Tim Cook is all in on AR. It’s a long shot we hear anything about the rumored MR headset at the event, yet the product is under development and more likely to be previewed in June of 2022, at WWDC.