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Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) have shown their new bright toys in recent weeks, and some of the ideas were more exciting than others. In this week's episode Home of the industry: Tech, host Dylan Lewis and Motley Fool contributor Evan Niu plunge into new deals for both companies and what all this could mean for their health and long-term strategy.
Apple is starting to turn its head with its price increases on iPhone. To what extent can the company increase operating costs before they reach the ceiling? Amazon's new Echo loudspeakers are probably pure-play His bone (Nasdaq: SONO) nervous and for good reason. At the same time, his new Alexa Clock and Microwave baffles almost everyone (including us), but that could mean some interesting things for the future of Amazon. Connect to find out more.
A full transcript follows the video.
This video was recorded on September 21, 2018.
Dylan Lewis: welcome to Home of the industry, the podcast that plunges every day into a different sector of the stock market. We are Friday, September 21st. We are talking about some of the new advanced technologies being introduced by some of the big tech companies. I am your host, Dylan Lewis, and I am joined on Skype by Evan Niu, a specialist in advanced technologies. Evan, it's nice to chat again! It's been a while.
Evan Niu: Yes, I'm fine! Good day iPhone!
Lewis: Good day iPhone! I wish we could say that it was deliberate and that we wanted to take a look at mainstream technologies while these products were unveiled and published the same day or the same week. This is not quite the case. We had to pre-record an episode last week because I was traveling for a wedding. But I'm happy to tell you about one of our favorite product segments, the iPhone. We will also discuss some recent releases from Amazon, in what turned out to be a release of Christmas morning type material. Why do not we talk about Apple stuff first?
Niu: Today, they launched the iPhone XS and XS Max. Last week, they unveiled the XS, XS Max and XR. Today is the day of the launch. As usual, people line up and camp at Apple stores around the world to do the big media show, the headlines. As a quick reminder, the XS is the successor of the X, has the same starting price of $ 1,000. XS Max basically has the same stats as the XS, but it has a massive 6.5 inch screen. It starts at $ 1,100. Both options are now available in a 512GB storage option, pushing prices to an even higher level than last year. For example, an oversized XS Max costs $ 1,450, more than an entry-level MacBook Pro.
Lewis: Yeah, it's a little wild. As we have seen, and we are going to address this later, the screen sizes and storage options for these iPhones are getting bigger and bigger, there has been a price increase for the line . It's a bit crazy to think that if you go on the budget side, you can buy three or four laptops for that price. [laughs]
Niu: Exactly. These new flagship phones are really the best to offer. But at the same time, the specifications improvements are relatively progressive compared to last year. If you bought an X last year, as I did, it's not really worth it. With what are these phones costing these days? I mean, it's just not worth it. But if you bought an X and you really need a bigger screen, then maybe you could justify an XS Max because it's a bit more differentiated. It's a much bigger device. So, that is the big news today.
Lewis: I understand that one of these devices arrives at your place. That's right, yes?
Lewis: This is true. We ordered one for my wife. Basically, we make improvements every year. She's on the 7 Plus, so she ordered an XS Max in the new fancy gold color. It is about the same size as the older Plus models, except that now everything is displayed instead of having the forehead and chin fronts.
Lewis: It's a clever setup that you have with your wife. This gives you the chance to get your hands on the new iPhone every year it goes out without having to do it personally and to pay it every time. It is a little easier to negotiate that. I always work with a 6s. I feel like a dinosaur to have that. But I think, given upgrades and everything that's going on, and what I'm experiencing with the performance of my phone, I'll probably go to the reasons you mentioned earlier.
I've looked at it: what we're seeing with screen extension, storage expansion, and what we're doing for pricing is really a continuation of the strategy that Apple has been working on for a while now. years. I think more and more that unit volumes are not the focus of concern and that the average sales prices are what motivates the growth of the turnover of the iPhone. The company continues to pull the levers needed to achieve it.
Niu: Well, exactly. Basically, all of iPhone's revenue growth over the past year was entirely due to price increases as opposed to unit growth. Relative to the last three quarters compared to the comparable quarters of the previous year, iPhone shares are up 4%, about $ 170 million. But the turnover of the iPhone jumped 15% to about 130 billion dollars. ASP reached a record $ 796 in December for the fourth quarter. We are talking about $ 800. The pricing of the iPhone being even higher, the way is even more optimistic.
The curve is the Apple iPhone XR, which does not launch today. The iPhone XR launches in a month and looks like an incredibly powerful product. It essentially offers the same vision of the smartphone that Apple described last year, except at a much more affordable price. I mean, the main parts are frameless edge-to-edge display, no home button, TrueDepth camera with face recognition and all that is possible. The XR also has the same bionic chip A12. But this phone starts at $ 715, against $ 1,000. Many other differences in specifications are rather minor. This is a low resolution LCD panel instead of an OLED panel, there is no 3D touch, it is slightly less water-resistant, a little bit, it is aluminum instead of stainless steel. But there are six colors, which is fun, and people will inevitably like it because it offers greater customization. If this phone asks for a high demand because it starts at a lower price, it could offset the rise that investors hope to see an ASP.
Lewis: I guess it's something they have to do, because not everyone will be willing to shell out $ 1,100 for a phone. Previously, different levels of storage brought you between $ 650 and $ 850, or something like that for a phone. Although there was a spread of prices, it was relatively tight. When you reach $ 1,100 to $ 1,300 for a phone, it makes sense that you really have to build the bottom of your line, the cheapest point on your line.
Niu: Well, exactly. That's a key point that they drove home, as "We basically want to bring that vision of what we think that a smartphone should be at more affordable prices so that more people can access this technology and have it. " The TrueDepth camera system, I was a little surprised that they put this on the line because it's a very cool feature. You would think that they would keep it exclusive to high end phones. But these modules are not very expensive. They are like $ 5, in terms of content inside of these, for some of these sensors. This is not a big cost factor. They can certainly justify switching to more affordable phones, as that will not really hurt their profitability. I was just a little surprised from a strategic point of view, because you could get a lot more people to buy high end phones if you only kept this feature for them. But, I mean, good for them. This technology is really great. Getting it to more people is certainly a good thing too.
Lewis: We also had an update of what is happening with the Apple Watch segment. We do not have as much clarity about what is happening in this business area. But at least we had an update of the product side with what the company will do,
Niu: Right. They also unveiled Apple Watch Series 4, which was arguably the most exciting thing unveiled last week. This is also happening today. The demand seems to be strong enough for this new model, because delivery times are already very important. This generation truly represents the most significant overhaul of this product since its launch three years ago in 2015. It features a thinner housing, a much larger screen, rounded corners and smaller glasses. You can see a lot more information about your watch now. The main novelty is that they have added electric heart sensors to the bottom of the watch and have them integrated into the digital crown, which allows you to take an ECG from your wrist, which is pretty wild. If you think of standalone ECG machines, they can cost thousands of dollars. Of course, the more complete ones have more contacts than you put on your skin and they are more accurate.
One thing that I am really curious about is what the accuracy of these ECG readings looks like. I have seen experts in the heart and health express some skepticism about the reliability and usefulness of these data. It's really too early to call. This ECG feature will not be available at launch. Apple says they'll publish it later via a software update. We can not yet say for sure how this will happen, in terms of accuracy and reliability. This is definitely something to watch for. But, the users who really appreciate taking the ECG and buy it for this feature – people with health problems or the elderly – it will be extremely important that Apple has this role to its place.
Lewis: Yes, and in fact that's part of the functionality of the device with which other portable hardware companies have had problems. I mean that it was Fitbit, I'm not 100% sure, had a dedicated heart rate monitor. There were problems with the monitoring that was going on with that at one point. This is without a doubt, as the functionality of health care disappears, a little more difficult to solve. I think it's good to see that these companies enter a little more in this space. As you develop the functionality, I think the use case is very clear, especially for many people who manage or manage some disease and want to be able to use the device beyond of simple communication.
Niu: Well, exactly. Health care is so important that people make very important medical decisions based on the information you give them. Not that Apple looks like Theranos. These are completely different companies and, obviously, Apple is a very ethical society. But Theranos did all these things unethical, and people were acting on these really terrible blood test results, and they did not care. The fact is that people will make important decisions about health. So you have to make sure you understand. I am convinced that Apple is doing everything possible. But there's not a lot of peer-reviewed public data on how these things work, so we'll just have to see how they work. But I am confident that they will do it. They have the means to invest properly in the focus and to ensure that they can really achieve that people do not make bad decisions.
It is also interesting to note that they are also advancing Apple Watch pricing. Now the new models start at $ 400, and if you want a cellphone, they start at $ 500. This represents an increase of $ 329 and $ 400 respectively last year. There are other benefits for ASPs, especially given the rise in prices and demand that looks pretty good, the watch sector looks promising at the moment.
Lewis: Thinking about all the different pricing mechanisms going on here, Evan, do you have the impression that it may not be a leverage that Apple will continue to shoot indefinitely? I look at what is happening on the iPhone side in particular and on the watch side to a certain extent. The idea that people will pay between $ 1,600 and $ 1,800 for a phone at one point, it gets a little ridiculous, is not it?
Niu: Yeah. There is certainly a type of ceiling somewhere on what people will pay. But I think that Apple will continue to test, and try to push back this limit, to try to find out where is this limit. I think part of the story is that unit volumes have stabilized in recent years. Apple knows. The smartphone market is so mature that the products are so mature and so efficient that upgrade cycles are lengthening. It is therefore their best lever to try to grow it. Previously, everyone spent every year, every two years. Now we see people pushing it to two or three years, maybe even three or four years. So, it is a different way for them to pull the same amount of money on an annual basis. You buy a $ 1,500 phone every three years for a $ 1,000 phone every two years, and you still get about $ 500 a year. I think that's why they are trying to push the price limits. We'll see how high they can go. [laughs]
Lewis: If you think about all these factors in Apple's thesis, a lot of our time spent talking about Apple's revenue is focused on the Services segment, that high-margin business that they really have developed on an impressive scale . This will definitely be a great thing for them. But when the company achieves 60% of its revenue with a single product segment, the pricing power they have on that product will ultimately lead to the company's bottom line. So, if you look at how these product versions have an impact on Apple's investment thesis, if they can continue to find average selling price growth with the products they market, then you know that they are going to be able to publish iPhone segment growth, which will be good for the front line. If they reach that ceiling, I think that as an Apple investor, you have to be a little worried.
Niu: But I think another part of the service aspect is that it's also another way that they understood that they could change the investment discourse. This removes the thesis of this iPhone hardware, which will of course still be a big part of the picture. But as they have focused on services over the past two years, not only are the services cost-effective, but there is no seasonality at all. Of course, with consumer products, your business is very seasonal. In the fourth quarter, you get tons of sales for the holidays. But the services, if you describe it, what I have done many times, there is no seasonality. It's just a regular climb, especially as they build more and more subscriptions in this business.
I think that's also a big part of that. With the capping of iPhone units, they are pushing prices on the iPhone to get growth there, while pushing the talk about services.
Lewis: We had a pretty good idea of what Apple was going to announce, so this part of the list was a little easier to achieve. In the second half of the series, we will change the horizon and talk about the peripheral event of Amazon, which was predictable and maybe things a bit out of the ordinary. We will have this discussion in a minute.
The Apple event usually has a lot of fanfare. I think we are just getting used to the idea that Amazon, too, has some fanfare of devices when they launch new products.
Niu: Yes, they push even further in the material. They had an event yesterday and they announced a ridiculous number of devices. They had 14 things, including a service, which we will discuss later. 14 new things to announce, compared to the three Apple, [laughs] for reference. They had a lot of Echo stuff, they expanded into a bunch of new product categories. I do not even know where to start.
Lewis: Amazon opted for some things that were sort of the next logical step with a lot of their material ambitions. They also unveiled things that seemed to be a scorer. Do you want to share with logical things? Or do you want to start with fun things?
Niu: Let's do the simple and logical things that everyone expected – or did not expect, but that makes perfect sense. They had a new Echo Dot, their little $ 50 puck. A refreshed version of this, it is supposed to be stronger. Standard bump, same price. Has a new design, has fabric on the outside. Then, the Echo Plus, which is the biggest. Also a new fabric design. It's their most upscale echo that has a smart home feature. Same price of $ 150. Echo Show, which is their display. At that time, has a much larger display. Their first version had a seven-inch screen. This one has a 10 inch screen. Looks much better. Also fabric design. You catch the trend here? Same price of $ 230. These are the norm, what you expect upgrades.
Niu: Then the new stuff, some of the new interesting things we had heard rumors about, so, not too surprising. There is Echo Auto, which is that little thing on the dashboard that you put in your car. It's $ 50 dollars. Basically, she brings Alexa into your car, which is pretty cool, because you can ask Alexa to do things while you drive. Many car manufacturers actually integrate Alexa directly today, but it allows people, for cheap, to bring Alexa to your car. Obviously, you do not improve your car very often. You will not upgrade your car as soon as your builder puts Alexa in her new model.
Lewis: Yes, the car upgrade cycles are a little different. This seems to be something really useful. You're in the car, and having a voice-activated hands-free device makes sense to me, especially if you drive something that precedes the popularity of many of these technologies.
Something new, but in the category they were working with, was their new Sub Echo.
Niu: Right. It's an add-on. This is a 16-inch subwoofer, boosting the base of your Echo setup. You can actually pair it with multiple Echo devices and get a 2.1 stereo system. It's about $ 130. Not too expensive, kind of what you expect from an independent contractor.
They have also started offering these new high fidelity music offers. There is an Echo Link, which allows you to connect your system to a receiver and an amplifier. There is an echo link amplifier that includes an integrated amplifier. Same thing, you play high fidelity music. The echo link is $ 200, the echo link amp is $ 300.
If you look at it, between these amplifiers, the Sub, Amazon insists more on this high-end audio experience. This really rivals players like Sonos, who are known for this – multi-room audio and high fidelity. They really extend to all these areas.
Lewis: If you are Sonos and you have traded in public markets for two months?
Niu: Some months. [laughs]
Lewis: [laughs] A month and a half? You must be like "You must make fun of me". You know? It was actually something that appeared in the show that Vince Shen and Asit Sharma did on Sonos, doing a summary of their S-1 before their IPO. Listeners, if you want an introduction to this topic, just write by email. They said that the big risk for them, the big red flag for this company, is: what if Amazon continued to invest in this space? And if they continue to enter the high-level audio? What will it do? Because this company has always been present in a space, reducing existing competitors. Jeff Bezos is famous for saying: "Your margin is my opportunity". That's exactly what they did here. I think this Echo Sub is about half the price of a Sonos device with comparable specifications.
Now, we'll have to see what audio quality looks like and how they stack up. Audiophiles could still decide: "We want the Sonos device". But I think for the unholy consumer, something that comes from Amazon connects to all these other devices already existing, and it will be very interesting, especially if the price is low.
Niu: Right. If you look at the speaker market, everything moves very quickly to these smart speakers with virtual assistants. This market triples every quarter. It's only growing so fast. Sonos must now try to navigate this transition. And yes, they have products, they gradually introduce them into their range, which integrate with Alexa, Google Assistant, etc. But for now, these products still represent only a small part of their mix, while everything is Amazon. Is. Amazon, as you mentioned, has no problem competing with its partners. Although Sonos has partnered with them to integrate Alexa, this will not prevent Amazon from entering your space and selling you much lower prices. It may not be as good, but it will be enough for many people.
Lewis: Let's move from the useful to the functional and the frivolous, and let's talk about some of the most fun devices that may have surprised some people. We had two tips One of them is the new Alexa Microwave, and the other is the new Alexa Clock. Evan, will you buy one or the other?
Niu: [laughs] No, I mean, there were rumors about this microwave. They launched this new microwave oven, under their Amazon Basics brand. It's $ 60. It's just a microwave that you can control with your voice. It includes a dedicated dash button. You can order popcorn, which seems to me a little silly, to have a dedicated button. Everything seems stupid. Everyone is already making fun of this thing – including me, I'm going to be honest – because it's kind of like that, why do you need a smart voice-activated microwave? You obviously have to put things in the microwave, of course. By definition, you are there. It's not like I'm going to be upstairs and say, "Hey, Alexa, turn on my empty microwave." I just have a hard time seeing the real added value here, the use case where people are going to be, "Oh, it's really helpful, it adds a lot of convenience to my life."
Lewis: Yes, I think this one is a bit staggering, much like the kind of stuff you would see on the CES commercial podium if you walked around the industry show. I will say however, knowing the track record of Amazon – obviously, they had failures – we could watch this tape in four years and be like: "It was the beginning". [laughs] You know? Like, "It's there that they launched into this brand new category that we did not even know existed."
Niu: To be clear, I checked last night, it's already the # 1 best seller in the microwave category.
Lewis: Oh my God!
Niu: [laughs] This is their first home appliance they've been to. As you mentioned, it is probably the first step signal in this appliance market. Of course, they will add Alexa and voice commands and connect it to everything they do in the future. I would not be surprised that they go out with a blender, a toaster no matter what in your kitchen. I would not be surprised if they do it in the future now that they have done it.
Lewis: The clock we mentioned before costs $ 30. It's a pretty minimalist design. It looks like it's something that fits in just about any living room. I think the main feature here, the main use case, is to be able to view timers and alarms. I think it's relatively simple at this point. Once again, a strange choice. But from your point of view on Amazon's strategy of slowly building things up, I think back to what they did with Echo and Alexa very early. They started with very simple features, and I think that was the case, in many ways. Then they slowly developed the skills and use cases of these things. It would not surprise me that they are putting products on the market, that consumers are a little used to the idea of a smart clock, a smart microwave. and that they are almost turning to these more integrated and smarter devices.
Niu: The clock is essentially an accessory that goes with your Echo. If you have an echo in your kitchen as you do, and you set several timers when cooking, it's frustrating. I think they've probably heard this feedback from consumers – you do not know where each timer is if you have multiple timers. Managing this interface with just your voice is a bit heavy. So, by being able to visually see the timers, obviously, they have echoes with displays. If you have any, you can see all your timers and see how long you cook them. I think it is a cheaper alternative to fill this specific gap in its use, so that it is represented visually. If you cook in your kitchen, you can see each timer without having to ask, which is cumbersome.
Lewis: Big picture for Amazon here: I think it highlights them and highlights a strategy they've been focusing on for a while: getting into the material and getting into people's homes. You look at Echo and Alexa Push. This has really been so important to them as a business. The data has proven that the more consumers have points of contact with Amazon, whether it is a primary member, owner of Echo, the more one bought on Amazon.
Niu: Yeah. With the original Echo and Alexa, they had this very good entry point into your home. They have just grown so aggressively since. Once you have invested in their ecosystem, it is really hard to get out of it. We have seen Apple play so often in the past. But now that Amazon has integrated the smart home to Alexa, they are doing exactly the same thing except that they are doing it at a much lower price and that they are not trying to win so much money with you. Mais si vous équipez toute votre maison avec tous ces appareils Echo, vous dépensez des centaines ou des milliers de dollars sur tous ces appareils pour les transférer partout dans votre maison. Google Accueil ou toute autre plate-forme de maison intelligente sont si élevés. Pas que Apple ait une présence très forte dans la maison intelligente pour le moment. Ils ont échoué à l'exécution là-bas. Amazon a connu cet élan et investit beaucoup dans le maintien de cet élan.
Lewis: Et ils peuvent vraiment se permettre de le faire au prix du matériel, car les avantages sont tellement importants pour eux. CIRP, cette firme de recherche, publie assez souvent cette étude des dépenses. Ils examinent le consommateur moyen d'Amazon, l'utilisateur moyen moyen et le propriétaire moyen d'Echo. Le consommateur moyen d'Amazon dépense 600 dollars par an. L'utilisateur moyen moyen dépense 1 400 dollars par an. Le propriétaire Echo moyen dépense 1 700 dollars par an sur la plateforme. Si vous entrez dans la maison à un coût, ou même une légère marge sur les appareils que vous vendez, si cela conduit à ce type de différence annuelle, imaginez ce que cela fait au cours de la vie de ce client.
Niu: Oui exactement. Je n'ai jamais vu tout le cas d'utilisation de l'achat de voix, mais je sais que c'est une chose qui se produit. Il y a beaucoup d'études qui montrent que beaucoup de gens achètent des choses avec leur voix. C'était la première chose évidente que Amazon voulait que vous fassiez, acheter des choses sur Amazon avec votre voix en parlant à Alexa. C'est toujours une grande opportunité. Il est encore assez tôt pour cette fonctionnalité. Comme ils le développent et évoluent et itèrent, je pense qu'il y a des possibilités là-bas.
Lewis: Evan, je pense que nous allons emballer les choses là-bas. Merci d'avoir sauté sur le spectacle!
Niu: Merci de m'avoir!
Lewis: Les auditeurs qui le font pour cet épisode de Foyer de l'industrie. Si vous avez des questions ou si vous souhaitez simplement communiquer avec nous, vous pouvez nous envoyer un courriel à l'adresse [email protected], ou vous pouvez nous envoyer un tweet à @MFIndustryFocus. Si vous voulez plus de nos trucs, inscrivez-vous sur iTunes ou consultez la famille de spectacles de The Fool sur fool.com/podcasts. Comme toujours, les personnes inscrites au programme peuvent être propriétaires d’entreprises discutées lors du salon, et The Motley Fool peut avoir des recommandations formelles pour ou contre les actions mentionnées. Merci à Austin Morgan pour son travail derrière le verre aujourd'hui. Pour Evan Niu, je suis Dylan Lewis. Merci d'avoir écouté et Fool on!
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