Don’t worry about Apple
Disclaimer: I own shares in Apple (APPL)
Apple posted fiscal Q3 results at the end of the trading day today, reporting that revenue fell less than projected causing a 7% pop from its $96.67 close. Still, that didn’t stop Bloomberg writer Shira Ovide from proclaiming that:
Investors and Apple watchers have already basically written off this fiscal year ending in September as a revenue black hole
That so-called revenue black hole for the quarter was $42.5 billion — nearly nine times what Verizon paid for Yahoo. That’s a pretty big black hole. But why all the doom and gloom? Well the standard narrative is that we’ve hit peak iPhone, and that iPhone 7 sales won’t live up to sales of the iPhone 6 because the iPhone 7 isn’t expected to see any major upgrade. Well there’s another story here.
Most people have traditionally opted for the 16GB phone. Well everyone except for well paid Wall Street analysts, who probably have a 64GB+ iPhone, and have not suffered from the dreaded “Not enough storage message”.
In fact, one reporter suggested that 48% of iPhones sold in Q2–2016 were 16GB although I could not identify the source data.
And here’s the problem. Your iPhone today is not just a phone, it’s also your computer, your camera and perhaps most importantly, it’s your mobile photo album. I don’t know about you, but I like to have that photo album on me because as soon as I delete that image from my phone I’ll never see it again because who uses their computers anymore. It’s the pain of loss that eats up that storage. And with each new iPhone we have seen new cameras being upgraded with higher pixels or better video encouraging us to take more pictures. All this means that there has been growing demand for storage. And for many of those with a 16GB iPhone, whether that’s an iPhone 4 or an iPhone 6, it’s going to feel like it’s time for an upgrade especially with the new iOS 10, especially as the newest low-end phone is reportedly 32GB in size.
Yes, iOS9 shrunk its storage footprint by about 3GB from iOS 8, and there will be some storage optimization for the new iOS10. Still iOS10 is built for the iPhone 7 and it will sequester even more storage as it offers features to new apps and services.
Now with more horsepower to work with new under the iPhone 7, the iOS10 apps will also tend to use more memory (RAM) to keep things responsive, but if that’s not available then computers typically store the cache to disk (called virtual memory) which is one reason why computers seem to feel slower and have less and less free disk space as they get older. Newer OSs will also generate loads of temp files. This is why your computer might be using and extra 10 GB of hard drive space which is freed up when you close all your applications. Basically there’s no free lunch when it comes to memory.
Simply put, 16GB is not enough, which is why it’s been rumored that Apple will be doubling the minimum storage capacity to 32GB.
To be sure, take a look at this Google Search Trends result and you can see the growing pent up demand for more memory as the 16GB is no longer sufficient. For this reason I’d expect that Apple shows sales that are a lot better than many people expect.
Add to that potential increases in battery life, rumors of an iPhone 7 Pro, and the overdue release of a new MacBook line and Apple could very easily surprise on the upside with sales that far exceed expectations.
