On Oct. 13, Apple (NASDAQ:AAPL) announced its upcoming iPhone 12 in its typical fashion — in a darkened theater with intriguing announcements to keep online viewers on the edge of their seats. (The company had dispensed with in-person gatherings for its Apple event).
While its latest iPhone 12 looks set to become a commercial success, here are three other things I learned from watching the event.
Apple Event Takeaway #1: Verizon a Clear Winner
Early in the event, CEO Tim Cook announced 5G network connectivity for its upcoming iPhone. The blazingly fast 4 Gbps connection speeds promise to let people watch sports games in real-time.
Investors should pay close attention to the secondary winner in the agreement: Verizon (NYSE:VZ). That’s because additional subscribers could provide a much-needed boost to the legacy carrier.
Consider the example of AT&T (NYSE:T). In 2007, Apple paired up with the carrier in an exclusive agreement for its first iPhone. Despite well-documented overloading problems, AT&T subscribers jumped from 70 million that year to 95 million by 2010. With its 5G network, Verizon could see a similar much-needed push. Revenues in 2020 have stagnated as the coronavirus pandemic forced the company to close 70% of its stores. The company withdrew corporate guidance after revealing it lost 68,000 phone subscribers.
At 8.5 times EV-to-EBITDA, Verizon shares still aren’t cheap, considering the capital expenses associated with upgrading its 5G network. But an influx of first wave 5G subscribers will act as a virtuous cycle. Higher-paying 5G subscribers will help Verizon offset its costs, allowing further upgrades to the network, tempting more people away from rivals, and so on.
Takeaway #2: TSMC Matters
The event also highlighted the A14 Bionic chip, an ARM-designed chip using an advanced 5nm production process. The chip will act as the brains behind the new iPhone 12.
There are only two manufacturers that can make the 5nm process: Samsung and TSMC (NYSE:TSM). And TSMC will be a significant winner in the fight for technological superiority.
Consider TSMC’s impact on the semiconductor industry. In 2020, rival AMD released a 7nm chip using TSMC’s 7nm process. The improved technology instantly stole market share from Intel (NASDAQ:INTC), leaving the legacy chipmaker scrambling to catch up.
With the iPhone 12, Apple has raised the stakes even further. By locking in a significant portion of TSMC’s more advanced 5nm process, Apple has effectively forced its rivals to turn to TSMC for even faster 3.5nm and 3.0nm process chips to avoid getting left behind.
Takeaway #3: The Environment Matters.
As part of the event, Apple showed Vice president, environment, policy, and social initiatives, Lisa Jackson, standing on the Apple campus roof. The roof, ringed by solar panels, was emblematic of the company’s push towards carbon neutrality. And here’s why that matters.
According to the Solar Energy Industries Association (SEIA), a trade organization, non-residential and non-utility installations made up just 16% of total solar installations.
Yet, to become carbon neutral, companies (and countries) will have to turn to solar energy. In the past, such a shift would have been impractical. In 2014, the Brookings Institute, a think tank, calculated that shifting to solar would cost an extra 18 cents per kilowatt-hour. That would more than double electrical costs.
Since then, technological improvements have made solar panels more efficient and far cheaper. “A series of sort of small process improvements over the past 10, 15 years have brought the cost down,” said former lead energy economist under President George W. Bush, Ben Ho said in an interview. Solar now is “cheaper than natural gas, cheaper than coal.”
And Apple has recognized the facts, and it’s not only shifted towards cleaner energy but also producing it for itself.
Conclusion: Where Will Apple Stock Go From Here?
Apple’s cheaper $99 HomePod Mini is taking a swing at Amazon (NASDAQ:AMZN) Alexa and other smart speaker devices. Whether the phone company will unseat incumbents is anyone’s guess — Amazon’s lead has narrowed, but the Alexa smart speaker still commands close to 70% of the U.S. market.
But with its iPhone 12 announcement, Apple has revealed other investment ideas that aren’t as apparent as its splashy 5G phone. Investors should take note – Apple’s heft will affect countless companies in its wake.
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.
