By any measure, the iPhone is one of the most successful, innovative and game-changing products of all time. In just 10 years, it has spawned a whole industry as well as offshoot products like tablets, and it has also found its way to just about every corner of the earth. It changed how we relate to each other and the world around us.
That’s pretty tough to top, but almost from the very beginning, Apple (AAPL) has to some degree been a victim of its own phenomenal success. Everyone always wants to know: What’s next? The iPhone has come a long way in its 10 years, and while each iteration for the most part has produced improvements – some quite significant – there is nothing that has really changed the game again.
But I think the iPhone X does just that. It is the future of iPhones and all smartphones. I also think it gives us a glimpse into Apple’s future, as it opens the door to NexGen applications that are going to be huge.
The One Investors Have Been Waiting For
The iPhone X became available for preorders last week and it sold out in minutes. Apple itself even said in a statement that demand was “off the charts,” which is unusual for the normally tight-lipped company.
So what makes this iPhone the one investors have been waiting for?
First, I would point to the facial recognition feature for unlocking the phone, not to mention other things like being able to animate emojis with your face. I know there are still questions about just how well it will work, and we’ll all have to get used to new ways of operating the phone, but I believe this will prove to be a significant breakthrough that will be part of all smartphones in the coming years.
Second, the software and hardware have been made with augmented reality (AR) in mind. AR uses technological advances in cameras and graphics to bring together the real world with a digital world. AR also has a ton of uses in both fun (think the Pokemon Go craze) and serious industries, such as healthcare. This phone is made for that. The A11 bionic chip was custom designed for the iPhone X and is used to perform artificial intelligence tasks.
Augmented reality and its cousin virtual reality (VR) are fast-growing NexGen trends that I am confident will make us a lot of money through the years. Total spending on AR/VR products and services is expected to more than double each year for the next four years and climb to $215 billion in 2021 from $11 billion in 2017 – 1,955% growth in just four years! The iPhone X is a big step forward, and I expect app developers to take full advantage. That Apple App Store is going to have a lot more and interesting choices in the coming years, and that’s a big revenue opportunity for both Apple and developers.
I believe the next generation of smartphones is now on our doorstep and that the iPhone X will be a must-have for both the AR applications and just the way people will live their day-to-day lives.
How to View Apple’s Earnings
Just as the iPhone X is getting into consumer’s hands, Apple will report its latest quarterly earnings results tomorrow. The company guided for revenue of $49-$52 billion last quarter. When the new phones (including the iPhone 8) were announced, Wall Street was looking for more than $51 billion in revenue. That number has since come down a tad to $50.8 billion, and estimates for the cheaper iPhone 8 have largely hit the projection.
Still, this upcoming report will not tell the full Apple story because the iPhone X wasn’t available last quarter. That means management’s expectations for future quarters will be much more important, and here’s one key to keep in mind: Apple loves to sandbag its estimates. The company has a history of aiming low so it can beat expectations when the actual numbers come out. I’ll be especially interested in guidance for sales and gross margins, which should show significant improvement due to a higher average selling price for the iPhone X.
Even if Apple’s report is good, there’s a chance the stock will dip. One trend I’ve noticed this quarter is that companies that beat expectations are still getting sold, sort of a classic “buy the rumor, sell the news” scenario. That can actually result in great buying opportunities, and with Apple’s future looking brighter, I’ll be watching to see if this one-time NexGen leader has the makings of a future winner as well.