Rethink Technology business briefs for Sept. 13, 2019.

Much of the tech and business media have overlooked the important hardware innovations Apple (AAPL) showed at the Sept. 10 event. In this article I highlight those innovations and explain their significance to investors.

The iPhone 11 Pro’s three cameras. Source: Apple.

Apple Watch gets an always-on screen

Apple Watch often gets short shrift when analysts talk about Apple, and this is perhaps understandable. With its unit sales unreported and its revenue buried in the Wearables, Home and Accessories category, it’s difficult to gauge its importance.

Unit sales estimates tend to be all over the map, but it’s clear that Watch isn’t growing as fast as iPhone at an equivalent time interval from its introduction. My own rough estimate for Apple’s fiscal Q3 was 9 million unit sales. The Wearables, etc., segment revenue was up 48% year-over-year.

Regardless of the unit sales estimates, it’s clear that Watch is the dominant smartwatch in the industry. According to Counterpoint Research, Watch was the single best selling smartwatch in 2018, and is expected to be in 2019:

Source: Counterpoint.

I have for some time maintained that Watch is Apple’s next big thing, in contrast to analyst conventional wisdom that it’s merely an iPhone accessory. The relentless miniaturization of electronics, combined with the infrastructure improvement inherent in 5G, will make Watch a primary vehicle for voice and text communication.

Each generation of Watch has been a step along the path to that future, with the biggest step being the addition of LTE cellular capability. This year, we didn’t see quite as significant a step as that, but the addition of the always-on screen was another step forward, and I consider this to have been the most important innovation of the launch event.

The key innovation here was being able to offer the display while maintaining the 18-hour battery life of the Watch without having to greatly increase the battery size. Other companies offer always-on displays, but burden their smartwatches with batteries that make their Watches much more bulky.

Apple was able to achieve this through a combination of improved power management, a variable refresh rate display that can go down to 1 Hz, and a Low Temperature Polysilicon-Oxide (LTPO) backplane that also saves energy. For those interested in the technical details of LTPO, IHS Markit has a good report on Apple’s use of the technology.

The always-on display makes the Watch seem less like a geek device strapped to the wrist and more like a . . . watch. It serves to normalize the experience of Watch into something that people will use on a daily basis. I expect the new display to further drive unit and revenue growth in fiscal 2020.

iPhone 11 goes after GoPro

iPhone pre-launch rumors tend to focus on what the iPhone will look like, since that’s the easiest information to smuggle out of Apple’s contract manufacturers (CMs). While Apple’s internal security is excellent, the same cannot be said for the CMs. It’s no coincidence that images of the next iPhone start to appear in early Spring, when the contract manufacturers are shown the designs for the next iPhone in order to begin manufacturing preparations.

This year was no different, so we knew that the iPhone 11 models would receive an extra camera and a rectangular camera bump. But the rumors omitted much detail. Both the iPhone 11 and 11 Pro models received a 12 Mpixel ultra-wide 120 degree field of view (FOV) camera. Why this is important is that it gets into GoPro (GPRO) territory. The Hero 7 has a maximum horizontal FOV of 122.6 degrees.

A distinguishing feature of GoPro cameras is their ability to capture a very wide field of view without the usual image distortion that wide field of view lenses introduce. This is accomplished through a combination of good optical design and digital image processing.

Apple appears to have done the equivalent for its ultra wide FOV camera. In so doing, Apple is going after an important part of GoPro’s market, which is casual users who just want a high quality ultra-wide FOV camera. Now, iPhone 11 users won’t have to carry along an extra camera just to take good ultra-wide FOV shots.

iPhone 11 isn’t quite ready to take on GoPro in action photography, but that may not stop people from trying. There already are waterproof cases for iPhone good to 50 ft.

The ProShot Touch Plus Waterproof Case. Source REI.

AR glasses in the works

Although this wasn’t part of the event, I think it’s worth mentioning that developers have found confirmation of Apple’s AR glasses in some of the software releases coincident with the event. Apple has released the iOS 13 Gold Master to developers, and there’s code present that’s clearly intended for testing of an augmented reality headset of some form. Steve Troughton-Smith dug this up from the GM:

Of course, this doesn’t guarantee that Apple will field a consumer AR headset, but it does show that Apple is working on it, and is to the point where it was too inconvenient not to include the requisite code in iOS 13. This suggests that a device could be released within the life span of iOS 13 (within the next year).

Investor takeaways

It’s worth noting that Apple’s stock price didn’t collapse in disappointment and disillusionment over the iPhone launch event, as some had warned. This is despite the lack of a 5G iPhone, a continuing trade war, and intensifying competition in China. If any company has justified my determination not to sell tech stocks during the December 2018 panic, it’s Apple.

As to why Apple rose the day after the event by 3.7%, there will probably be some debate. Apple has seemingly ceased to move its products up market, and instead is offering somewhat more realistic prices. It’s about time.

Watch, with the always-on display, is looking very strong for the holidays. And iPhone, even without 5G, will hold its own, although no one expects unit growth this fiscal year. But Apple has cleverly positioned its new TV+ service to reinforce hardware sales. No other streaming service could afford to give away a free year of service.

And there’s much to look forward to next year: The first 5G iPhones, more TV+ content, even better Apple Watches, and those AR glasses. I remain long Apple and rate it a buy.

This article is an abbreviated summary of a longer article published exclusively for members of Rethink Technology.  Consider joining Rethink Technology for in depth coverage of technology companies such as Apple.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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