The $1tn question: how far can the new iPhone 8 take Apple?

The company is within reach of a stock market milestone: this weeks product launches could see it achieve a 13-figure valuation

Apples stock market value is heading towards a new milestone and its latest product launch on 12 September could push the tech giant closer to becoming the first ever $1tn (760bn) company.

At the end of last week, the companys market capitalisation hovered around $830bn, continuing a 10-year run that has generally headed upwards since a low of $69bn in January 2009, during the financial crisis. Tuesdays event, with the iPhone 8 the star attraction, will strive to meet investors and customers vaulting expectations.

But what will Apple tempt users with to justify Wall Streets faith in its future profits? An Apple spokesman declined to discuss what will be revealed at the event in the companys $5bn, spaceship-shaped Cupertino headquarters. However, although Apple is always tight-lipped, this year leaks from its suppliers, and from the company itself (through details embedded in a software update) have told us much about whats coming.

iPhone

The smartphone market is more competitive than ever, with sophisticated devices available for much less than the rumoured 900 cost of the iPhone8. Most rivals are swallowing losses by cutting prices to win sales but Apple is heading upmarket to protect the iPhone, which is crucial to its success.

Three new models are expected: two updating its present 7 and 7 Plus models (probably called the 7S and 7S Plus), and one entirely new the iPhone 8. Internally known as D22, its screen will unlock via facial recognition, potentially replacing the fingerprint unlock system used since 2013. The screen will also cover more of the front, allowing the display to go right to the edges. And the screen will use a technology bought from Samsung called Amoled, or active matrix organic light-emitting diode which gives brighter colours. It could also mean the new phone will have a longer battery life because it does not need to be backlit, unlike the LCD screens Apple uses presently.

But none of these technological tweaks are cheap hence the 900 price tag, compared to the 719 starting price of the larger iPhone 7 Plus.

Apple’s share price

The new phone will be a tricky sell, says Jan Dawson, who runs US-based tech consultancy Jackdaw Research. It has to get the balance just right, giving people a compelling upgrade in the successors to the iPhone 7 and 7 Plus, while also offering up a higher tier, he explains. It has to do that without alienating people who cant afford or justify spending the higher price for the new device, but dont want to settle for second best.

The last time Apple had a second best phone, the plastic iPhone 5C in 2013, its sales were slower than expected, while demand for the top-end 5S outstripped supply. Apple needs to avoid that happening again, says Dawson: It has to supply the new premium phone in high enough numbers so that if theres a big demand shift from the standard models to the new one, it doesnt end up depressing overall sales while there are supply constraints.

Apple seems confident. For the current quarter, it has forecast revenues of $49bn-$52bn, which would represent growth of between 4% and 11% from a year ago, and bring its performance back to 2015 levels. Dawson expects that iPhone sales will grow year-on-year in the October-December and January-March quarters: Much of the timing of that growth will depend on the supply constraints.

Wearables

A few years ago, wearables the market sector dominated by digital watches and Fitbits were seen as the next technology hit. But the first Apple Watch, released in April 2015, underwhelmed many reviewers.

None the less, early adopters liked it; the research company IDC reckons 28.8m had sold by the end of July this year. Though Apple doesnt release unit sales or revenues, it is definitely the worlds most popular smartwatch, while Googles rival Android Wear business has failed to take off.

Now Apple is readying a version that can use 4G phone networks. It means those who have bought an Apple Watch for fitness reasons the watchs biggest customer base can stream music or podcasts while they run and work out, as well as making FaceTime video or audio calls, getting map directions, and receiving and replying to messages. According to Bloomberg, the 4G version will be on sale at the four US mobile carriers, and possibly through European networks too.

Apples wearables strategy doesnt stop at the Watch: its wireless in-ear AirPods headphones, which have been in short supply since their launch last year, have delighted those who managed to get their hands on them. With supply improving, they could be a Christmas hit.

The
The Apple Watch: liked by its owners. Photograph: Samuel Gibbs for the Guardian

Home

With the smartphone market now well established, the home is the new battlefield for the big tech companies. A few years ago most people expected that Microsoft would be a serious contender because its Xbox console was installed in millions of living rooms.

But instead Amazon has taken a lead, having sold an estimated 15 million of its voice-controlled Echo and Dot devices, which can provide weather, news and traffic reports and play music, as well as controlling digitally connected lights and similar devices around the home. Google joined in last year with its Google Home device. Now Apple is pitching in with HomePod, a high-quality music speaker controlled by its Siri voice assistant. As you might guess, its pricey, with a reported cost of around 349 in the UK.

Also expected is an update to Apple TV, the companys set-top box, to allow it to stream higher definition pictures. On its own, that might not sound much. But the company has big ambitions in the US market, where millions of homes are abandoning expensive monthly cable-TV contracts and opting for cheaper services such as Netflix. Apple always wants to get ahead of those broader digital trends. Now it aims to become an alternative TV service, offering a la carte programming if you buy its hardware.

However, TV networks wont license their programmes cheaply because they want to retain the viewers who in turn watch the adverts that provide their revenues. So Apple is having to make its own. Eddy Cue, the executive behind this drive, is well-armed for the fight. As well as hiring TV and film executives, he has bought the rights to James Cordens Carpool Karaoke and has a $1bn warchest for producing original content. Although thats a long way from Netflixs $6bn annual spending, or Amazons estimated $4.5bn, Apple is ambitious.

Tim
Tim Cook: leading Apple into film and TV production. Photograph: Bloomberg via Getty Images

Software

A new iPhone means a new version of Apples iOS software, which will update about 500m existing devices as well as running on the new products. With iOS 11, iPhone and iPads will be able to run augmented reality (AR) apps, which can overlay Star Wars spaceships, or map directions, or geolocated information, on to a live camera view on the screen. AR apps are forecast to spark a new app boom; some of them will struggle, but it only takes one success to validate the entire field. And Apple will have an advantage over Android, where AR will only work on a few million devices by the end of the year.

Services

For the past seven quarters, and 12 of the past 19, the fastest-growing part of Apple has been its services. Most recently generating $7.2bn more than either iPad or Mac sales it includes Apple Music fees, the 30% cut of payments and subscriptions on millions of apps in the App Store, and payment for iCloud storage (where only the first 5GB is free).

Chief executive Tim Cook has repeatedly pointed out to analysts that, on its own, the services segment generates enough revenue to enter the Fortune 100 list of Americas biggest companies. As the iPhone user base grows, and people buy more apps, the services segment keeps growing. And if the Apple TV ploy succeeds, it could really take off. What Wall Street really likes about services, though, is its promise of recurring revenue, separate from hardware sales. If Apple grows its user base, the Services segment grows too; thus it also provides an indicator of the overall health of the companys ecosystem of hardware, software, users and developers. Suddenly, a $1tn valuation looks attainable and sustainable.

Surprises

What else is Apple working on? The companys car project, code-named Project Titan, appears to have been scaled down and the firm will no longer build self-driving vehicles: according to reports, it will concentrate on the software behind autonomous cars instead. More likely to arrive sooner are AR glasses for putting augmented reality right in front of you. In March the Financial Times reported that Apple is working on such glasses; whats unclear, as ever, is the timescale. Months? Years? We cant be sure until Tim Cook shows it off on stage.

Read more: https://www.theguardian.com/business/2017/sep/09/apple-iphone-8-one-trillion-dollar-question