Here’s What Will Replace the iPhone, says Apple Analyst Gene Munster

by
Philip Elmer-DeWitt

@FortuneMagazine

February 9, 2016, 8:43 AM EDT

In a note to clients Monday night, Piper Jaffrey analyst Gene Munster laid out a provocative theory about what Apple’s growing cadre of virtual reality (VR) and augmented reality (AR) experts might be up to.

“As a starting point, we expect in the next two years Apple will add VR to the MFi Program (Made for iPhone), which should make it easier for third parties to build virtual reality headsets powered by the iPhone, much like Samsung’s Gear VR today. In the next 5-10 years, we expect Apple to release a mixed reality headset with the long term goal (15+ years) of replacing the iPhone.”

“Mixed reality (MR), according to Wikipedia, is the “merging of real and virtual worlds to produce new environments and visualizations where physical and digital objects co-exist and interact in real time.”

As Munster sees it, screens as we know them today will slowly disappear and be replaced by holograms seamlessly overlaid with the real world through eyeglasses that cost $500 to $800, same as today’s iPhones.

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“We believe 10 years from now Generation Z will find reality inefficient,” Munster says. “Generation Z will see the benefits of mixed reality headsets that augment the world with real-time information as they need it and in their field of view, without needing to look at one piece of information at a time on a smartphone.”

Think Tom Cruise in Minority Report, only Gen Z will want a way to manipulate holographic data without their arms getting tired.

This is a market Apple aapl can’t ignore, according to Munster. “Given Apple’s business in screens (iPhones, iPads and Macs), Apple needs to have leadership in MR to stay relevant long term.”

Apple may already be late to the augmented reality (AR) party, despite the progress shown in Munster’s timeline:

According to LinkedIn, Apple has hired 141 Apple employees with backgrounds in AR compared with Microsoft’s 425 and Google’s 267.

But what Apple does better than Microsoft msft or Google googl is design products that put the user’s experience first. And Apple’s most prominent recent hire in the field is Doug Bowman, Director of the Center for Human-Computer Interaction at Virginia Tech and author of the leading textbook on 3D interface design.

For more on Apple, watch:

It’s all a little too sci-fi for me. Munster, it must be noted, is the Apple analyst who was so sure, for so long, that Apple’s next big thing was going to be a TV. See here.

Three reasons Apple is Piper Jaffray’s top big stock pick

by
Philip Elmer-DeWitt

@FortuneMagazine

October 19, 2015, 7:21 AM EDT

Apple is Piper Jaffray’s top large cap stock pick, senior analyst Gene Munster reported Monday. His note to clients is full of threes:

—New products: The company is entering a holiday quarter with three of them—Apple Watch, Apple TV, and iPad Pro. “While new products in the Dec-15 quarter are well known to the Street,” he writes, “we do not believe they are reflected in Street numbers.”

—Upgrade program: Munster estimates that three out of four U.S. iPhone customers will become annual upgraders by the end of 2018, up from 10% today.

—The iPhone 7: He expects next year’s iPhone to be a more “revolutionary” device than the iPhone 6S. Three possible changes—a buttonless front panel, longer battery life, and an optional sapphire screen.

Munster is a long-time Apple bull best known for his repeated predictions that Apple would bring a television to market, which didn’t exactly come true. He’s more cautious these days, but his estimates are still higher than the Street’s. With Apple set to release fiscal fourth quarter results next week, he’s calling for earnings of $1.90 per share on revenues of $51.1 billion. His 12-month price target is $172 a share. Apple closed Friday at $111.04.

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed.

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Here’s why the Apple Store iPhone 6S lines aren’t longer

by
Philip Elmer-DeWitt

@FortuneMagazine

September 25, 2015, 10:34 AM EDT

The queue for the iPhone 6S at Apple’s Fifth Ave. store at 8:00 a.m. Friday was about 650 customers long, compared with 1,880 for the iPhone 6 at this time last year.

Both numbers come from Gene Munster’s team at Piper Jaffray, which has counted heads at every iPhone launch since the 2008.

“We view the shorter line as generally in line with our expectations for three reasons,” Munster wrote in a note to clients Friday.

First, we believe that for last year’s iPhone 6 launch, about 50% of people in line appeared to be purchasing phones to be resold overseas. Given that China was added as a launch country for the 6S, the number of resellers seemed to decrease to about 20% of people in line. Adjusting out the International presence would suggest the core line was down 55% for the iPhone 6S vs the iPhone 6. We note China was 27% of revenue last quarter.
Second, we note that typically “S” cycle launches (3GS and 4S) are down compared to the associated number change launches. In the 3GS and 4S cycles, lines were down 35% and 65% respectively, from their corresponding number change cycles, thus the iPhone 6S line change is on the low end of limited historical data. The iPhone 5S lines did not follow the down pattern as there were no pre-orders available for that launch. The 5S is the only launch since the iPhone 4 that did not have pre-orders.
Third, we believe Apple has continued to push more customers to pre-order devices to avoid long lines on launch day. The company did not offer walk-in purchases for the Apple Watch during its launch in April. Also, Apple had a 16-day window between the time of the 6S announcement and launch day compared to 9 or 10 days for each of the four prior launches. We believe the longer window allowed for more pre-orders than typical.

Below: Munster’s spreadsheet

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed.

3 signs Apple has entered the Twilight Zone of virtual reality

by
Philip Elmer-DeWitt

@FortuneMagazine

August 31, 2015, 8:04 AM EDT

If augmented reality and immersive 3-D experiences are the next big thing, Facebook and Google are already there.

Facebook has snapped up at least five companies in the virtual reality/augmented reality space, including Oculus, maker of the Cadillac of VR goggles, for $2 billion last summer.

Google’s Cardboard, a fold-out kit for turning any Android smartphone into a crude VR headset, is already on version 2.0.

Now, according to Piper Jaffray’s Gene Munster, Apple has entered the Twilight Zone.

In a note to clients Monday, Munster reports that Cupertino has assembled its own team of virtual and augmented reality engineers and is “exploring the [augmented reality] space.”

His evidence:

Apple spent $32 million in March to acquire the engineering team at Metaio, a software company with dozens of virtual reality patents.
In late 2013 Apple acquired PrimeSense for $345 million. Its engineers are best known for designing the first motion sensors for Microsoft’s Xbox Kinect.
Apple has hired an unnamed expert that Munster describes as the lead audio engineer from Microsoft’s Hololens project, which alters the direction sounds seem to come from depending on how you turn your head.

“While augmented reality is likely 10 years away from broader consumer adoption,” Munster writes, “we believe it has the potential to be as profound a technology platform as the smartphone today.”

That’s a pretty bold claim, especially given the kinds of applications Munster mentions: Gaming, telepresence, overlay holograms for navigation, etc.

It’s hard to see Apple getting excited about any of those markets—even immersive gaming.

But the fact that Apple is investing anything in the technology suggests that it sees a broader market, one closer to the intersection of technology and the liberal arts.

My guess? Apple, with its Pixar connections, is looking—for starters—at the same application that’s caught Hollywood’s attention: Personalized, immersive story telling.

Think of it as 3-D movies that you don’t have to go to the CinemaPlex to experience.

If the content ever catches up to the technology, according to research cited by Variety in January, the market for personalized VR devices could grow from 200,000 users in 2014 to 170 million in 2018.

That’s big enough to get Apple’s attention.

Add some haptic feedback for touching and feeling, and who knows where this could go. See, for example, here (not entirely safe for office viewing).

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed.

Munster: Apple streaming TV is 50/50 for Sept. 9 event

by
Philip Elmer-DeWitt

@FortuneMagazine

August 13, 2015, 7:05 AM EDT

No Apple analyst knows the pain of Steve Jobs’ 1,000 nos better than Piper Jaffray’s Gene Munster, who paid the price of mistaking a better television set created in some Cupertino skunkworks for an Apple television set brought to market.

But for all his missed TV calls over the years, Munster knows the territory. So when he talks about Apple’s adventures in television land, I still listen.

In a note to clients Thursday, Munster takes as his starting point the report in BuzzFeed News last week that Apple has scheduled a Sept. 9 event that will include, along with a new crop of iPhones, a new Apple TV box—the one that the same BuzzFeed reporter said would be unveiled at the company’s developers conference in June. [See footnote.]

If there is a Sept. 9 Apple event, and if TV is on the menu, here’s what Gene Munster is looking to see:

What To Expect For New Apple TV Features. We expect the new box to incorporate Siri, HomeKit, and possibly an Apple TV app store. Highlighted features could include controlling a connected home, content channels, and getting answers via Siri (like Amazon Echo). The Buzzfeed report also suggests a new touch screen input device. Another potential key feature may be around video curation, which Apple executive Jimmy Iovine highlighted in a recent interview with Wired. In the interview, Iovine stated, “We all know one thing, we all have different television delivery systems, don’t we all wish that the delivery systems were better, as far as curation and service?” We believe this points to some type of curated video offering, although the timing could be beyond the September Apple TV launch.
Content Offering Likely A Wildcard. We continue to expect Apple will launch a live streaming video offering, but believe there is only a 50% chance it happens at the Fall event. The Buzzfeed report did not address a potential content offering. We believe Apple’s eventual content offering will include the majority of the network channels plus major cable offerings like ESPN, AMC, TNT, and TBS. Additionally, we note that Sling TV already offers a collection of cable TV channels for streaming starting at $20 per month. (ESPN, ESPN2, CNN, TNT, TBS, HGTV, Food Network, and the Travel Channel with AMC coming). Sling TV is compatible with Roku, Android, iOS, Mac, and PC among others.

The comparison with Sling’s $20-per-month offering is interesting. Earlier rumors put Apple’s streaming service in the $30 to $40 range.

Footnote: To his credit, the same reporter—BuzzFeed SF managing editor John Paczkowski, formerly of Re/Code and AllThingsDigital—scooped his own scoop, breaking the news five days before WWDC that Apple had postponed the debut of Apple TV.

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed.

WWDC walkup: There’s no money in music streaming for Apple

by
Philip Elmer-DeWitt

@FortuneMagazine

June 3, 2015, 1:56 PM EDT

It’s not much of a secret that Apple is set to launch a new streaming music service at WWDC next week.

There’s not much money in it either, says Piper Jaffray’s Gene Munster. Apple has about 300,000 paying subscribers and Spotify has 15 million. In note to clients Wednesday, Munster does the math:

“With the $10 per month expected price for the new streaming service, even if Apple were to grow its paying streaming music subscriber base to match Spotify’s 15 million (which we view as highly unlikely), it would add less than 1% to revenue in 2016.”

Despite the impression left by last year’s $3 billion acquisition of Beats, Apple’s not in it for the money.

It’s got bigger problems. Streaming has caught on.

iTunes — the music downloading service with which Steve Jobs pulled Apple back from the brink — is dying. Despite rapidly growing iPhone sales, income from Apple’s digital media offerings (music, TV, movies, books) is falling. Last quarter, according to Above Avalon’s Neil Cybart, it was down 4% year over year.

As I see it, Apple is going into music streaming for the same reason Amazon points users to its competitors’ lower prices. Amazon wants to be your one-stop shopping site. Apple wants to be the place the kids go to get their music.

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed.

Carl Icahn, Gene Munster and the myth of the Apple TV set

by
Philip Elmer-DeWitt

@FortuneMagazine

May 19, 2015, 9:25 AM EDT

Pity Gene Munster.

Piper Jaffray’s senior Apple analyst first reported that the company was working on a television set — as opposed to the Apple TV set-top box — in 2009. He’s been talking about it ever since, peppering Tim Cook with questions, sending notes to clients, predicting launch dates that kept slipping: 2011, 2012,… 2016.

Someone at Apple could have done him a favor. They could have found a way to let him know that the project had been shelved more than a year ago.

That didn’t come out until Monday, after billionaire investor Carl Icahn, who owns 52.7 million shares of Apple and has the ear of Tim Cook, wrote an open letter to the CEO confidently predicting that Apple would not only ship two sizes of ultra high definition TV sets next year, but that it would sell 10 million units.

The next day, citing “people familiar with the matter” the Wall Street Journal published Behind Apple’s Move to Shelve TV Plans.

Munster finally got the message, and early Tuesday he issued what we can only hope is his last note on the matter. “Given how adamant we have been about the reality of an Apple television,” he begins, “it’s hard to accept the reality of no Apple television.”

And then he did something Apple analysts rarely do: He admitted he was wrong.

Where Did We Go Wrong? We have been talking about an Apple television for the better part of the last decade. While it is a small consolation that the article affirms that Apple was actually working on a television during that period, in the end we were wrong in our constant expectation of the product.

He could have stopped there. Instead, we got this:

We believe that Apple is actively working on early virtual and augmented reality products, although we may be 5+ years away from seeing these products launched.

Uh oh.

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed.

How many Apple Watches were sold worldwide last weekend?

by
Philip Elmer-DeWitt

@FortuneMagazine

April 13, 2015, 9:38 AM EDT

Thanks to Slice Intelligence (more on them below) we have a first estimate of how many Americans ordered Apple Watches Friday: 957,000 customers ordering an average of 1.3 Watches each, or a total of 1.2 million units.

I asked three analysts to extrapolate from that U.S. estimate to the rest of the world, and I got three different answers.

Above Avalon’s Neil Cybart: “If the data is true, I would be surprised if total pre-orders weren’t at least 2-3 million across the nine countries over this past weekend. Of course, without knowing supply, it still remains tough to know how many of those will actually be shipped in April.
Piper Jaffray’s Gene Munster: “If you take the Slice numbers as Gospel, it would imply 2.1 million worldwide. We’ve dialed that back to 1.5 million. We think some of the initial fanboy enthusiasm isn’t as intense outside the U.S.”
Asymco’s Horace Dediu: “I found it fascinating that the store opened at a time when almost everybody in the U.S. and Europe was asleep and China was just about to start happy hour. Therefore I must assume that sales in China are higher than in the U.S. I don’t know how reliable Slice’s samples are, but if they are accurate then 2 million pre-orders seems a reasonable estimate.”

Where did Slice get its data? From consumers sufficiently enthusiastic about shopping to download Slice’s app and sign up for their free service. Here’s Slice’s pitch:

Slice keeps track of what you buy, effortlessly. The secret to the sauce is your email inbox. Just add the email account(s) where you send your merchant notifications, and we’ll do the work from there. Slice processes shopping-related emails (such as order confirmations, shipping notifications, and e-receipts from in-store purchases) to help you easily keep track of your stuff.

Here’s their video: It’s shopping smarter.

Today, according to Slice, their analytics engine has direct access to the electronic receipts of more than 2 million Americans. In their panel were 9,080 shoppers who ordered an Apple Watch on Friday. That’s where their estimate — 957,000 customers ordering 1.3 each — comes from.

Given Slice’s tilt toward heavy shoppers, their estimate could be high.

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed.

Apple’s augmented reality distortion field

by
Philip Elmer-DeWitt

@FortuneMagazine

March 18, 2015, 11:03 AM EDT

A note issued early Wednesday by Piper Jaffray’s Gene Munster has folks talking about yet another future Apple product.

The subject this time is augmented reality (AR). This is a term of art not to be confused with either virtual reality, those oversized goggles that take over your entire field of vision, or Steve Jobs’ reality distortion field, which if you got too close, according to co-workers, would make you believe whatever he told you.

The best-known applications of AR technology are the $1,500 camera-equipped headsets that Google unveiled with great fanfare — and sky divers — and then sold for 14 months before quietly taking them off the market in January.

It’s hard to imagine Apple ever marketing anything so ugly and intrusive as Google Glass, but the company is clearly interested in the field. Over the past two years it has filed patents covering transparent displays, mobile mapping solutions, iPhone-powered virtual displays and computer vision systems that can identify physical objects in real time.

Based on “conversations with industry contacts within the virtual and augmented reality spaces,” Munster is now convinced that Apple has a small team exploring eyewear enhanced by AR applications. These might include, he suggests, programs that display within your field of vision driving directions, traffic data, retail sales and the names, birthdays and job histories of people you meet face-to-face.

While augmented reality is likely 10 years away from broader consumer adoption,” Munster writes, “we believe it has the potential to be as profound a technology platform as the smartphone today.”

Ticking off a list of prominent Apple hires from the fashion industry — including VP for Special Projects Marc Newson, who has designed several lines of eyeglasses — Munster argues that Apple is uniquely equipped to “combine the technology of augmented reality with attractive fashion/design that users will actually want to wear.”

This is not the first time Munster has made such a prediction. In 2009 he told clients to expect an Apple-branded TV set to hit the market by Christmas 2011, a deadline he’s been pushing back ever since. Yesterday, responding to reports that Apple might be about to market a bundle of TV channels for iOS device (including Apple TV), Munster set a new date for an “actual Apple television”: 2016.

It’s probably fair to assume that Apple is “exploring” every market it might profitably disrupt, from augmented glasses to electric cars. That doesn’t mean it will actually bring a product to market. It’s worth noting that a Fast Company excerpt of the new biography Becoming Steve Jobs quotes Jobs telling Jony Ive in 1997: “I just don’t like television. Apple will never make a TV again.”

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed.

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