Apple’s September ‘Special’ event has once again come around, with a new line up of handsets and the Apple Watch Series 4. With the iPhone accounting for 64 cents on every dollar Apple made in revenue since its last September event, and wearables continually cited up as one of Apple’s fastest growing product segments, the event is key for the company’s 2019 strategy and central to its continued success.
The products announced are telling of the current conditions of worldwide markets as experienced by Apple. A big focus on smartwatches and smartphones was expected, with these areas remaining key for Apple. The rumoured arrival of a new iPad Pro did not come to reality, which is perhaps not a surprise given the tablet market continues to decline in size, at -9% volume and -17% retail market value during 2017. This product category has taken a backseat at many consumer-focused Apple events, although remains a strong part of Apple’s education offering. Furthermore, some had suggested the gathering at Cupertino would also bring next generation AirPods into market, also a significant market for Apple, having held 85% market share in the true wireless headphone’s category during H1 2018, however a new edition of headphones was also absent.
The iPhone line is always one of the most significant product launches made in September, and with this year’s event came a return to Apple’s past strategy of launching a premium and lower cost version of smartphones, a strategy used with the iPhone SE and iPhone C handsets. However, with the iPhone XR retailing from $749, it doesn’t do much to bridge the gap between aspirational Apple consumer and current Apple consumer. Apple’s dominance in many Western and other developed markets results in the only way for the company’s iPhone business to grow, which is to increase sales in lower priced markets. However, the only handsets which provide a much lower cost option for budget conscious consumers are the iPhone 7, a handset that doesn’t fair well against the offerings of Android vendors.
On the other end of the spectrum, Apple’s iPhone XS and XS Max are set to maintain its position as the leading flagship smartphone vendor. The iPhone X has been one of the most popular handset models over the last 12 months and the revamp of the handset is expected to provide a good handset offering over the next year. While its design changes are incremental, processing hardware has been further tuned. AI (Artificial Intelligence) will be one of the key battle grounds moving forward. The inclusion of improved Neural networks as a dedicated section of a smartphone processor is only the start of Apple’s plans. AI computing is at a turning point, with developments expected in bringing machine learning tasks into the handset and out of the cloud. Apple began its journey in this realm last year, with security dedicated machine learning tasks powering FaceID being performed on the device. Further devices being shipped with Apple’s NPU will benefit from Core ML and the ability for developers to explore machine learning’s potential on a mobile device. Apple’s involvement in on-device machine learning will be a big benefit to the industry. A uniform installed base of devices, running iOS, with Apple designed SoC (System on the Chip) architecture provides an ideal learning ground for developers, rather than developing for a fragmented Android user base, with varying hardware and software installations. While Qualcomm and Huawei are developing AI capable smartphone processors, Apple has an advantage given the homogenous platform for developers to access.
The Apple Watch Series 4 was certainly one of the most quietly impressive announcements during the show. On the face of it, innovation to the watch hardware was incremental; a next generation processor was added, screen size and utilisation was increased, and battery life remained the same. The most significant update to hardware was the inclusion of an electrocardiogram (ECG/EKG) monitor. As smartwatches have moved towards a health and fitness tracking focused piece of hardware, the next logical step in development is to target the medical sector. Close to half a billion people suffer from a diagnosed heart condition, and many more suffer unknowingly. The potential for a consumer electronics product to further diagnose unknown sufferers has huge potential for public health. While the ECG monitor is certainly a niche selling point of the Apple Watch, a discrete monitor is a huge turning point for consumer electronics; we expect the inclusion of such hardware to drive a small number of sales, but for consumers that may have not otherwise adopted wearable technology.
Another feature that caught our interest was the fall detection software made possible through an improved gyroscope included on the watch. Wearable trackers for the elderly have been pushed as a by-product of the successful kids’ tracker market. However, these have seen a much lower level of take up. The Apple Watch offers a device which does not stigmatize age or invade privacy, while providing peace of mind for families and help where needed. While this update and similar developments do not refresh the USP for smartwatches, it is these incremental developments that opens smartwatch adoption to a variety of consumer bases, however small.
Overall, the Apple event showed that the company was still ahead of the curve in many ways. It indicated that the days of obtaining a killer feature and USP for a device are gone. The iPhone will continue to be of the most important smartphones worldwide, though, the new handsets are unlikely to break the status quo. Away from handsets, Apple continues to focus on expanding its product range to create new revenue streams following the huge past growth of its smartphone division. Wearables as a sector is yet to fully find itself. The use-cases for smartwatches are broad, but vendors in the industry are struggling to find one clear message of why a wide consumer base should purchase the devices. It’s clear that Apple is experimenting with feature sets designed for niche demographics through its smartwatch, which will provide additional growth in the segment, however this will remain relative in comparison to its giant smartphone business.
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