Apple aims to prove iPhone momentum

In 1977, a 21-year-old Steve Jobs unveiled the Apple II at the West Coast Computer Faire, held at the San Francisco Civic Auditorium.

The device pioneered the personal computer market and set Apple‘s business on a path that, 38 years later, has created the world’s most valuable company.

This week, Apple will return to the same venue, now renamed the Bill Graham Civic Auditorium after a local rock-concert promoter, to launch its latest suite of products.

But while the Apple II was the company’s first mass-market success, Wednesday’s event is expected to see the debut of the ninth iPhone and its third attempt to crack the television market.

The PC was brand new in 1977 but in 2015, squeezing more innovation out of such a well-established and competitive market as the smartphone is no easy task.

Yet Apple must continue to provide more reasons for customers to upgrade if the iPhone is to keep growing — a key concern for Wall Street, especially amid uncertainty over the economic outlook in China.

The iPhone 6S is expected to focus on improvements to its touchscreen technology, camera and processor, rather than the total redesign seen last year. That is typical for an “S” year upgrade but has nonetheless left some wondering whether Apple can unlock another huge wave of demand, after increasing the iPhone’s screen size last year.

“I don’t think there’s that sort of iteration that’s going to explode the market,” says Benedict Evans, a mobile-industry commentator and partner at tech investor Andreessen Horowitz.

Yet in July, Tim Cook, Apple’s chief executive, told investors there were “many, many, many years” of growth left in the iPhone.

“There’s tons of innovation left at the phone,” Mr Cook said on Apple’s earnings call. “I think we’re in the early innings of it, not in the late innings.”

Regardless of what new technologies come in the next iPhone, Apple’s advocates say there remains much pent-up demand from existing customers with older models. Mr Cook said in July that only 27 per cent of Apple’s installed base had upgraded to the iPhone 6 or 6 Plus, leaving “a lot of headroom”.

Ben Wood, analyst at CCS Insight, notes that Apple customers tend to be very loyal. “We know the iPhone is like the Hotel California of smartphones — once you’re in, it’s very difficult to leave,” he says. “Anyone with an iPhone 4S or 5 is almost guaranteed to upgrade.”

There’s no consumer electronics company on the planet that wouldn’t give their eye teeth to be Apple right now
– Ben Wood, CCS Insight

That helps to insulate Apple from the broader deceleration in the smartphone market, which market researchers at IDC predict will fall from 27.5 per cent growth in 2014 to 10.4 per cent this year.

Wall Street’s estimates of iPhone unit growth of 5 to 10 per cent next year would be a significant slowdown from the 35 per cent growth achieved in Apple’s most recent quarter. Still, even that looks appealing to most other smartphone makers, Mr Wood says.

“I’ve met a few CEOs of other phone companies in the last few days and they are just miserable,” says Mr Wood, who attended the IFA technology conference in Berlin. “There’s no consumer electronics company on the planet that wouldn’t give their eye teeth to be Apple right now.”

The size of the Civic Auditorium, with a maximum capacity of 7,000, has prompted speculation that this could be among Apple’s biggest events yet. For days running up to the event, secretive construction work has been going on inside the venue, as flags flying the Apple logo flutter overhead.

Their priority is to keep iPhone momentum going. Everything else is ancillary
– Ben Bajarin, Creative Strategies

That may signal product launches across the Apple portfolio, encompassing Macs, iPads and the Watch, in addition to the expected iPhone updates.

But the most strategically interesting update would be to the Apple TV. Launched in the same year as the original iPhone, the existing $99 Apple TV box, whose price was cut to $69 earlier this year, has sold modestly.

Sources familiar with Apple’s plans have said that its new box will be a more ambitious device, encompassing a full App Store, Siri-based voice control, video-gaming capabilities and “connected home” controls, rather than simply a streaming video box primarily used for Netflix, iTunes and YouTube.

According to the Consumer Electronics Association, digital streaming devices such as Roku are expected to sell 11.5m units this year, an increase of 12 per cent, generating revenue of $643m. That might have looked like a big opportunity to Apple in 1977, but not today.

“Their priority is to keep iPhone momentum going,” says Ben Bajarin, analyst at Creative Strategies. “Everything else is ancillary.”

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