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The Market Has Learned From The iPad

Apple (AAPL) is developing their next generation of iPhone devices with curved glass, according to a Report from Bloomberg. Planned for release in late 2014, these iPhone 6 devices would include larger displays that curve downward at the edges.

As Samsung already verified, curved smartphones are possible.

iPhone 6 Concept Art - Source: Tech Crunch

Image source: Tech Crunch

Married to the curved screen would be a touch accuracy improvement. The iPhone 6’s touch accuracy improvement would be a smart (and overdue) move from Apple.

Touch Accuracy

The touch accuracy of Apple’s iPhone 5S and iPhone 5C was recently measured and interpreted by OptoFidelity, a Finland based technology measurement company. OptoFidelity conducted its own Touch Panel Performance Tester to measure the touch accuracy of the iPhone 5C, 5S, and Samsung’s (OTC:SSNLF) Galaxy S3. This test utilizes a robot to touch a location on the mobile device and report the coordinates with great precision. OptoFidelity then compares the robot-reported coordinates with the coordinates reported on the devices themselves (i.e. the location on the device where the touch was ‘felt’).

The results concluded that both iPhone devices had many more fail rates than their Samsung Galaxy S3 counterpart.

(click to enlarge)iPhone & Galaxy S3 touch accuracy

(above image source: OptoFidelity Report)

The above image demonstrates the accuracy of each respective device. Each of the three rectangles correspond to the actual screen of the device. The red zones indicate an area of far lesser accuracy whereas the green indicates an area of significant accuracy. When compared to the Galaxy S3, both iPhones come up embarrassingly short.

iPhone Screens

This past week, Apple’s decision to buy a plant in Arizona was dissected by most every media outlet. The plant is for the Apple supplier, GT Advanced Technologies Inc. (GTAT), to provide Apple with sapphire material. Apple currently uses sapphire material in the camera and fingerprint home buttons of the iPhone 5S. There is a lot of speculation that Apple is to use the sapphire material as a screen in future products: replacing the current screen material Gorilla Glass. This is entirely false. Allow me to clarify:

Apple will not use sapphire in the iPhone screen. Anything that indicates such has not taken the following into account:

  • Apple’s investment in sapphire production would only meet the demand for a fraction of iOS devices sold annually.
  • Each Gorilla Glass iPhone Screen costs $3. The sapphire equivalent would be $30.
  • Sapphire doesn’t bend; it’s rigid. And, assuming Apple has plans to invest in curved devices as discussed above, sapphire would not suffice.
  • Apple has started to repair the screens of iPhone 5C and iPhone 5S in-store

Apple’s Future Plans With The Impending Sapphire Supply

Undoubtedly, Apple will use the sapphire as a screen for something. The only appeal with Sapphire is the extreme and inherent durability. In this video here, an iPhone device with a sapphire screen is repeatedly hit with concrete. The concrete breaks. The phone has not the smallest blemish.

The appeal for such a material exists because mobile devices are mobile. These devices are taken, dropped, and abused because they are taken everywhere. Currently, the only mobile devices Apple produces are the iPods and iPhones. Without performing in-depth research, most have conjectured that Apple would be using the sapphire for their iPhone screens. Having suggested the contrary through the above indicators, it seems clear that the sapphire would be used as a screen cover for iPods of smaller size than the iPhone. I don’t think this will be the case, either.

The $200 iPhones are sold at a loss by cellular telecommunication companies through which Apple contracts. Profit surfaces through all usage and data fees charged by the cellular provider. When a consumer purchases an iPod, there is no monthly fee. The iPod must be sold greater than or equal to a net gain of zero. The only automated revenue after the purchase of an iPod would be through iTunes. (Note: The profit generated through iTunes is a figure that is very complex to discern and attribute to the iPod for reasons of piracy and likelihood of using iTunes after buying an iPod.)

Since the sapphire material is proportionally ten times more expensive than Gorilla Glass, it is extremely unlikely Apple will further decrease their margins on a device that must be sold at a gain.

A quick recap:

Sapphire is appealing because mobile devices become scratched. Mobile devices become scratched because they are taken everywhere. Apple makes two mobile devices. For the above reasons, it does not make sense for Apple to use sapphire with their two current mobile device categories.

Apple plans to use sapphire in a mobile device category that they have yet to exploit. This mobile device category is something that would require an immensely greater durability due to its inherent nature: wearables. In particular, I predict Apple is going to release the iWatch.

The iWatch – A Brief Overview

On June 3rd of 2013, Apple filed for the iWatch trademark in Japan. Tim Cook talked a lot about how the “wrist is interesting” back in May at an All Things D interview. Cook claimed that a wearable product must be “extremely compelling” in order for people to use/wear it. Cook is entirely correct in this regard: smart watches do exist, but are not nearly as prevalent as smartphones for reasons discussed later in this article.

This trademark filing does not mean Apple is definitely making an iWatch. Remembering back to 2009, Apple filed for the “iSlate” patent, which later turned into the iPad.

What this trademark tells us that Apple is extremely interested in this device category. Apple did not create the first tablet. Tablets existed long before the iPad. Remember when everyone thought the iPad was ridiculous? Unnecessary? A waste? Apple is hoping to have a similar market reception with a wrist wearable – whatever that may be.

Due to the nature of wearing things, they get worn out. A device that is worn on the wrist (exposed nakedly to the world), will be much more prone to accident than a device shielded inside pockets (an iPhone, for instance). Consequently, a much more durable screen is necessary: a sapphire screen. Taking up much less surface area than a phone, the iWatch is a prime candidate for sapphire. With a smaller surface, Apple would be able to meet the market’s demand with the quantity of their projected supply, it would not have nearly as negative an impact as it would for the amount required for an iPhone, and replacing the screen on a smaller device would be much more difficult and demanding work (all the more reason the screen be more durable than ever).

Smart Watch Technology In The Industry

Currently, wearable technology provides nothing new. Smart watches can do nothing more than your smartphone. In fact, smart watches require a Bluetooth link with your smartphone. In other words, you need to have a smartphone on your person in order for your smart watch to function fully. Nothing new or disruptive has been unearthed.

There are many smart watches in existence. All of which are not driving innovation, pushing the envelope, or causing massive uproar. They’re bulky. Their battery life is ephemeral. They’re lame.

Apple Watch Technology

Apple is different. Apple learns from the mistakes of their competitors. Apple knows that getting to the market with a compelling product is much more worthwhile than getting to the market first with a lifeless product.

In August of 2011, Apple filed an application with the U.S. Patent and Trademark Office, which described a “Bi-stable spring with flexible display.” Below is the Apple prototype for this invention:

(click to enlarge)

Source: USPTO

Essentially, this is a band that conforms to a user’s wrist by “slapping it on.” Similar to the idea of those wrist bands children play with, Apple’s iWatch could sport a similar feature. This feature would abolish all clips, hooks, or otherwise “troubling” features of current watches.

Taken from the patent application, Apple describes this ‘slap wrap’ feature as,

The most recent widespread use of such a device was the slap bracelet, also called the slap wrap. The slap bracelet consists of layered flexible steel bands sealed within a fabric cover. Typical slap bracelets are roughly one inch in width by nine inches in length. In a first equilibrium position they can be flat. The second equilibrium is typically reached by slapping the flat embodiment across the wrist, at which point the bracelet curls around the wrist and stays relatively secure in a roughly circular position. The slap bracelet has been used primarily as a decorative bracelet; however, other uses have included for example keeping a pant leg away from a bike chain, or even using a slap bracelet covered with reflective tape for providing increased visibility for pedestrians and bikers at night. Perhaps most usefully it is quite easy to wrap around a wrist or leg, and stays conveniently in place

More images within the patent may be found here.

This is definitely new thinking. And I, of course, am assuming this patent from 2011 corresponds to the iWatch trademark in 2013.

Bottom Line

Apple has their work cut out for them. They have their iPhone 6 in prototyping with hope of solving flaws evident in the iPhone 5S and 5C. Apple is hoping to tap into an entirely new device category, too.

Apple is anticipating the experience of releasing an iWatch wearable to be tantamount to their iPad. That is, an experience where, once released, the market goes crazy – sleeping outside retail stores before opening day.

The iWatch will hype Apple stock. The argument all are deferring to (one that I included in this article), “Remember when everyone thought the iPad was ridiculous? Unnecessary? A waste?” is the prominent argument existing which claims the iWatch will be successful. There are few arguments with basis of technology, capability, or innovation. In order for Apple to lead the market down this new category, they must push the innovation far beyond their competitors.

I have numerous qualms about current watch technology – that it is not advanced enough to disrupt the market. The market, however, has experienced the tablet reformation with the iPad. So, unequivocally, the market will hold Apple to the same expectations with the iWatch. In doing so, Apple stock will increase in value due to a tremendous amount of hype.

I make no claims for or against the actual effect of Apple’s iWatch itself aside from saying it has potential. I claim that the hype of the product will provoke a long increase in Apple stock. And, I do think Apple will release this wearable product in late 2014 to early 2015.

With a year horizon, I rate Apple stock a buy with a long hold. There is not enough information to determine if the wearable device will outperform competition. Even so, the market will not respond accordingly. The market will ignorantly sip the kool-aid of a shiny new device in a sparkling new category. Should the iWatch do well, all the better.

Source: The Market Has Learned From The iPad

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