Brian Colello: Overall, Apple had a successful product launch. We thought the introduction was flashy. It showed innovative new features: two larger-screen phones, Apple Pay mobile payment system, and Apple Watch. It puts to rest a lot of the concerns that Apple is no longer innovating.
We weren't surprised by a lot of the news about the two larger-screen phones; it pretty much came in as expected. The only surprise was that the sapphire screen wasn't involved. But it makes sense because sapphire is a harder-to-make material. It is more expensive; it's more suitable for watch than a phone. That wasn't really a big deal.
Pricing came in pretty much where we expected--the larger 5.5-inch screen phone was $100 more than the regular 4.7-inch screen. It hits as expected. We think they are going to have a terrific iPhone 6 launch in the fall. Expectations are already extremely high for the iPhone 6, but Apple has a good chance to meet them. We do take a little bit of caution in terms of getting the 65 million to 70 million units in the December quarter. There might be some projections [that high] out there; we remain at 60 million units.
Apple Pay is really interesting. It's a nice service. We are very pleased that they talked about the security features of it, in particular, especially with the iCloud breach last week. That's a little bit of apples and oranges, quite frankly. I think iCloud is less secure than the Secure Enclave and the Touch ID that they use on the device.
Apple Pay--we don't quite know how to manage the financial implications of every single transaction and what sort of percentage they get. It's much more important in terms of switching costs: By users accepting the service, using it over time, getting more comfortable with it, they are much more likely to stick with Apple and to buy future iPhones. We think that's how they are going to monetize this service over time. Maybe it'll get incremental revenue in the long term, but for a lot of Apple's services, it's much more important that it creates customer loyalty, improves the user experience, and allows Apple to sell more iPhones. That's really the key to monetizing it over time.
We think the Apple Watch is compelling. It looks like a cool, fashionable device. It has more functionality than we thought it had. The price of $349 seems reasonable. We are concerned about the rest of the price. We are concerned about how high the high-end Watch edition will be. We are also concerned about the price of the wristbands. If people have to buy three or four bands to go with it, does that make the cost too prohibitive for people to adopt it? We will learn more about that in early 2015, when the product comes out.
There were rumors that [the watch] was going to be pushed out to 2015 and not make it in time for the holidays. We're not surprised by that; it's much more important that Apple gets it right, than Apple gets it early. So, we are OK with Apple taking its time to deliver a watch. It's very important that this product comes off clean and the company executes quite well.
Our other main concern about the watch is battery life. The product has more features than what we thought it would. But at the same time, it might be a trade-off with battery life. They didn't disclose how long it will last. We fear it might be 24 hours; hopefully it's not much worse than that. Even a day or two [of battery life] might be less than what people are expecting. That might diminish whether it's a compelling product or not. So we'll have to see the trade-off between what's included on the device versus how long [the battery] will last. That is one of the major concerns about the product at this point.
But longer term, it's a great start. We think this product will improve over time. It will have more developer support, more native apps. Apple will understand the use case a lot more and will be able to improve it accordingly. They'll probably get some costs savings and component savings over time. It's going to be a successful product category. It just remains to be seen how well adopted it will be early on.
Overall, it was a successful launch. We have two new iPhones, the Apple Watch, Apple Pay; we think those are all innovative services and products that will be successful. We're just still a little cautious on valuation. There are tremendous expectations baked in to Apple stock at this point: a very strong iPhone 6 launch on the opening weekend, very strong sales for the December quarter. So we have high hopes for Apple and the iPhone launch. We fear that the Street is a little bit too optimistic at this point, so we would exhibit some caution right here. If you were a buyer at this point, you have to have extremely high hopes, and we'd be a little hesitant to make that sort of call.
