Summary
Augmented reality will be a critical technology.
Apple just released a developers tool ARKit.
We examine how will this will drive revenue.
Investors need to think about the future of Apple (AAPL). Since we see no surety for any new super hardware products coming down the pike, we need to look to the current product line for growth, or at very least to maintain its current cash generating position.
Apple has weathered the slowing of smartphone sales growth by continuing to charge premium prices for its product (against the predictions of many naysayers). It can do this for two critical reasons.
The design and build quality of the products, and it’s always on the cutting edge of new technology.
For these reasons, customers feel that there is value in the iconic product.
Big question
How will Apple maintain leadership in new technologies?
In the previous post on this topic, I explained Apple’s new software developers’ tool for augmented reality, the ARKit. I went into detail on what the API, or tool kit, provides for developers, and why it is such an important breakthrough.
First, what is AR (for those who missed the previous post).
Essentially, AR is the ability of a visual system to put virtual, computer generated objects into a view of the real world.
These objects or models may be static or dynamic. They may be isolated or interactive.
,
,
Revenue
Revolutionary is all fine and dandy, but the investor wants to know how a free service is going to drive revenue. The answer to that is two-fold:
Hardware and software.
Hardware
1- iPhones
Let’s make no bones about this, when iOS 11 is released in September, it will enable hundreds of millions of iPhones and iPads to be AR viewers, and it will instantly become the largest AR platform on earth. Additionally, developers will have had the toolkit for three months, so there should be a rash of new apps. The integration with Unity and Unreal gaming engines will greatly accelerate the development of new games, so by the new year there will most likely be several high level games available to add substance to the slew of simplistic ones that will come right out of the gate.
All this will drive demand for iPhones that will include both current owners trading up and switchers looking for the new experience. My feeling is that switchers will provide an interesting phenomenon. Typically, the holiday season provides a huge sales bump, and the following quarters tail off in sales. I believe that there will be many people who will be moved to switch only after seeing the technology personally on friends’ iPhones. This will lead to greater adoption in the winter quarter than is usual. This will be strengthened by a build up in China, which is not affected by Christmas.
In many respects, Apple has lost its differentiation, particularly in China. Fans of the iPhone do see benefits, but there is no really compelling, highly visible factor that differentiates. The AR capabilities will be strong, obvious, and desirable enough to drive more sales there.
Important factors
The user will not need any specialized hardware, only an iPhone or iPad with a sufficiently advanced processor. (An A7 or A8 will work but will not support the more advanced World Tracking feature, just the basic tracking. So the 5s and 6 iPhone models will be limited.)
The new AR features will almost assuredly drive an even greater upgrade push for this year’s new models. It is commonly thought that Apple will release three new models this year: the 7s, 7s Plus, and a third that some call the iPhone 8.
The question is – what will be the differentiators? My guess is that there will be several special features, but one of them will be that the iPhone 8 will be billed as a super advanced AR and AI phone. To promote this, there will be an extra processor.
Special chip
Typically, Apple has a new processor each year that is significantly more powerful than its predecessor. This will be the A11 chip. My guess is that, along with the iPhone 7s/Plus, the iPhone 8 will sport the A11, but also a separate processor – a Neural Engine chip.
In May, Bloomberg reported on a possible AI processor called Neural Engine. They wrote:
Apple’s operating systems and software features would integrate with devices that include the chip. For example, Apple has considered offloading facial recognition in the photos application, some parts of speech recognition, and the iPhone’s predictive keyboard to the chip, the person said. Apple also plans to offer developer access to the chip so third-party apps can also offload artificial intelligence-related tasks, the person said.
The interesting thing here is that at WWDC, Apple announced, alongside the ARKit, another API called MLKit – for Machine Learning. The system is to help with many AI tasks, particularly neural network and Deep Learningsystems that would benefit from this type of chip. If there really is a special iPhone 8, then this would be a strong feature.
Camera
There already is a dual camera on the 7 Plus phone, so it is possible that this feature will move to the regular 7s this year. On the 7 Plus, the second camera is a 2x telephoto. Now, one use for dual cameras is to accurately detect distance. I am not sure if this works well if one is a telephoto and the other normal angle of view.
On the iPhone 8, however, I believe the cameras will have enhanced quality and be specifically configured to aid in AR scene recognition. This will provide better data for scene analysis, and quicker and more efficient processing.
But it is possible that a stereo camera is not necessary for ARKit to work well. Basically, the idea works as does your two eyes. With a distance between the two lenses, the view of the world is slightly shifted, and the difference is shift is proportional to the distance. Close points shift significantly more than do far points. Your brain, or the device’s processing system, can compute therefore the distance of an object by how much the two images differ.
The ARKit, however, can do the same by selecting two frames in time when the devices is moving. Due to the sensitivity of the inertial sensors, your iPhone or iPad knows precisely how far and precisely the direction it has shifted, and can stereo-optically compute point distance as well, perhaps even more accurately than a stereo camera wit just a few centimeters distance between the lenses.
Already the processing of the AR content is impressive. The system captures a still, analyzes for surfaces and lighting, provides hit detection and point distance information, then allows the user to draw virtual content into the display, and all this in real time while the i-device is in constant motion. But a Neural Engine processor and double cameras would increase the capability even further.
In any case – AR will drive strong incentives to upgrade iPhones, or switch to them.
,
,
iPad
The iPad has not done well over the last few years. Even in the last quarter, year over year sales fell significantly. But the AR demos have shown us clearly one thing. Some simple AR apps will work fine on an iPhone, but any complex interaction really needs a bigger screen.
Pokémon Go, with its limited virtual content, does not require a wide screen. But for a truly interactive game, or to view any kind of panoramic activity, an iPad is definitely superior. Check the demo at WWDC below. Skip to time 1:00 to see the actual game demo. This clearly would not work well on an smartphone,
,
Source: Seeking Alpha