Markman Capital Insight

Apple dials up trouble for iPhone

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Apple (AAPL) shareholders should be worried. It used to be a button-down, tight-lipped secretive company. Those days are gone. It’s now so transparent it’s verging on the pathetic.

Maybe you’ve heard the news. According to the Wall Street Journal, with the exception of removing the headphone jack, the iPhone 7, due in September, will be a rehash of the iPhone 6 designs the company has been showing for the past two years.

While taking away a standardized headphone jack has whipped some Apple devotees into a hissy fit, that’s not why investors should worry. It’s the other part of the controlled news leak that’s bothersome. In addition to maintaining the iPhone 6 design and removing the 3.5mm headphone jack for better water-proofing, the Journal argues that iPhone 8, due in September 2017, is going to be absolutely, can’t-live-without awesome.

Take a sober moment and think about that. Through a controlled leak to the most important business paper in the world, Apple is telling customers and analysts the next iPhone is going to be a disappointment, something you can and should live without because the one after that, iPhone 8, is going to be amazing. They’re lowering expectations, perhaps drastically so. They’re also setting up a comeback narrative with the magical iPhone 8. There’s just one big problem: That device is more than a year away, a lifetime in technology years.

So in the interim Apple is likely to talk more about how great its services business is. It’s true Apple Music has swollen to 15 million paid subscribers – although it would be interesting to see just how many of those new customers simply forgot to tell Apple they wanted to cancel after the free trial period. Unlike the opt-in policy Apple is using for its planned-developer subscription model, it uses an opt-out model for its own services. So if you forget to tell them to cancel, you’re stuck, at least for a month. Apple may even talk about how customers have been drawn to its phone subscriptions. You know, the plans where Apple loans customers money to buy its phones every year? It’s sort of like bribing your kids with pizza if they’ll spend the afternoon with Grandma. You get the desired outcome, but it costs.

Of course, we’re being promised iPhone 8 is going to be worth the wait. From all of the controlled leaks , it will have a beautiful, curved super-AMOLED screen with a glass back and sturdy metal frame. It should have the latest chipsets, fastest memory on the market and wireless charging. It will be a specification beast. If you’re reading through the list of goodies and thinking, finally Apple is stepping up its game, well, there’s a slight problem. We know the gorgeous curved screen is going to be made by Samsung, and there will probably superfast memory as well.

The thing is that Samsung already debuted that snappy kit in its own well-received Galaxy Edge lineup – in 2015. In 2016, it added waterproofing and Samsung didn’t have to remove the headphone jack. In fact, the wonder device Apple is leaking for “8″ – the one you’re not going to be able to live without – sounds a lot like those Samsungs. Who knows, by the fall of 2017 it might sound like the latest Xiaomis, Hauweis and LGs too.

The bottom line is that Apple is trying to create a narrative that no longer reflects reality. Depressing iPhone 7 sales to create favorable comparisons for IPhone 8 will not change the fact the smartphone market is saturated. Nor will it change the fact that software, not hardware, is likely to play a bigger role in future sales. Apple is missing the next phase in mobile right now, and it doesn’t want investors to realize until it’s too late.

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About Jon Markman:  A pioneer in the development of stock-rating systems and screening software, Jon Markman is co-inventor on two Microsoft patents and author of the bestselling books The New Day Trader Advantage, Swing Trading and Online Investing, as well as the annotated edition of Reminiscences of a Stock Operator.  He was portfolio manager and senior investment strategist at a multi-strategy hedge fund from 2002 to 2005; managing editor and columnist at CNBC on MSN Money from 1997 to 2002; and an editor, investments columnist and investigative reporter at the Los Angeles Times from 1984 to 1997.

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