Apple 2.0

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Gene Munster: The iPhone, iPad, Apple TV and beyond

November 12, 2013: 4:12 PM ET

In New York, the dean of Apple analysts talks mobile, wearables, smart homes and more.

Munster at BI's Ignition. Photo: PED

Munster at BI's Ignition conference. Photo: PED

FORTUNE -- Except for a few snarky comments Henry Blodget made in his opening presentation Tuesday about what Tim Cook needs to do to stay competitive in China, the only session devoted to Apple (AAPL) at Business Insider's three-day Ignition: Future of Digital conference was Gene Munster's 15-minute after-lunch talk titled "The State of Apple."

Among the points he made:

  • iPhone unit sales grew 23% over the past two quarters compared with 47% for the overall market. "The reality is," Munster told Ignition attendees, "the iPhone is growing slower than market rates because it's priced too high for emerging markets."
  • Munster expects Apple to introduce a larger iPhone (5-inch) in the middle of next year, and although iPhone pricing hasn't changed over the past year (except for the iPhone 4) he expects Apple will soon start lowering prices for older phones in emerging markets.
  • The iPad represents 25% of Apple's revenue, but it's been struggling lately because innovation is more difficult on tablets and because prices in this market are particularly sensitive. (Unlike iPhones, iPads are not subsidized by carriers.)
  • Munster believes Apple is working on a larger-screen iPad for 2015. The  market is too big (320 million units next year, by one estimate), he says, for Apple not to expand its offerings. "We believe that two sizes don't fit all." Also, for branding purposes, an iPad Pro would line up with the MacBook Pro.
  • Munster described Apple television as one of his favorite topics. "It's an understatement that I've been wrong about the timing of the TV," he deadpanned, noting that he first predicted that it would arrive in 2012 (or was it 2011?). But he's not standing down. He believes an Apple television set is going to happen, and that it will arrive in 2014.
  • In what was almost a parody of a tiny-sample Piper Jaffray survey, Munster showed a video of man-on-the-street interviews with 14 consumers, in which seven said they would buy an Apple television, five said no and two said maybe. In a larger survey this summer, the 50% who said they would be interested in buying an iTV fell to 15% when they were told that the set might cost $1,700.
  • By Munster's calculation, a 15% share of the connected TV market would add 18% to Apple's overall revenues. "That's why we think Apple will do it."
  • He also believes an iWatch is coming in 2014, not because he's picking up signals from Asian supplier, but because it fits with what Tim Cook has said about new product categories and his "intense interest" in the watch. Recent hires from places like FuelBand "wouldn't be coming to Apple if there weren't something going on with a watch," Munster says.
  • Tellingly, of 13 consumers interviewed in a second video, only one said he'd be interested in buying a watch from Apple. In a broader survey, 12% of iPhone owners said they might buy an iWatch, a number that fell to 6% when Android users were included. Munster estimates that if Apple were to sell 5 to 10 million units, that would add 1% to 2% to Apple's annual revenues.
  • Munster also believes TouchID will eventually be exported to Passbook, Apple's fumbling attempt to create a digital wallet. "The wallet is going to change," he said. "It's not about getting your credit card out faster than your phone. It's about not waiting in line. It's about loyalty programs. It's about receipt management. Apple needs to be there."
  • But Passbook -- which launched in 2012 -- has not taken off. It only has 37 applications in it, "Which is pathetic," says Munster. "If anyone can grab me afterward and explain what they love about their Passbook app, I would love to hear it because I'm struggling to find out what that is."
  • Assuming Apple can grow a digital wallet business as big as PayPal's, about $9 billion a year, that would add about 4.5% to Apple's revenues.
  • When Munster asked his people on the street what they'd like Apple to do next, one of the themes that came up was home automation. Possible applications include smart TVs, smart appliances and smart thermostats -- like ex-Apple SVP Tony Fadell's Nest product. It's a big market. There are 132 million homes in the U.S. If Apple could get 20% of homeowners to spend $500 a year, that would add $13 billion to Apple's top line. "That's a decent size market," says Munster, who, not surprisingly, sees iTV as the center of the Apple smart home.
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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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