How can Apple excite investors beyond Q2 FY14's boring quarterly report?
Today after the market closes AAPL will report Q2 fiscal 2014 results. Expectations are for a boring (read: very profitable, but no growth) quarter. Analysts forecast $43.5 billion in revenue and $10.18 in earnings per share (EPS), which is pretty much a repeat of last year's numbers. Unless Apple surprises us with something, the focus isn't going to be on the results, or even the guidance for next quarter. Apple investors want to know what's coming next. We all want to know — what will Apple do to become a growth company again?
I'm not much of a believer in smart watches, and even if Apple was to release a cool iWatch, I don't think it would have much of an effect on the financial results. In the past I've said I would like to see Apple dive deeper into gaming by letting developers bring games to an updated Apple TV. But perhaps even more awesome would be for Apple to drastically expand its line of hardware.
The Internet of Things (IoT) is only getting started. As you'd expect when a new industry is forming, most of the cool gadgets are not made by incumbents. Apple and Google are the mobile giants. Brief side note - when I say "Google" interpret this as "Google and Samsung" since they are so closely tied to each other given Android volume share. But outside of mobile phones and tablets, the cool stuff is made by third party companies.
Sonos makes the best wireless speakers. Apple distributes a free iOS app that lets customers control their music from a mobile device. Doorbot makes a smart doorbell with built-in camera so you know who's at your front door (even if you're away). Guess what? They have a freely downloadable app in the App Store. Nest makes a smart thermostat. The Nest team is made up of ex-Apple folks. Nest has a free app for iOS. Is this starting to sound repetitive? All of these awesome gadgets are enabled by mobile platforms like iOS but Apple makes no money from them.
Nest was acquired by Google last quarter for $3.2 billion. I don't think this is going to turn out to be an isolated event. Google is probably pushing further into our homes. I'd like to see Apple do the same.
Apple is among the best in the world when it comes to electronics hardware design and manufacturing. I'd like to see Apple dramatically expand what it offers. I think the best way forward is via acquisition and internal development.
If Apple built Sonos-quality wireless speakers I'd probably buy Apple's stuff. If Apple made a smart thermostat or a smart doorbell, I'd probably buy it too. If Apple controlled everything the integration would be better. My iPhone could prompt me to update the software in any Apple-made gadget that I run. My doorbell could play a chime through my phone, computer, or wireless speakers. Video images for security purposes could be locally processed in a Time Capsule and uploaded to iCloud in some cases.
I don't want this to sound like some crazy scheme where Apple has massive growth by getting into the market of selling doorbells, speakers or thermostats. I'm hoping to communicate a larger point. I think the Internet of Things will involve a big opportunity for old things (that are not networked) to be replaced by new things (that are connected). There is probably a subset of those things that Apple should go after to give users the best possible experience. That subset should, hopefully, include hardware that will be replaced often enough that it will help Apple's bottom line. At least that's my view as a shareholder.
If Apple doesn't want to or see the need to get into more diverse hardware, what they're doing with CarPlay could also be expanded. That way an Apple experience — potentially the best experience — could be made available on non-Apple hardware. There could be licensing fees involved in that, but it would also increase the overall value of Apple's iPhone and iPad as the nexus for the Internet of Things done best.
Either way, in my mind, the increasing interconnectivity of hardware is an opportunity for Apple. They already have a strong position in mobile. Now it's time to extend their range to include hardware that Apple's mobile devices will serve as the remote control (or dashboard) for.