October 19, 2020 BARRON’S 31
TECH TRADER
One Apple bull says Wall Street is underestimating
the impact of anaging iPhone installed base.
The iPhone 12 Is So
Important, AT&T
Will Be Giving It Away
A
pplelast week held
one of the most antic-
ipated product launch
events of all time: the
debut of the iPhone
- It’s the first gener-
ation of Apple devices
built for the new 5G wireless net-
works now rolling out around the
world.Barron’shas been writing about
the pending arrival of this phone for
at least two years, and we’ve been ana-
lyzing 5G’s potential for even longer
than that.
Handset makers and wireless carri-
ers are betting billions of dollars that
new networks and new phones will
reinvigorate smartphone demand. But
the hype is thick, and the situation
demands a reality check. Here are my
10 takeaways from the iPhone 12
launch.
There were no surprises:Inthe
post Steve Jobs-era, Apple (ticker:
AAPL) has become the leakiest com-
pany on Earth. The details were ex-
actly as the iPundits had predicted:
four new models, including the $699
5.4-inch iPhone 12 Mini, the $799 6.1-
inch iPhone 12, the $999 6.1-inch
iPhone Pro, and $1,099 6.7-inch
iPhone 12 Pro Max, which has a
screen about the size of a garage door.
5G won’t matter that much ...:5G
comes in multiple flavors. In most
places, we’re talking about “sub-6”
networks, or frequencies under 6
gigahertz. Compared to prior wireless
standards, 5G will have lower la-
tency—the time it takes for signals to
go back and forth across the net-
work—which is good for gamers. Cell
sites can handle many more devices at
once, which cures congestion. But
they’re only modestly faster than LTE,
and in some situations, no faster at all.
...with a few exceptions: For su-
perfast 5G, you need “millimeter
wave” networks. At the iPhone 12
launch,Verizon Communications
(VZ) CEO Hans Vestberg talked up
the company’s “ultra wideband net-
work,” which is the same thing. In
ideal conditions, he says, you can get
blazing fast 4 gigabits-per-second
download speeds. But millimeter wave
networks require high cell-site den-
sity. So, for now, the networks will
only be found in places where large
groups congregate, including business
districts, stadiums, and campuses.
Consumers buying the new phones
expecting faster speeds could be dis-
appointed. “The uncomfortable reality
is that 5G in any spectrum band other
than millimeter wave is basically just
[4G] with a new name,” says Craig
Moffett, telecom analyst with Moffett-
Nathanson.
iPhones will still sell well: Mof-
fett is no believer in the bullish “su-
percycle” theory, but even he says
there may be pent-up demand for up-
grades and replacements: “There are a
lot of old phones out there.” Morgan
Stanley analyst Katy Huberty, a seri-
ous Apple bull, contends other ana-
lysts are underestimating the impact
of an aging installed base. Store shut-
downs and the economic impact of
Covid-19 have pushed iPhone replace-
ment cycles well beyond four years,
“causing forward growth to be mis-
modeled by the Street,” she wrote in a
research note this past week.
Battery challenges: Almost in
passing, Apple said its new phones
will have a sophisticated algorithm to
push speeds down to 4G when 5G’s
not required, specifically to preserve
battery life. In other words, you can
almost guarantee that there are going
to be 5G-related complaints about
iPhone batteries.
Sometimes, less is less: Apple
isn’t going to include the usual ear-
buds and power bricks in the box,
allegedly to be greener, but really to
reduce the cost of goods sold (another
kind of greener). But you do get a USB
3-to-lightning port cable, which makes
it easier to charge your phone from
your Mac. The new strategy should
drive adoption of wireless charging
and boost sales of Apple audio gear.
Something for nothing: One of
the few surprises on launch day was
the aggressive upgrade push from
carriersAT&T(T), Verizon, and later,
T-Mobile US. (TMUS). Vestberg de-
clared during the launch event that
“5G just got real”—but it looks like a
price war among carriers is also get-
ting real. AT&T immediately an-
nounced that new or existing custom-
ers can get an iPhone 12 for free, by
trading in any phone worth $95 or
more and committing to an AT&T
unlimited plan. T-Mobile has since
matched the offer. Verizon has a simi-
lar deal for new customers, but exist-
ing customers will have to chip in at
least $15 a month for two years to get
the phone. Moffett calls it “a pre-emp-
tive race to the bottom,” with AT&T,
after trade-in, subsidizing the phones
by about $600 apiece. Wolfe Research
analyst Jeff Kvaal says these kind of
deals typically arrive late in the prod-
uct life cycle—not on launch—which
might reflect demand worries.
Where are the apps?: Pressed for
answers about 5G’s real benefits, you
often get a lecture about how no one
saw Airbnb, Uber, or DoorDash com-
ing when 4G first rolled out. Killer 5G
apps are coming, the bulls say. But no
one can say what they are.
It’s a camera: Apple keeps ratchet-
ing up—and touting—the photo-
graphic prowess of its phones. These
are now effectively high-end cameras
you can use to make calls, not phones
you can use to take snapshots. And
none of that needs 5G, especially when
many of us are quarantined at home
with reliable Wi-Fi networks.
The quarter that time forgot:
Apple had a better June quarter than
anyone expected, but the September
quarter report on Oct. 29 could be
messy. The year-ago period included a
few weeks of iPhone 11 shipments, but
a month-long delay for the iPhone 12
ended that possibility this time
around. Get ready for lots of adjust-
ments from Wall Street.B
By Eric J. Savitz
The most surprising part of the new iPhone
12 is how much wireless carriers want you to
have one. The carriers have generous, even
free, deals for the new phone. It’s “a pre-
emptive race to the bottom,” says analyst
Craig Moffett.
Courtesy of Apple