discountopinion

I am trying to make lemonade out the lemons that Trump gave us.
Ok Looking at the bright side of the chaos…

Firstly - devices may be 80% of revenue but only about half of net profits. Services division is the best growing with 75% gross margin. Unlikely that tariffs will be as impactful to the services? Also potentially it may be possible to fairly quickly pivot services into a regional revenue model thus having the services “produced” in a local region and avoiding tariffs.

Apple exec team has one of the best logistics persons in the world - Tim Cook. Highly unlikely that Apple has not war gamed any and all scenarios around tariffs and Trump as the tariffs are not a surprise and have been telegraphed loudly and for a long time by the US govt. 

The stock market kneejerk reaction is risk off which is not based on individual company fundamentals or ability to weather the storm. 

Apple has a massive cash pile dedicated to share buybacks which will now achieve a lot more with the same cash. Apple is likely calmly retiring shares at a steep discount and lowering the EPS impact that tariffs may introduce.

Apple has a very tariff sensitive manufacturing strategy though compared to say Tesla that sources most of its components at its local manufacturing hubs in the US, Europe and China.

Apple has a high profile commitment to invest in the US which may now be at risk and Trump has used it as a case study of how his America First strategy is winning. Likely this gives Tim Cook some influence in agreeing better terms for Apple as a Presidential exception and Trump can sell it as similar to the Gold VIsa for 5 million USD.. i.e. invest X in the US and become tariff exempt.

I dont know if China considers the Apple phones manufactured in China to be caught by the tariffs. If not and the above deal with Trump works then the 2 largest markets for Apple are recovered and Europe will likely consider the Apple products as manufactured in China or India (?).

Chaos makes business hard to predict and there are many risks. There are some truisms though in classic thinking - China represents chaos as both danger and opportunity. Notable investors like Baron Rothschild paraphrased “on the sound of gunfire - invest”.

The company coming best out of all of this will be Berkshire Hathaway with 300 Billion USD of dry powder.

Tim Cook has excellent access to Trump so likely Apple will be an example used in a soon to come tariff war.

Hi Dewme,

I see your points and my points were not articulated well.

Amazon seems to be abandoning Alexa and giving up on the ecosystem since it was an initial loss leader for a way to shop with Amazon that never appeared. Amazon will not continue to subsidize the Alexa ecosystem forever.

the current use cases for both Siri and Alexa merely scratches the surface of what voice based computing can offer. Children in particular love having conversations and learning. People with vision impairment benefit from HomePods a lot.

i didn’t mean for apple to aim for the price point of the cheap echo dots, I meant for apple to lean in on device local ai above and beyond what Alexa and current Siri are capable of.

As home automation becomes ever more intrusive in our lives then apples privacy ethos is a great selling point. Amazon is terrible.

the cost and price point will be determined by the capabilities of the next Apple Watch Ultra soc.

dewme said:

discountopinion said:

Ideally Apple will want to do a platform play and invest to also kick Alexa in the teeth. The Echo Dots of this world would then be painfully obsolete. If Apple can do a software only upgrade of AI capability through some magic then they will win the internet. There is a slight chance they can make it happen as current Siri models have a larger proportion of on device processing.

The Echo Dots are sub $50 USD devices that get heavily discounted during Amazon’s sales events. I don’t see Apple targeting anything in that price range and sales volume. They are ubiquitous, cheap, work well, have voice recognition that puts Siri to shame, and could probably be sold in the checkout line in grocery stores. I use mine for turning on/off smart lights and smart plugs, in-house intercom, getting weather updates, setting alarms and timers, monitoring interior temperature, and automation. None of these things require more horsepower than what’s already in them. Some of the other more advanced capabilities of the Echo Dot, including integration with alarm systems using sound recognition, serving as mesh points on certain brand WiFi systems, and in the larger models, halfway decent audio playback.

Even the cheapest and oldest Dots are more than enough for listening to radio quality music, sports broadcasts, talk shows, podcasts, etc., especially while working in the garage or shed. I wouldn’t dare put an HomePod in my garage due to living in a fairly challenging 4-season climate with snow, rain, cold, high humidity, and dust always present, regardless of the much higher price and lower functionality of Apple’s smart speakers.  Even older Echo Dot models have been updated to support Thread and Matter. How many older Apple devices are being backfitted with Thread and Matter support? 

There’s no doubt that a 20-ton excavator would kick in the teeth of a hand shovel. But what’s the point? The Echo Dot and pretty much every current Echo device is way too low of a bar for Apple to aim for. Apple also needs to figure out how to monetize AI on some of these devices. Unlike Amazon, Apple has far more options available to take advantage of, like its customer centric ecosystem. Apple has clearly set its targets appropriately and is executing on a plan that is at least a decade in process. 

HomePod upgrade path for AI is sorely needed as Siri for HomePod is just awful at this stage. I have observed a deterioration over the past updates of OS or maybe the HomePod 2's have worse microphones. Frustrating part is that there are no diagnostics mechanisms that easily enable a customer to understand why there are challenges.

HomePod compute will likely follow Apple Watch Ultra 3 SoC upgrade to build volume for the SoC. The mini may not benefit in the same way unless as previous commentators have mentioned that AI on HomePod can be more lightweight due to fewer use cases needed support.

Ideally Apple will want to do a platform play and invest to also kick Alexa in the teeth. The Echo Dots of this world would then be painfully obsolete. If Apple can do a software only upgrade of AI capability through some magic then they will win the internet. There is a slight chance they can make it happen as current Siri models have a larger proportion of on device processing.

As a minimum a software only upgrade of Siri will defer more back to the Private Cloud Compute again to lean in on larger models for the older HomePods and then a new series HomePod 3 will be fully on device. I would revert back to the extra latency again for proper fidelity Siri on older devices rather than the current issues.

Completely blown away with the measured and savvy AI strategy from Apple. Rather than getting into the Buy all the Nvidia cards war of attrition they are doing things a lot smarter. Much of the inference "Capex" will be borne by the customer since inference is on device. Brilliant PCC stuff and smart pluggable OpenAI integration that can be swapped out if needed in the future.

I also think their image generation models are careful as to not alienate their key partners in the creative space, while providing useful things for all consumer normies.

Big letdown was no explicit reveal on HomePod Siri which is frankly lobotomised at this stage. 

Overall I see mass device upgrades in the future as people want to benefit from all the benefits. Math Notes is incredible. 

I am thinking that Apple may have some form of optionality in models they use for M1, 2, 3 and 4 given that their RAM config and NPU spec varies a lot.