Bank of America Senior IT Hardware Analyst Wamsi Mohan joins Yahoo Finance Live to discuss what Apple’s iPhone 14 camera shaking means for future launches, resolving the issue through software changes, and the consumer demand for the iPhone despite supply chain issues and inflation.
JULIE HYMAN: Apple's new iPhone 14 just released. It's already facing a few bugs. Users reported the camera on the 14 Pro shakes when using certain third party apps. Apple responded to the glitch, saying it's aware of the problem and plans to release a fix next week.
This as more new hardware, including the new generation of AirPods, are set to hit stores this week as well. For more on what's ahead for Apple during this release period, let's bring in Bank of America Senior IT Hardware Analyst Wamsi Mohan. Good to see you, Wamsi.
As we look at Apple and the early demand indications, I do want to ask you about the camera shaking for just a moment. I mean, this is not atypical, right, that it comes out with a new product, there are some things that don't necessarily work as expected. This one seems like a little bit bigger than most that we've seen for Apple. How are you viewing it?
WAMSI MOHAN: Hi, good morning, Julie. Thanks for having me. Look, I think that when you look at Apple and the complexity of what they have had to face in the face of pandemic, and shutdown, and wars, it's hard to run an efficient supply chain. It's hard to run a hardware engineering design team when people are working remotely.
I'm sure that contributed to part of the challenges in design, and implementation, and testing. And having been a hardware engineer in my past life, I sort of feel that it's extremely difficult to put out products of such high quality and caliber in the face of all these constraints. So, look, Apple is excellent at sort of working through all of these and has shown some real resiliency.
At the same time, I think we have to acknowledge that the working environment has been very, very challenging, especially for hardware engineers. So when you think about challenges like this-- I mean, we have seen in the past Apple go through some of these. I mean, there was antennagate, if you remember a long time ago now.
But there were some hardware challenges that Apple ultimately had to fix via non-traditional means. Some things were attributable to user error. I mean, there's been a whole host of different things that have happened over the years.
This one, obviously, it's not ideal. It was a big change in the specs as it pertains to hardware in terms of the camera itself. And I think that creates some opportunity for things to go wrong. Now, the good news for Apple is that, as you put this in the hands of millions of users, you get feedback very, very quickly Apple's very quick to either engineer a software or a hardware fix if needed, right?
And hopefully this is a software fix, which would ultimately mean that you use some of the software tools that Apple has at its disposal. And this is really pertinent to third party apps, not really Apple's own. So you know that there is a way to get stability within the camera, some of this optical image stabilization features that might be causing jitter with third party apps. It's about working those kinks out. So it's just another step in the complexity of design, which Apple is very good at. And I think that they'll come out with a resolution fairly quickly.
BRAD SMITH: OK, so, Wamsi, it sounds like you're giving Apple an interim pass, if you will, for this early rollout. But help us add a little bit of context to this too. Because for some of the past rollouts of hardware, especially phones, handheld devices, that have had issues once they're rolled out even to the public market, and they're able to get their hands on it, and then you learn about some of the defects-- I think about Samsung and their foldable camera-- or their foldable phone a couple of years back.
What is the likelihood that a device can bounce back thereafter? Because these devices have been marketed based on the power of the camera.
WAMSI MOHAN: Yeah, no, absolutely, Brad. Look, I think that it's a very different situation from what I would call Samsung's issues with either battery or with various-- you pointed out a separate issue. Look, I think that for Apple, the key question is, is this a solution that can be attained through software changes?
And the interesting thing is that Apple has so much flexibility because of its own integrated hardware and software design capabilities that there usually is some sort of a software workaround. Would it result in things being a bit slower, perhaps, or would it add another layer of complexity to app developers? Yeah, absolutely. I mean, that can happen.
But the way I see it, because Apple's own apps can work seamlessly with this, I think that there is a way for other software apps to be modified to work also seamlessly with the camera. But it's going to probably take a little bit of time. I think they're expecting to roll some updates out potentially in a week or so.
So we will stay tuned. But my guess is that they'll be able to fix this with a software solution, which is what would be needed. Clearly, there are times when you can fix everything in software. We don't anticipate that for this specific problem, given that the camera works with Apple's own apps. But if that were to be the case. I think that creates a much larger problem.
Now, it's really on a case by case basis. And I think for the sort of errors that we're hearing about that pop up with this particular set of OIS sensors, I think that this is something that could be fixed within software.
JULIE HYMAN: So let's take a step back, then, and talk about your forecast for how the company is going to do with these new iPhone models. It sounds like you expect some pretty long lead times, which would seem to imply strong demand for these products.
WAMSI MOHAN: Yeah, no, absolutely. We track lead times globally. We look at it through various carriers and various regions. And the early data so far-- and remember, it's pretty early-- is really pointing to strength of the Pro and the Pro Max models relative to the 14. And the Plus, obviously, is not in people's hands yet.
Now, when you think about what that really implies for the story of the stock, it just means that it goes to the point of, look, the high end consumer remains very resilient. People are willing to pay the extra $400 or $500 for the Pro and Pro Max relative to the baseline model.
Apple this year did something interesting, which is, did not update the 14 Pro-- excuse me, the 14-- with newer silicon relative to the Pro Max or the Pros. And so there is more of a product differentiation this year and I think that might contribute to some of the increased demand for the Pro and the Pro Max, which helps them ultimately have a higher ASP.
Now, at the same time, it's important to recognize that the 14 itself has got very low lead times, as in it's very readily available, which would mean that the demand for the 14 is not quite as strong. So you only really benefit from the incremental shift from those who are going from buying a 14 to a Pro or a Pro Max. At the same time, you have to adjust for the weaker demand of the baseline model.
Now, all that said, what's really important here is that I think the iPhones have become less of a boom-bust cycle. You used to go to a point in time where the iPhone, because of the larger screen, you sold 230 million iPhones, and the following year, you sold 200 million iPhones. We just don't see the environment changing in that manner anymore.
We think that the iPhones are pretty steady, somewhere around 230 million, plus-minus, depending on the cycle. But it's not really taking 30 40 million-sized swings anymore. And what that means for the stock is really that the earnings volatility for Apple is a lot lower than what it has been historically, which, in valuation terms, would mean that it should command a higher multiple.
So I think we're talking about a lot of detail around the phones, but, ultimately, this is a story that actually has morphed from a pure iPhone story, call it even five years ago, to one of much more stability in its earnings stream.
BRAD SMITH: Wamsi, while you were speaking, I looked up the model that I actually have-- I thought I heard a 13 Pro Max. I don't. I have a 12 Pro Max. So I guess I'm due for an upgrade here. And I'll see and get back to you on my experience if I get the 14 Pro Max. Bank of America Senior IT Hardware Analyst Wamsi Mohan, thanks so much.