Robert Muller, Enterprise Hardware Analyst at RBC Capital Markets, joined Yahoo Finance to discuss the upcoming Apple event on Nov.10 and the demand for iPhone 12 models.
SEANA SMITH: Look, if you're in the market for a new phone, you may be in luck. Apple's iPhone 12 Pro Max and iPhone 12, many are available for preorder today. For more on this, we want to bring in Robert Muller. He's an enterprise hardware analyst at RBC. And Robert, iPhone sales, they were a weak spot in Apple's earnings report.
Last week, there was some talk that consumers were waiting for this 5G cycle to upgrade their phones. How big of a success do you think the iPhone 12 lineup is going to be for Apple?
ROBERT MULLER: Yeah, overall, we're quite positive on this 5G cycle. You know, we are definitely in that supercycle camp. And not just this first year, you know, we think that over the coming years, it is really going to be a long, sustained upgrade cycle. If you look at last quarter, it was a little bit of a dead quarter for them when you have, you know, no new releases.
It's a little bit, you know, harder comp because you typically have a September uplift, you know, at least for the last week or two of the quarter. So I don't think I would look at it so much as a disappointment. People are always looking forward. It's the way that, you know, the stock gets valued.
So, you know, with this upcoming lineup, you know, we expect a pretty solid, you know, quarter coming up. It might be a little bit messy because, as we know, there's a staggered release. You know, previously before the iPhone 10, there was a staggered release, and it didn't seem to hurt them. It's a record quarter for iPhone revenue.
So we're still pretty positive. You know, it might be a little bit noisy because of supply chain considerations. But if we look out the next six, you know, nine, 12 months, we're not too concerned about the ultimate level.
ADAM SHAPIRO: And you talk about, what, 29% of iPhone users are considering 5G, or as our CEO says, 5Gee. But I got to ask you, on Monday, we get this, you know, potential new iMac. And I'm one of those people, last Sunday, I kid you not, I ordered a new iMac after eight and 1/2 years.
And then they announced this thing, and now I'm thinking, cancel the order, because I may not get the old version or the Intel chip. It wasn't come till December, should I wait for the new iMac? How long with the Apple chip? I mean, are they going to be people like me who may screw things up for Apple?
ROBERT MULLER: I don't think so. I think that you're going to have just a regular upgrade cycle. I think most people probably aren't going to tell the difference between, you know, the Apple-based chip or the Intel chip. Yes, there could be improved performance, but that would be really any annual upgrade would have better performance. You know, maybe a tighter ecosystem in terms of app development on the, you know, on the Mac having the same architecture between the Mac and the phone and the iPad.
But I think, for most people, you're not going to really notice it. Maybe, you know, there's a little bit of a slowdown, people might change their orders, you know, maybe upgrade or wait for discounts. But, you know, all in all, I think that, you know, the most important thing is having people who upgrade, to have people that stay in that ecosystem and continue to buy, not just this current year, but, you know, four or five years from now when you're looking to upgrade to a new computer.
SEANA SMITH: Robert, what about this quarter? Because Apple didn't provide guidance for it. And we know the holiday season is so important for Apple. What do you think it's going to look like for them?
ROBERT MULLER: So the hard thing is because of supply chain considerations, which I've already touched on, there is the staggered release in terms of when the phones are going to be available, how many people are waiting. So it's hard because-- you know, like, yes, the guidance does matter. But this is not a new development. They haven't provided guidance, you know, basically all this year on pandemic-related concerns.
And it does make sense if you're worried about your supply chain or the initial demand. You know, there's not additional stimulus as of yet. That could always change if there was a, you know, sort of a lame duck stimulus package that was passed or even early into the next year. So when you think-- we think that over time, it's really just going to even out.
Again, the quarter could be messy, but there are things from the supply chain, for instance, that could, you know, distort sales and just really just delay them. But, you know, the most important number is, does that install base grow? Are people upgrading this year? Are people going to upgrade in two, three, four years going forward? And just staying within the ecosystem.
ADAM SHAPIRO: Apple is not Samsung. I'm thinking of the launch of the Samsung foldable phone that flopped. Is there a concern that Apple could possibly have a hiccup like that with the launch of these new iPhone 12s?
ROBERT MULLER: So there hasn't been a major form factor change, really. You know, yes, the sides are a little bit different. But for the most part, it's the same phone that their customers have grown to appreciate. Our survey were considered-- suggests about 90% of iPhone customers either definitely or very likely stay within the ecosystem.
So, you know, the thought of customer defections on a phone flop is really not up there for a series. You know, with multiple different phones available right now, there's really a phone for everyone's preference, you know, whether you want small or large or less expensive, more expensive. So I think that there is a place for most people within the Apple family.
ADAM SHAPIRO: You know, you talk about being stuck, I'm one of them. And I do love my iPhone. But I'm terrified, if I ever switched, I'd lose all the photos because everything's in the cloud. There's also the potential, though, I think you point out, for, you know, the health apps and the health component that Apple is getting into with this. Tell us more about that.
ROBERT MULLER: And that was actually, you know, in our view, an underappreciated part of the story. Not to get onto the Peloton trend or anything, but Fitness+ actually looks a little bit more positive based off our survey work. We did an analysis that, you know, if you have about 20% of watch customers sign up for Fitness+, you know, it could be a $3 billion revenue opportunity, increase EPS by 2% in and of itself, over the next three years, which for a company the size of Apple is actually a pretty meaningful amount.
But our survey work actually suggested about 17% of people are definitely going to sign up for the fitness program, another 7% are planning to get it through the bundle, and about another 17% are strongly considering. So there might be a lot of upside to, sort of, what was our base expectation in terms of the Fitness+ adoption.
SEANA SMITH: And Robert, on the earnings call, we heard Tim Cook. He hinted a little bit, I guess, at future products that we could get this year. Apple has an event coming up next week. What are you expecting to hear?
ROBERT MULLER: You know, my expectations are really going to be around the Mac, the new, you know, the new silicon-based Mac products they're putting out there. There could be smaller announcements. You know, there's sort of additional headphone products, you know, like, sort of like a, you know, an iteration of the Beat Studio, for instance. That's potential.
But for the most part, we're really just focused on Mac. You know, they've done a few-- a couple smaller events already this year, one more-- one more product, I think, really just to get the time to get this new Mac product. Because, you know, the proprietary silicon chip has been a big part of this story, a big rumor for a while.
And so getting it out there actually-- you know, they've announced the product, but actually getting it to the market and letting people get their hands on it, it's going to be a big enough event for really just one product.
SEANA SMITH: All right, Robert Muller, an enterprise hardware analyst at RBC. Great to have you on. Have a good weekend.
ROBERT MULLER: Thank you, you too.