You don’t need 7investing to tell you how Apple is the trendsetter when it comes to consumer technologies. So, no wonder, when Apple has a product event, everyone pays attention. This week Apple’s “Spring Loaded” event landed. Apple announced a new iPads, new iMacs, a refreshed Apple TV, some service enhancements, and a brand new product called Apple AirTag.

7investing Lead Advisors Dan Kline and Anirban Mahanti sat down to discuss what impressed, what didn’t, and how all of this fits into Apple’s long-term strategy.

Timestamps

0:00 Introduction

1:07 Were the products underwhelming?

3:08 The new colorful iMac with the M1 chip

7:33 Is the iPad stuck in no man’s land?

13:13 What is an AirTag?

15:19 Why is AirTag cool and potentially a big deal?

20:22 The new Apple TV and TV+ … but is it working?

27:22 Apple as a Privacy Plus Brand

31:11 Why do the M1 Chips matter? What’s the big deal? What is the long-term play?

36:07 Apple as an investment

Transcript

Dan Kline  0:00

Welcome to the 7investing podcast. I am Dan Kline, and I’m being joined today by Anirban Mahanti. Anirban, how are you doing this morning? Very early morning for you.

Anirban Mahanti  0:10

I am fantastic. Dan, nice to chat to you in the morning.

Dan Kline  0:14

Have you had your Vegemite? Have you done all of the very limited things Americans know about Australians? I feel like we’re probably going to get over this eventually. But it is really interesting to us that it’s a different time of day. We’ve been very fascinated by this, but thank you for getting up before you’ve even driven your child to school today.

But this started on our Slack channel. So I sort of posted that I was kind of underwhelmed by the Apple press event from a couple of days ago. This is usually true of their spring event. The Fall event is when they have their whiz bang stuff, but you liked some of it more than I did. Why don’t you give me the 10,000 foot overview. And then we will get into sort of going through each of the things they introduced and kind of what it means for Apple.

Anirban Mahanti  1:07

Yeah, so you know, I find it interesting, you found it to underwhelming, I actually thought it was probably one of the best events that came out in the recorded version, right? This I think is the third or the fourth recorded version. So it was really polished, really well done. They packed a lot of stuff in it. And sometimes what I find is exciting is not brand new things, but sort of incremental innovation, that comes with things so you know, so they basically introduced a new iMac, they introduced new iPads. They introduced a new thing called AirTags, which we’ll talk about a in bit. And that’s really, and a few services things, right. So they talked a little bit about Apple TV a little bit about, you know, what’s going on with Apple Card. And they talked a little bit about podcast subscriptions. So I think it had an entire gamut of things.

What really jumps out to me at a high level is sort of this, the Apple’s play of its ecosystem, right? And it was more and more people to use more and more things in the ecosystem. And this sort of feedback loop that strengthens the ecosystem, makes better apps and better experiences, which brings more people into the ecosystem. So that’s Apple’s play. And this was Apple’s play at, you know, top notch Apple play. In full view, again, it will not be apparent immediately, I think that exciting or sexy, as they would say, but I think you know, over the long run, this is gonna make a difference.

Dan Kline  2:33

So it’s worth noting that we’re both Apple people. We are both on Mac books. When we first started taping this, you tried to do it on an iPad, I own an iPad, I don’t use it very often, I find that the latest iPhone has really become my replacement for my iPad. I’m very comfortable on a plane watching a movie on my phone, I don’t really need to carry the extra device. I’m using Beats headphones, I’ve seen you wear AirPods, or at least what appear to be AirPods. So we are both, you have Beats as well, I’m wearing an Apple Watch as are you. So we are very much in the Apple fan camp.

But the big thing that they pushed about the new iMac was that it’s available in a bunch of colors. That to me, goes back to the 90’s, the quote “portable ones” that look like a 13 inch television. And I had one of those I had a light blue one that was my computer for a very long time. What color my computer is doesn’t matter to me. What I was kind of excited about is this computer is so thin that the headphone jack can’t be in the back because it would stick out the other side. So it had to be in the side and I have to admit, as someone who bought a new iMac in October, I’m actually kind of annoyed about this. But it does seem mostly cosmetic. I like my iMac but it is a physically big device which can sometimes cause problems. So what were you most excited about with the iMacs?

Anirban Mahanti  3:59

So actually, I thought the iMacs were again, I’ll take a different view. I thought the iMacs, they are doing something different here. The iMacs at the launch, I would call them so remember I think Apple has another thing of everything has a pro and a non-pro version. Right? So there’s an iPhone Pro, there’s an iPad Pro, and that is the iMac but there’s no iMac Pro right. So I think what they launched is the iMac for everyone with the colors.

I don’t know if you don’t notice this or not, but one of the things I noticed is the way that we’re placing the iMac in their shots in the presentation. The iMac was present in weird places like the morning benchtop. It’s present in the you know the on top of the dresser in the bedroom. So what I think they’re going for here and this is very subtle. I think what they’re trying to do is they’re saying well, this is the computer for the masses. We’re going to make it very colorful, it’s going to add color to your rooms. And we want the back of it to be showing.

One of things cool about Apple, is Apple’s a design company, which makes computers, right. So this is a home design item that they’ve designed, which has beautiful screen. People can watch TV on it, you know, programs on it, stream, do some work and things like that. So I think that’s what they’re going for with the coloring here. And with the design, you know, design aesthetics, and of course, they put the M1 chip into it, which I think is just the starting point. Again, as I think there’s gonna to be an iMac Pro, which is going to be probably 27 inch or 30 inch. That’s going to target the pro heavy duty users, right? But this is targeting all those people who have you know, Windows desktops, who are waiting to transfer over to the Apple world. This is this was for them. That was my take at least and I get your point. If you’re annoyed with iMac I would be too I’m annoyed about my iPad.

Dan Kline  5:49

Yeah, I mean, you know, when I started here at 7investing, I bought, you know, like are not cheap, like, you know, $1,500 or $1,600 new iMac as a supplement to my relatively new MacBook Pro, I think my MacBook Pro’s a 2019 as well. And actually my workhorse computer is a 2016 MacBook because it’s just so much lighter, it’s more comfortable sitting on my lap, it’s easier to travel with. I actually kind of regret the MacBook Pro and sort of wish I’d bought a newer MacBook Air for for that purpose.

But okay, I understand that idea. I like the idea of the, the the iMac as sort of a design aesthetic that it could in theory be like, you know, your dorm room, television, or whatever it might be. So I do understand that. And again, I’m not saying it isn’t a fabulous computer, and it isn’t incrementally better. It’s just that the overall group, and we’re mostly going to talk about this when we get to AirTags because you really like them. I’m really underwhelmed by them.

But before we get there, let’s talk about the new iPad Pro. So here’s my problem with the iPad. I’ve had a bunch of iPads. I worked at Microsoft. So I got the original Microsoft Surface with the keyboard. And at no point have I ever, I tried to force myself to enjoy working on the Surface, or working on an iPad with a keyboard. It’s not a great experience.

And you know, when I first had a Surface that was very novel, so like people would come up to you at Starbucks back when people were allowed to come up to you when you were allowed to sit in Starbucks. You know, and I would get, you know, people looking and really, it’s never been a great experience. And I found that with the keyboards, I have a hard time believing, at the price that’s not that different from a laptop, that I really I don’t see a marketplace for an iPad Pro. why don’t why don’t you start there and explain it to me.

Anirban Mahanti  7:33

Yeah, so I think an issue iPad, in general, is having is exactly what you’re saying. It’s iPad is like caught in this land where it’s neither an iPhone, nor a MacBook. Right?

So it’s in this no man’s land. Part of the issue, I think is I think has been addressed for the iPad, with the iPad Pro is just stuff that people do on the Mac requires for many, many, many users requires heavy duty processing, and the iPad is actually not adept at that, right. I think going to the M1 is a testament saying that okay, we are going to put this new chip in, which is your best chip best in class desktop chip into the iPad, that’s bridging the gap between the two.

I think there are a few other things that potentially will happen. Right. So one of the things is, you know, what is really interesting is that the if you think about the iMac design and think of the iPad design, and if you actually look at Apple’s homepage, look at how the iMac actually looks like a giant iPad. It actually looks at from the side, it exactly looks identical. I don’t think that’s a coincidence. I think we I think when I think about it would be the iPad should become a MacBook when it’s attached to a keyboard. And it should become a handheld device when it’s detached from the keyboard. But I think that transition is not happening because the apps are not there. And part of I think Apple’s theory might be that the apps that people want to use for creative tasks, heavy duty tasks are actually Mac apps, they are sitting on the Intel world with the x86 architecture. Moving the Mac to an architecture that’s actually identical to the iPhone or the underlying computing architecture. When I say computing, I mean the the CPU to the underlying identical architecture essentially means porting of apps across the platform is easy. I think that’s what they’re trying to do.

This is I think this is something that Apple has been has been building for 10 years. It took them 10 years to actually make the iMac chip or the Mac chip, right. But they have been building it because they’ve been building the chips for the iPad and the iPhones. This actually will allow them to transition the apps and just bridge this gap, right so there’s gonna be people who are gonna say, okay, for most purposes, my iPad Pro is fine, and I don’t need a Mac. For some people the Mac is going to, so the question really in my mind right now is what boundaries are the Mac going to push? What boundaries are the iPad going to push, if they’re all going to be on the same chipset, with the same underlying operating system design, you know, how the lines got blurred, that’s gonna be very interesting journey. I really have no clue of where this is going. But I think this is, you’re going to see probably more in when Apple does its Worldwide Developers Conference in like June or July, whenever it happens,

Dan Kline  10:23

I think their going struggle with the iPad, especially the Pro to make it more than a very niche property, like sure, if you’re an artist there, there are definitely areas where it makes sense where keyboard functionality is an add on, that’s great, like, look back when my Mac was a big heavy thing, or if I had a 16 inch MacBook, I could totally see for travel purposes, getting an iPad and a keyboard and, and using it. That being said, I don’t need anything more than a MacBook Air, which you know, the prices are just not that different. And from a tablet, I don’t carry a tablet anymore. But I used to carry a tablet for entertainment purposes when I traveled. And honestly, a $60 Kindle Fire was more than enough. They’re a little clunky, they lacked Apple’s aesthetic. And I forget why I bought an iPad Mini at some point. And when there’s a storm here, I’ll make sure I download some movies on it. Because we’ll have you know, stuff on all our devices. Because, you know, obviously, you’re limited to how many charging bricks you own and, and how much stuff you can keep charged in the event. We have hurricanes here in West Palm Beach. But I don’t know, I don’t think an iPad is something I’ll ever buy again. But of course, I recognize that I’m a sucker and there’s every possibility I’ll buy three of them in the next six months, because I’ll see one at a store and get enamored with it. And I’ll spend $1200 I don’t need to, but let’s talk about okay.

Anirban Mahanti  11:41

I was just gonna say that I actually agree with you that I don’t think iPads an iPad the Pro line is not I think a volume seller right. That’s I think it’s going to be very niche as exactly the said, but I mean, you know, it’s I think that makes that matters to Apple probably that you know, 20% of sales go to Pro, they make higher margins on that. That probably allows them to sell like, you know, more iPads at a lower margin or things like that. But yeah, I think it’s a niche product for sure. Like a Pro market is niche for sure. Right. And then my guess is

Dan Kline  12:08

That Pro audience is probably the most loyal to Apple in terms of, you know. If you’re editing in Final Cut, you are not going to switch over and edit in Adobe Premiere like so. You know, that is definitely an Apple loyalists, though. I still have yet to meet, and you might be the only one you may actually use this. Do you use Pages and like Numbers? Like do you use the the Microsoft Office knock-offs that Apple gives you for free?

Anirban Mahanti  12:34

Well, I use Pages regularly. I use Numbers regularly and I use Keynotes regularly. I don’t use Pages as much. I use actually Numbers is beautiful. I really like Numbers much better than Microsoft Excel. And I find Keynote is way better than PowerPoint. That’s that’s what I got. Pages I don’t use as I use Google Docs more than Pages, just because it’s just more efficient. Because of the type work we do.

Dan Kline  12:58

And Google Docs is god awful terrible. But we all use it because it’s free. And it’s easily available. And it crosses platforms. Many of us at 7investing are Mac users, but many of us are not. I’ve heard Chromebooks come up. I’ve seen PCs come up.

Dan Kline  13:13

But let’s talk about AirTag. So on your phone, you have “Find My” this is basically a portable version of “Find My”. So here’s what happened. I’m at Universal Studios. This was maybe two years ago, my son lost his phone in the Men in Black ride.  This is a very violent ride spins you around his phone came out at some point, I brought my phone which I make my son turn on his tracking so I can follow him. You know, as the parent, I would know where he is, when he’s getting home from school, it was mostly for bus stop purposes. But that being said, I could see where he was. So I walked to a Universal Studios employee, and I showed them to “Find My” and they took my phone into the bowels of the ride and they found his phone. It was really, really kind of an amazing feat of engineering.

So now this allows you to put one on say your Mac put it on, I don’t know your umbrella, I lose like 100 umbrellas a year like it would probably be worth it to me. And I’m not saying the device isn’t cool and that the Fine My infrastructure isn’t cool. But this has existed for a long time like we’ve had Tile here in the US and I’ve always thought about buying it and never have. I will probably buy this because it is dumb that I have a whatever it costs you know $1,500 laptop and if I leave it in an airport, I’m absolutely screwed. So it probably seems worth it to me to do it. But I don’t know it just wasn’t that innovative to me. But you really like this one so shoot.

Anirban Mahanti  14:36

Yeah, so so I love this. So I mean you you have sort of Find My by default built into like a Mac.  Right. I  mean the iPads so you can location ping them as long as they have battery on it. The one of the advantages of the the AirTag product is that the battery actually lasts a year. So you have a full year to find your stuff, which is pretty cool. Now I think I really like this because this is this is what I called putting research to practice, right. So the Find My network exists because the find by basically takes your location of your device, which is your iPhone, and basically puts it on the cloud in a privacy aware, you know, privacy secure fashion without stealing your data, without making use of your data. And then that allows you to do the tracking right.

Now, what Apple is really trying to say here is that we have got a billion plus devices out in the wild. We can build this network that can track another billion plus devices, which are not actually currently, or billion plus things, which are not correctly connected to the internet, right. So you basically are using a Bluetooth connectivity using their you know, the ultra wideband in for precision tracking, they’re using the ultra wideband chip that they put on the, on the new iPhones, right, otherwise, you don’t have that precision tracking, but you got still got, you know, location tracking using all the other items. But you’re basically using Bluetooth, to now build this network, right.

And the cool thing is, suppose I have my keys and my keys are lost, right? And the keys are lost in some gymnasium, it’s quite likely another iPhone user is going to come there, my key is going to on the tag is going to now ping that phone. And then it’s going to use that phone to upload its location to the cloud. And then from there, I can actually discover it. Right. So that’s really cool. And applications for this, hundreds of applications.

Dan Kline  16:29

Yeah, the luggage applications alone, I’ve never dealt with lost luggage. But But if you have this and your luggage gets lost, you can in theory, tell the airline where your luggage is. And it helps them track it down. I I’ve heard horror stories of like people show up for like, you know, a four day long trade show, they’re wearing their like sweat pants and a T shirt. And like, all their suits and stuff are lost. And they you know, you have to go to like the mall in Las Vegas and like overpay for everything. And of course, there’s no tailors and it’s really a nightmare. So I do see a lot of applications, I actually think from a “gonna sell a lot of them” point of view, I actually think Apple is gonna sell a lot of them. Because there are so many implications for it. I think this becomes a bit like the Amazon Echo, in that at Christmas time, Amazon will be like six echoes for $100 bucks. Like, I think you’re gonna see some of those deals, Apple only does deals once a year they do deals with Black Friday, I could see this being an add-on, get one for free. So it’s not that I don’t like the product. It’s just that I don’t know, I thought there’d be something cooler to it, it would be smaller it would be.

Anirban Mahanti  17:34

So here’s the thing, right? And nobody else can do it, but Apple.  Nobody else has that kind of device scale, right? I mean, the thing is that you could have a third party do it. But if they don’t have enough users to ping, it’s actually useless. Right? So the fact that Apple has this concentrated user base, which guarantees that somebody is going to be in the gym that’s going to come with an iPhone, and then what’s going to talk to it makes it useful, you know, what I think it’s gonna be is exactly doing what you have predicted right, they’re bundling four, the know that people are gonna at least buy four. So you can buy one for I think I don’t know what it is like $29 bucks, or you can buy for, for like $100. But basically they’re saying buy four, right, so I’m going to set it but I think people are going to put this on their pets.

Dan Kline  18:19

That’s a good idea. Actually,

Anirban Mahanti  18:21

I think your cat and your dog now your cat and dog a part of your Apple ecosystem. I think this is a brilliant, you know, ecosystem play, you’re extending the people, you know, you’re never going to give an iPhone to your cat or dog which you’re going to give an AirTag to your cat or dog.

Dan Kline  18:36

There is zero possibility either my cats will put up with this. So fortunately, they’re indoor cat so that is not generally an issue. But we did at a pre when we lived in Connecticut, one of our previous cats got out our front door popped open. And she left and it turns out she was just hiding under our neighbor’s porch. And I crawled under there and she was terrified, and I got her home. But something like that would absolutely have given me unbelievable peace of mind. But getting a cat who doesn’t wear a collar to wear a collar can be a challenge. So it is going to be a hit.

I think, look, I might tuck money in my wallet to like you know, I am prone to losing my wallet in my car, and then not realizing that’s what I’ve done. I get out of the car, I knock it out. It’s just fallen in the car. And then I go in the house and it’s like an hour later, oh my god, where’s my wallet. And maybe I go to the car to backtrack to where I just used it and I realized oh, it’s sitting on the seat of my car. So this type of thing I think peace of mind is very valuable. And I trust Apple with this.

And to give you a quick glimpse at how ubiquitous the iPhone is. I worked for Microsoft during the Windows 8 launch. There was a big push with Windows 8 to have the Windows 8 phone. Phones supported by Microsoft were the Windows 8 phone and the Apple iPhone, and when I say supported I mean Microsoft tech like so you could go to like the help bar in an office and they would make sure like your Microsoft email was correct on your iPhone. So, you know, they knew they could sort of thumb their nose at Android phones, they probably can’t anymore. But they were not willing to do that, because they knew too many of their people would just get an iPhone separately, and then be less adept at at answering their work email, or back then it was called Link, Now it’s, of course, Microsoft Teams.

So let’s go to the last new device that they introduced. Because this is literally a device, I’m gonna read my notes exactly, it’s a refreshed Apple TV 4k with a brand new remote. And my note was, you really have to be a fanboy to care about this. And here’s why. The cheapest version of this is $179. You can get a Roku or an Amazon Fire for somewhere between $30 and $35, depending on the time of year. So you can buy five, maybe even six of those. For the price of this. I don’t care how cool it looks. I don’t care if it has slightly better bells and whistles. And I honestly have never been that impressed with the Apple, you know, way of presenting TV. To me you basically have like a relative who works at Apple that’s gonna like notice if you don’t have this, like, am I missing something? I feel like Apple has lost this game. And they keep playing it.

Anirban Mahanti  21:15

I think I think that’s a very, very fair comment. I think it I think the Apple TV is the vanity purchase. And I think the only other I guess use case would be if you’re like a complete Apple ecosystem house like ours is like we you know, the only Amazon thing that we’ve got, well, we’ve got an Amazon subscription, Prime subscription but the only other Amazon thing we have is Amazon Echo, as you know, sorry, Amazon Eero for our WiFi. But if you have an Apple TV, you can then connect your like HomePods and you can actually get stereo sound out if you know left and right HomePod and things like that. You can’t do that if you have a Roku, or Fire TV. It’s I think this is a pure vanity purchase. If you you know you want to put that Apple TV in your living room to show people that you know you can afford an Apple TV.

Dan Kline  22:05

I haven’t set them all up. But I have an Amazon Echo for every room in my house. I just bought one that’s also an alarm clock with a phone charger. On the top, I have the Echo Show which I’ve never used for absolutely anything but I bought it on sale at Christmas time. I just think there’s some areas where price matters and the HomePod and the Apple TV like, you know, I tend if I guess if I have a pic, I will get a Roku installed TV to save the HDMI port. I’ll be curious, I’ll probably buy an Apple TV at some point for for testing purposes. And then of course, will then have to make it my main the showpiece in my house. But of course, I actually have an Xbox connected to my main TV. And I actually use most of my apps through that. And for the moment because I didn’t want to pay Comcast rental on a box. I actually use a TiVo as my cable box, which is a real pain to set up with Comcast. But I actually get most of the apps on there. So you know there you have a lot of choices. And I’m not sure there’s any reason to spend more money.

But let’s quickly go through one of the other things they announced that is Season Two of Ted Lasso. And here’s the thing. I know this was a popular show. As someone who’s American brother now works at a high level position in the Premier League. I’ve had Ted Lasso thrown at me more than you could possibly imagine. I am not a fan of this, only because it means Apple is going to continue with the vanity project that is Apple TV and I understand this is not a lot of money for Apple. But Apple should take its couple of mildly successful shows and license them to a competitor bring them to Paramount+ or to Netflix or whoever I see zero subscribers driven by Ted Lasso.  I don’t think the Morning Show got one person to subscribe to Apple TV if you get it for free with a new device you might use it but these are very low viewership shows. Even with 10’s of millions hundreds of millions actually people getting free subscriptions for a year. I don’t know I want them to to you know to quote Mr. Wonderful on Shark Tank which the show you may not have access to I want them to take Apple TV out back and shoot it I am not a fan of this particular product.

Anirban Mahanti  24:21

Yeah so I’m actually I you know, I’ve tried to watch Ted Lasso a lot people love it. I found many of the other Apple shows like you know, more interesting than Ted Lasso of but you know that’s a personal taste thing.

So here’s my take on Apple TV. I think Apple TV, or Apple TV+, Apple TV is that the box and Apple TV+ is the subscription. Apple TV+ was never designed to be a standalone product. Apple TV+ is basically an add on. So it’s an add on to Apple Music to iCloud to you know iCloud storage to you know all those things right is basically a bundle, and then Fitness+. So basically, if you think of like, we have a premier One subscription, right basically gives us everything. This is just an add on to that. And I think there’s justification to carry on to have that.

I think that Apple did miss a trick to not acquire Netflix when it could. But again, here’s the thing, right? The TV is actually a very expensive business, right? It’s an expensive business. It is very expensive in terms of getting the show’s done. You could do curated shows. And if you have one or two hits per year that justifies having that as an add on. As you as you rightly said, nobody’s I think go to subscribed to this on their own but it just adds a little extra value to my Apple Music subscription and things like that. So you know, yeah, that’s what it is really, it’s a it’s a side project for Apple.

Dan Kline  25:46

I feel the same way about Amazon prime video. And Amazon prime video has probably my favorite show of the past year, they it has The Boys, which is a wonderful show, and something I’m very excited about. But if Amazon killed Amazon Prime Video tomorrow, I wouldn’t change my Amazon subscription.

And if Apple got rid of Apple TV+ I wouldn’t drop my I don’t remember what level, I have everything except Fitness. You know. So, to me, Apple Music is something you have to have, or Spotify or you have to have a subscription to a music service. I pay for Apple News, which is probably not a great value, only because it annoys me when I go to click on an article and for some reason, I can’t read it. So I’m happy enough to support journalism that way.

I understand what they’re doing with the bundling. But it does feel to me like a lot like Amazon just like making things up to give you like, I’m not sure photo storage is really like why I’ve signed up for Amazon Prime. And I understand that that it’s a rounding error. But TV isn’t, TV is really expensive. When you have a show that stars Jennifer Aniston and, and Steve Carell, those people cost a lot of money. And I haven’t seen a lot of good out of Apple TV+ but I think that that’s true out of a lot of services. You know, Disney is batting roughly .1000. But that’s in a very narrow band of a certain type of show. Netflix, maybe by their algorithm, they’re hitting, you know, .350 by my personal algorithm, they’re like, I don’t know, hitting like .080 like, you know, it’s it’s they strike out an awful lot, though they do have some of the best show names. I mean, how do you not turn it into at least one episode of The Floor is Lava, I think you have to at least, you know, stop by and take a look.

But let’s get into some of the other things Apple is trying to accomplish. So this podcast doesn’t end up at being like 19 hours long. So you’re, you’re picking up on the fact that Apple is building everything around privacy. Is this sort of anticipating consumer demand and trying to, I hate to say stick it to Facebook and Google, but that does kind of seem like it’s a very conscious, we see these companies take advantage of your data. We are not going to do that.

Anirban Mahanti  28:00

Yeah. So I think that is that that theme. Say, Apple is creating this privacy plus brand for itself. Right? So different companies position themselves differently. Right. You know, for Apple, the we are the consumers, right? We are the people who pay Apple, and therefore it can afford to say that, well, you’re not going to sell your data.

For Google and Facebook, we’re actually not the consumers. We are not the customers are the customers are the ads, people are the businesses that are placing ads. So it’s, you know, it’s this relationship really that you know, so we are the free users to Google and Facebook, that it’s monetizes via others. So I think Apple is just hitting on that. And using that as as, as a brand building exercise. I think this has, this gives them a license to do things that other companies can’t. Right.

So you know, you see that, I mean, we have seen that play in other areas, right? So if you take cloud computing as an as an example, right, if you compete with the people you’re providing infrastructure services to, they are hesitant to come and give you those services, then they go to other people. So just because Amazon has competed with a bunch of other people, Amazon is a retail player. So therefore, if Walmart wants to have its infrastructure on cloud, it is hesitant to give it to Amazon.

The same thing is at play here in some ways, right? I mean, if you want to give your your credit data to someone, you give it to Apple instead of giving it to somebody else, you’d be much more hesitant to give it to Google than to give it to Apple because you know that Google might sell it. Google probably won’t but you feel that Google might sell it to some insurance company or somebody else that you know, could use it in some way that turns out to be malicious. Again, I don’t think Google would ever do that. But that that’s that’s just bias, right and reference bias. And I think Apple is just using that to create a brand saying, look, we don’t do that. So I think there’s some value to it.

Dan Kline  29:54

I think this is also Apple recognizing that it’s going to be asking you for increasingly sensitive health data over the next decade. And if you’re going to tell Apple your diseases and, and what horrible things you have and what minor things you have and what drugs you’ve ingested and not ingested, I think you’re going to want a 100% believe, they protect your privacy. So I really do feel like this is like Apple establishing its bonafides, because they’re already doing some amazing work by aggregating some health data, Apple can identify things like, oh, like where Anirban lives, there is a surprising number of this type of cancer or this type of, you know, because they have some of your aggregate data, maybe not cancer, but you know, fitness things or hypertension, or other things that they can tell with some of the data they get on an aggregate basis. And I could care less if Apple puts me into a cluster of men, you know, ages 45 to 54, who live in a warm climate or whatever, however, they break down that data, but I don’t necessarily want to start getting like ads in the mail, based on my health data. And we know the financial services industries have been dreadful with this, you know, and so I like this. Apple values, its customers, you actually feel a little bit special owning Apple products. And I think this just establishes that.

Let’s talk, explain what the M1 chip is. And then talk a little bit about what it means for Apple going forward.

Anirban Mahanti  31:19

Okay, so we’re gonna go to go into some technicalities here, right. So basically, if you think about the Intel chip. So the first thing you want to think about is the chips are basically devices that take instructions, rather, the instructions are written in ones and zeros, you know, so they don’t understand our language, the language that they speak is ones and zeros and that the language just like we speak English, the chips speak what is known as an instruction set in every type of architecture, just like Germany has a language and US as a language is the you know, the American English versus the British English, there is different instruction sets for different types of architectures.

So the Intel architecture is what’s known as x86. Now, if you’re developing something on x86, that’s going to result in an executable that basically runs on x86 architecture. Now, Apple for a long time has been using its own architecture based on ARM. Right so the ARM, you know, the ARM open source to design and, or licensed design, I should say, and, and it’s using that to build this processors for the iOS, which is the iPad OS and the iOS, so the iPhones and iPads. That’s an ARM and the Mac has been on Intel the x86, which has meant that there’s a disparity between the the types of apps that you have on the Mac, and the types of apps that you have on on the on the mobile devices on the smartphone and the tablets right.

Now, to bridge that gap, what you really want is the same architecture across all of them. That’s what they’re basically trying to do by basically saying, well, we’re gonna use M1, they’re calling it the M1 chip. But the M1 chip is basically an extension of the A Series. M1 is basically a A series extension, with more GPUs, the graphics processing units, and, you know, signal processing and everything put together, the system-on-a-chip, you put all these other chips, in one place, create efficiency, but you change the architecture to ARM that makes actually porting applications across the platform, really easy. If you write an if you write something for the Mac, and actually port it to the iOS very easily, if you write something for the iOS, you can port it back this way. That is, I think, the bigger play.

The bigger players to integrate the experience across this to create a bigger ecosystem, there are some other benefits that are going to come just because of the design, right? Because they are now putting everything in one chip, so system-on-a-chip, it allows for, you know, better use of memory, right? So you’re not you’re not like writing things out from the CPU to some other place and then copying it from there to the GPU. You don’t know you’re not swapping. So an 8GB memory, random access memory on the RAM, as we say for an Intel is not the same thing as an 8GB on M1.

Dan Kline  33:37

Does this also give Apple significantly more control over the device experience because previously, they could tell Intel hey, here’s what we’re looking for. But they weren’t really in those rooms. And basically, Apple can now tell its chip designers, hey, five years from now we envision that your iPad is going to snap into a robot and be able to walk up the stairs and and we needed to process that type of functionality. It feels like there’s some pretty big advantages to having that roadmap.

Anirban Mahanti  34:32

And just as a simple example that you’d see is that you could have the you could have the same camera on an iPad and a Mac. With a Mac running Intel might look with the same camera same hardware will look inferior and that’s because just the way the chips are working right the chips inside in the iPad are able to actually better process the data then the Mac.

And exactly that, you you, if you are using third party chips, you basically are relying on their roadmap, right. And then you rely on their roadmap to design your product roadmap.

In this case, you bring beautiful hardware software integration, which allows you to actually imagine how the device is going to look based on how you think the the hardware is going to evolve. So I think this is very, it’s a very customized approach. And again, the very fact that Apple sells hundreds of millions of devices allows them to do it. And this is very hard for other people to do because you just don’t scale. Again Apple is basically saying, Well, I’m gonna scale advantage, and I’m going to really exploit my scale advantage.

This is a perfect example of how Intel basically, the boss of chips is being disrupted by Apple. Apple effectively is the biggest chip maker now in the world, if you think, they don’t make the chips, somebody else, you know, is making the chips for them. But that is the biggest chip designer in the world in that sense, right? And you know, then Apple could push in multiple different ways. If Apple wanted, it could actually push into Nvidia’s territory and say, well, we’re gonna design GPUs that are going to go into data centers, if you wanted to. The question really is does it want to? Right? We don’t know.

Dan Kline  36:07

So I’m going to close with an investing question. I’m going to answer it first, at least my opinion on it. There’s no definitive answer here. But Apple is I think, still the largest company publicly traded company over a trillion dollars. The question is, in the next decade, do you believe they can get to $2 trillion. {editor’s note: it is more than 2 trillion) And I am going to say the challenge for Apple is they can put up something like the Apple Watch, which if this was a startup company, would be a massively successful company, we’d be talking about Bl’apple Watch, or whatever you call it. If it wasn’t an Apple product, we’d be talking about it like Roku, we’d be talking about it like we did Fitbit for years, but or GoPro and but obviously, those companies have stumbled, and Fitbit is now part of Google. But it would certainly be an OH MY GOD success story. And inside Apple, it’s basically like they found some change in the couch.

But if you view the Apple Watch as part of a much bigger healthcare roadmap, I think they get to $2 trillion. I think there is every possibility that Apple and I think Amazon and Google have a chance at this as well. I think Apple might be an integral part of your healthcare picture going forward. And that will partially be through monitoring, it will partially be through some sort of telemedicine that wouldn’t shock me if they made an acquisition. One of those like Apple acquisitions that you only read about on geek wire, what’s like they bought some company for $30 million, get rid of its product, but absorb its 32 employees. I think that is where Apple is going. And I would bet and I guess we can reconvene in 10 years if you don’t agree with me on this. But I actually think Apple will double in size. It just might not be, it’s in fact not going to be, by coming up with some amazing new device that we haven’t thought of.

Anirban Mahanti  37:51

So actually, I disagree with you on the quantum maybe I think Apple could be a $3 trillion company in 10 years. Here’s I think what I think is instructive, right? The instructive thing is you look at last 10 years and have a tweet out about this. Over the last 10 years, Apple generated over $600 billion of free cash flow 600 billion, okay, the closest Google is about $200 billion. That’s a if you think about their market caps. They’re very similar. Apple was hugely undervalued if he assumed that Google is correctly valued today. And Apple is correctly valued today that there was a huge undervaluation going on, given the amount of free cash flow, Amazon in that frame has generated only $95 billion of free cash flow.

Here’s what free cash flow does for you. Apple has decreased its share count by 32% in a decade. So I think Apple actually probably doesn’t even have to be three, you know, 3x, from here, Apple, or one and a half x from here, Apple could could still deliver astounding returns for you, just because it’s buying back shares like crazy. And it can do that. Because every little thing that it brings to the system just adds extra cash in the pile. As long as you can generate cash, I think Apple is going to be a fantastic investment. That’s that’s how I look at it, instead of thinking about which is going to be but being the bigger company, but I think $3 trillion is not out of way. Largely because again, you know, the trillion plays in our mind, it seems like all it’s too big. But you know, the market keeps going up, right? The market has been going up for for the last 100 years, right? What was the average company 10 years ago was like a $7 billion, you know, 30 years ago was like a $7 billion company today. It’s like a $70 billion, that’s a 10x. So the average company size is going up. And as we print more money, the average company size has to go up right? What else happens?

Dan Kline  39:39

Apple does have the ability to make acquisitions that other companies can’t even imagine like so if Apple was to buy Teladoc it wouldn’t be that big a deal. I don’t I don’t have Teladoc market cap in front of me. But they could do it. Most companies would have to do that as a merger. Apple could buy, and I really thought this might happen, Apple could by Nintendo and the reason I thought that might happen is when is when the Wii U failed Nintendo was sitting on all this amazing intellectual property and really had no device for it. So imagine have Apple exclusively owned Super Mario, and Donkey Kong and all. That’s something Apple doesn’t really have a lot of is intellectual property. So I’m not saying these things are going to happen. In fact, I’m famously wrong predicting things like that I’ve long predicted that Amazon would buy things that it hasn’t bought. But that being said, Apple’s ability to stumble, and then just cover it up with money by buying something else that successful is unparalleled. And we’re seeing this with Microsoft, Microsoft has gone on, you know, a $10-$12 billion each acquisition streak and it looks like they’re not going to buy Discord but they bought lots of different things and they bought Nuance for $18 billion a few weeks back, so we are going to see more of this.

Anirban, we have talked for far too long.  Thank you for joining me on the 7investing Podcast

Anirban Mahanti  41:00

Thank you for having me.