Yang thinks Apple’s issues in China stem more from macro issues as a opposed to competition. Apple, according to Yang is “a better value product,” in comparison to competition including Huawei or Xiaomi, due to its higher resale value and durability.
Yang insists that AI integration “one of the most important things… for the initial success of the next generation of iPhone,” and expects to see a heavy emphasis on this when the company rolls out new phones.
Watch the video above to find out Yang thinks lies ahead for the iPad.
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Editor’s note: This article was written by Eyek Ntekim
– Other big story in the markets this morning is some of the earnings results that we’ve gotten out over the last 24 hours. And take a look at Apple because a very different story. When you compare it to what we’re seeing from Meta and Amazon shares this morning, Apple shares off just about 3% after its sales jumped about 2% in the first quarter from last year.
But the big story is the slowdown that we saw in China. The fact that is overshadowing some stronger numbers that surprised us here from the tech Giants. Let’s break it all down.
We want to bring in Martin Yang. He’s Oppenheimer’s senior analyst of emerging technologies and services. It’s great to have you here.
So when you take into account that, hey, Apple’s report was better on some metrics. Yet China sales falling 13% in the quarter. What do you think that tells us then about Apple’s challenges here over the next couple of quarters?
MARTIN YANG: Well, I think it speaks to Apple’s exposure to more macro weakness than its competitive positioning in different geographic markets. We don’t believe that the competitive threat Apple is seeing in China is long lasting. I think it’s a very near-term effect based on one or two single models from either Huawei and Xiaomi. And we believe that most of the pressure is seeing in China is more macro-related than competition.
– And so, Martin, as you take a look at these results and try and figure out exactly where Apple can perhaps write some of the wrongs. Segment by segment, I mean, there were a lot of misses on expectations here. And so even as I was looking at that last night, I said, wow, OK, it seems like this consumer right now is absolutely pushing back on price.
That’s absolutely carrying through to perhaps some of these cycles that Apple has seen in the past. What does this lead to in terms of some type of larger cycle adjustment, whether that be across services spending or whether that’s across some of the other wearables as well?
MARTIN YANG: Sure. I think on the topic of price, I would argue that Apple is the best value products among all smartphone OEMs. It is true that it has a lot higher premium over other products. But the lifetime value and the resale value is also a lot higher.
So when you think about the cost of ownership and the savings you get from higher product durability and quality, Apple is actually a better value product compared to other smartphone vendors. And also, in key markets where the carriers are offering installment plans, that certainly alleviate the sticker shock for iPhones.
And for other products, I think the most critical driver is new product releases. We haven’t seen a meaningful new release across iPad and the AirPods in the past six to nine months. So once we see new products coming out, and then we’ll see a revival of growth rate for the hardware accessories, the Mac, and iPad.
MARTIN YANG: Martin, talking about what could come out down the pipeline here. And Tim Cook’s comments on AI also grabbed my attention yesterday. He didn’t give too much information about it.
But he said that we could have an announcement or Apple, could have announcement out later this year. When you talk about the fact that they need products to excite the consumer, how big of a catalyst do you see potential AI integration for their products?
MARTIN YANG: You know, I think one of the most important things for the success of the initial success of the next generation iPhone. And we will likely get a flavor of how on device AI will perform and what are the new features. It will enable around June when Apple host the WWC 2024.
And then based on what Samsung announced earlier this month– earlier last month, I think there are very obvious utilization of AI on device, you know, better pictures, and better auto translation, and better writing. And then I think Apple will need some of the new features that are unexpected, but are highly, highly convenient for the users.
– What products do you believe is going to be able to– and we’ve been watching this iPad very closely here in this segment. It’s expected that, of course, vision could one day– one day perhaps make a huge dent or at least be additive. But does it need to be the replacement for the iPad in the future in terms of another product that, I don’t know, if it sits in the wearables or whatnot.
But it doesn’t really matter. It’s just as long as it is a positive revenue contributor for the company going forward. Can it actually kind of fill the gap where we’re seeing some of those declines at least in consumer demand for a product like the iPad?
MARTIN YANG: Yeah, for iPad, I think, there’s one of the most critical drivers for iPad is form factor changes. And we are seeing initial adoption of foldable displays or flexible displays on smartphones. So iPad will be the obvious choice to adopt that technology where you can turn a 13, even 14-inch iPad in the future, fold it up, and then turn it into a very small book form factors and becomes even more portable than where iPad Mini is today. I think that will be a very critical driver for the future iPad growth.
– Martin Yang who is the Oppenheimer Senior analyst of emerging technologies and services. Martin, thanks so much for taking the time here this morning to break down Apple.
MARTIN YANG: Thanks for having me.