• Apple has finally launched a phone that uses its own in-house 5G modem, but the real test of success will be whether anyone can tell the difference between the in-house version and the Qualcomm modem that is used in all of the other iPhone 16 models.
• If the new modem works well, then the way will be open for Apple to restart its patent fight with Qualcomm but if Apple decides it needs 6G early, then it will be back to square one.
• The new iPhone 16e is everything that one would expect making hardware compromises here and there to ensure that Apple can still earn an excellent gross margin on a $599 price point.
• One camera, a smaller screen and no dynamic island are compensated for with stellar battery life, efficiency and the A18 chip which is present in its big brother.
• This means that almost all of the software features of iOS18 will work just as well on the 16e including all the features of Apple Intelligence.
• Hence, Apple is really pushing the battery life with a claim of 16 hours of video playback and up to 12 hours more battery life than older iPhones.
• Here, the comparison is being made against iPhones 11, 12, SE (2^nd Gen), SE (3^rd Gen) and the 12 mini highlighting that Apple is mainly going after the users of older iPhones who are more cost-conscious.
• It does not compare particularly favourably with Android as at this price point, users get a lot more hardware bang for the buck.
• Instead, Apple is trying to make up the gap with software (which for older iPhone users it does) but against Android users, I think it will struggle.
• The real test here is the in-house C1 modem which finally makes it to market after many years of trying.
• This means that Apple thinks that it has worked out how to make a 5G modem that works just as well as Qualcomm or MediaTek when it comes to 5G, but no amount of band analysis, lab testing or specification comparison will determine whether it is good enough.
• The acid test will be whether users notice any difference in connectivity compared to other devices that use Qualcomm or MediaTek modems because it is this that will determine whether the C1 and its successors can replace Qualcomm entirely.
• The place where this will be noticed will be where there is poor coverage or network congestion as there is nothing more frustrating than seeing your device fail to operate when everyone else is continuing as normal.
• In many ways, the iPhone16e is an experiment to see whether the C1 modem is ready to roll out across the rest of the range and if it is, then Apple will be free to restart legal hostilities over the patent royalties that it pays to Qualcomm via its contract manufacturer.
• Apple gave up its fight against Qualcomm over patent royalties in 2019 because it needed a working 5G modem and at the time had nowhere else from which to source one (see here).
• It also signed a relatively short patent agreement (usually 10 years) as it thought that it would have a working modem by the end of that agreement and be in a position to reopen patent hostilities.
• However, the 5G modem proved much harder than expected with several false starts meaning that it is only now that Apple thinks that it is in a position to compete with Qualcomm on modem quality.
• If this is successful, then I do not doubt that it will roll the C1 and successors quickly through its portfolio and refuse to sign a new patent licence when the current one expires in March 2027.
• This will set the stage for yet another fight over royalties but by then 6G will be starting to make an appearance.
• Crucial to the patent fight will be whether Apple decides that early access to 6G is important for its device portfolio.
• I am pretty sure that when it comes to 6G, Qualcomm will be the first to produce a commercially viable modem (as it has in every generation since 3G) and so if Apple decides it needs 6G early, it will again have nowhere else to go.
• Hence a decision to go with 6G early or the users noticing that the iPhone16e has inferior connectivity in difficult wireless environments could scupper Apple’s desire to have another go at paying lower royalty rates to Qualcomm.
• Either way, it is still much too early to know how this will pan out, but Qualcomm is already planning for a fall in modem share from 100% today to just 20% of the models that are launched in 2026 and it has communicated this clearly to the market.
• Hence, I think that Qualcomm is taking the sensible approach of planning for the worst but hoping for the best meaning that the balance of probability is that it does better than it has assumed.
• However, the real question is whether Apple will be in a position to re-open its patent fight and it is the performance of the iPhone 16e that it is likely to decide the matter.
• With relatively conservative long-term guidance and increasing penetration of new markets such as laptops and vehicles, I don’t think that this is going to trouble Qualcomm’s fundamentals too much.
• Hence, I am quite happy to continue holding the shares.

• Qualcomm used its 2024 investor day to focus on the areas outside of smartphones where the diversification strategy that was laid out in 2021 is starting to bear fruit.
• It also gave some targets for its businesses outside of smartphones which, in some cases, look pretty conservative to me and could be handsomely beaten.
• The strategy is simple in that the company identifies a market vertical which is going through a dislocation such that connectivity and processing are becoming important, and then adapts its silicon and builds software to help clients deal with the dislocation.
• Qualcomm also attacks markets where vertical players use the technology barrier they have constructed to keep competition at bay and brings those barriers down with its horizontal approach.
• This is exactly what it did in smartphones and, combined with MediaTek, it has enabled the Chinese smartphone makers to dominate the Android market.
• This is currently being repeated in ADAS and I suspect that in time we will see it in The Metaverse if the segment ever takes off.
• This has worked extremely well in automotive and The Metaverse and is now being applied to both PCs and Industry.
  • First, Automotive, where Snapdragon Digital Cockpit has become an industry standard, and Snapdragon Ride is rapidly taking share from Mobileye.
  • These chipsets directly address the migration of vehicles from being hardware-defined to software-defined as well as the slow progression towards being able to drive themselves.
  • Here, Qualcomm is targeting $8bn in revenues in 2029 up from $4bn in 2026 and its $45bn pipeline covers 80% of this target.
  • Second, PCs where Windows-on-Arm finally delivers on the promise of excellent performance and great battery life rather than having to make a compromise.
  • Qualcomm now has just over 50 design wins in this segment up from around 20 when it launched which is expected to grow to 100 design wins by 2026.
  • Qualcomm estimates that 90% of laptops will be AI PCs (i.e. have an NPU) by 2029 of which 30% to 50% will be non-x86 products.
  • This gives a $4bn revenue target in 2029 which at the mid-point of these numbers and 75% share of non-x86 PCs, gives an ASP of $60 per chip which looks pretty low to me.
  • Hence, I think that there is a lot of margin for error in this estimate which is not unexpected given how uncertain the speed of change can be.
  • I see space for a big outperformance of this forecast.
  • Third, Industrial which has had some difficulty recently, but where Qualcomm now intends to perform a rinse and repeat of Automotive.
  • This will not be easy, given how fragmented and different all of the verticals are, but having Saudi Aramco as a cornerstone client is a big vote of confidence.
  • Both Honeywell and Deloitte chimed in to support Qualcomm’s Industrial offering.
  • The target for 2029 revenues is $4bn which again leaves quite a lot of wiggle room as business very rarely progresses as one expects.
  • Fourth, The Metaverse which is where I think the real risk to the forecasts lies.
  • Qualcomm contends that the ability to use natural language as the man-machine interface greatly reduces the shortcomings of using a head-mounted display which will help The Metaverse to win adoption.
  • RFM Research generally agrees with this view, but there are a lot more barriers that need to be overcome for take-off of The Metaverse and a 30m annual unit shipment target in 2029 is a punchy estimate on that basis.
  • Apple’s struggles in this market and the heavy subsidisation that is required to sell units are indications of just how immature it is and that the technology is far from ready for the market.
  • However, if it does take off, then Qualcomm is in pole position as it is pretty much the only supplier to this market and it has 100% share at the leading supplier, Meta Platforms.
• When one adds all of this up one gets $22bn in revenues in 2029 up from $8.3bn in FY2024 which assuming mid-single digit growth in handsets gives 41% of revenues in 2029 coming from non-handset sources.
• This means that the 50% non-handset revenue in 2030 is unlikely to be met, but this is an aspiration rather than a hard target and it looks like the company will get there shortly after 2030.
• I continue to think that most of these numbers have not been incorporated into financial forecasts and so I think it likely that long-term FY2027 and beyond estimates will now start to rise.
• This means that growth of 10% or better for the next 5 years looks reasonably safe and with operating expenses stable as a percentage of revenues and cash being returned via buybacks, EPS should grow somewhat faster.
• Even without further multiple expansion and upside surprises, the shares should deliver a steady return over the next 5 years leaving me very happy to sit on my position.

• It looks like growth is becoming a real problem at Apple as it is considering entering segments where its competitors have seen very little success in a sign that Apple is pretty much out of ideas.
• The correct response in this scenario would be to return all of the excess cash to shareholders via buybacks and dividends although this would almost certainly cost Apple its high PER multiple.
• Two new products are under consideration for launch both of which would be targeting the smart home segment.
  • First, Apple iHub: which is a tablet-like device similar to Alexa Echo Show or Google Nest Hub Max that can be attached to a wall or sat on a counter and is mostly controlled by voice.
  • This makes sense as the kitchen is one of the few use cases (like the car) where voice is currently often used as the man-machine interface.
  • Apple will add all sorts of tweaks like proximity and Apple Intelligence to the device, but I fail to see how this is suddenly going to breathe life into the home automation segment.
  • The biggest problem with smart home is fragmentation where there are hundreds of manufacturers making thousands of different products none of which seem to work very well together.
  • Even Amazon which is the king of the smart home has largely failed to get it to take off and so I struggle to see how Apple will succeed.
  • Second, Security Camera: which is a sub-segment of the smart home and would undoubtedly be part of the iHub package.
  • This is a segment that is dominated by Amazon and Apple’s Apple Home platform currently does not support some of the leaders in this space such as Ring and Blink who have chosen to go their own way.
  • This is precisely the kind of fragmentation that keeps the smart home segment as a niche rather than something that every household is rushing to implement.
  • Apple is very unlikely to take a conciliatory view here and encourage interoperability instead is likely to stick with its usual “my way or the highway” approach.
• The net result is that these devices look like an attempt to restart flagging revenue growth and do not really represent a new and original digital use case for users.
• This seems to imply to me that Apple is really struggling to grow and is also pretty much out of ideas in terms of how to do that.
• The Metaverse remains years away as the weak sales of the Vision Pro and Oculus Quest indicate, meaning that Apple needs to find something else or face stagnation.
• I don’t think that a foray into the smart home is going to fix the growth problem and so low growth looks to be the outlook from here.
• A 2025 PER of 30.4x is expensive for a company in this position even if it is very profitable giving me yet another reason to look elsewhere.

• Samsung is having trouble with more than just high bandwidth memory (HBM) as it appears that it is considering not using its Exynos processor in some of its 2025 smartphones which will benefit Qualcomm and potentially MediaTek.
• It is no secret that Samsung has struggled with its in-house applications processor for some time and with Qualcomm returning to a custom processor and MediaTek competing more closely, it has been falling further behind.
• Furthermore, it has also been struggling with yields for its processors on its leading-edge nodes meaning that Exynos is both not very competitive and more expensive to make in-house than outsource.
• I view this as the latest symptom of a chronic illness that Samsung has been suffering from for many years which I refer to as engineering disease.
• This is the tendency to make everything in-house regardless of whether or not it makes strategic or business sense to do so.
• Another chronic sufferer is Google which has spent billions making consumer devices which have never made any real impact and from which shareholders have received nothing but losses.
• However, recent months have seen signs of some improvement as it has been working more closely with Google and a potential move to use 3^rd parties in its high-end devices would improve the outlook further.
• The most obvious winner is Qualcomm which already has a very strong position at Samsung where its latest Snapdragon 8 Elite is likely to feature strongly in the 2025 lineup.
• However, Samsung understands as much as anyone the kind of dependencies that result from single-sourcing, and so I think that it will be also looking elsewhere.
• Here, MediaTek is a viable option as the company and its products have come a long way in recent years and is snapping at Qualcomm’s heels in terms of its performance.
• For example, according to early benchmarks (somewhat unreliable), MediaTek’s Dimensity 9400 is 13.3% slower on GeekBench 6 single core and 9.2% on multicore.
• Given the jump that Qualcomm has registered with its 8 Elite using its new custom processor, this is a good result for MediaTek.
• These are early scores and as such, there will be mitigating circumstances, but the early indicator is that the Dimensity 9400 is able to stay in touch with the 8 Elite as a contender to power high-end smartphones.
• Qualcomm already has a very strong position with Samsung and so it looks to me as if MediaTek has the most to gain relatively should Samsung not use its in-house processor in its high-end smartphones in 2025 and beyond.
• However, when it comes to broadening the business into areas outside of smartphones, Qualcomm has a big lead as it is already the standard processor in automobile infotainment units and head-mounted Metaverse devices and is mounting a credible challenge to Intel and AMD in PCs.
• MediaTek is not sitting still and its partnership with Nvidia may present a serious challenge, but it is probably 2 years behind in terms of getting to market.
• The net result is that Qualcomm’s path to long-term revenue growth is clearer to see meaning that while the valuations are similar, Qualcomm is a lower-risk investment on this theme.
• This is why I continue to own Qualcomm and remain very happy to sit on my position.

• Huawei is goading Apple by releasing a completely new product just after Apple released more of the same but the $2,800 price is a sign that in reality, Huawei is really struggling to make products that have cutting-edge performance.
• Hours after Apple launched its iPhone 16 lineup, Huawei launched the Huawei XT a completely new folding smartphone that has three screens as opposed to the more commonly available, two.
• When unfolded, the three screens create a 10.2” tablet that is just 3.6mm thin where Huawei has also managed to squeeze in a total of 5,500mAh of battery made up of three cells each of which, is less than 2mm thick.
• Even when closed, the device is less than 10mm thick which is similar to an iPhone with a sturdy protective case attached to it meaning that carrying this device is a perfectly rational proposition.
• However, it looks fragile and plastic laminated folding screens scratch extremely easily and so any real-world use of this device is going to need a case which will make it much thicker than it appears.
• This is a device that is clearly aimed at hammering Apple’s appeal in China and in terms of adding something new and different to the line-up, Huawei wins hands down, no contest.
• However, this device starts at RMB20,000 ($2,800) meaning that Chinese consumers could buy three iPhone 16s or an iPhone and an iPad and still have money left over for the same price.
• Despite this eye-watering price, pre-orders apparently have been excellent with 2.7m as of Monday 9^th September passing 5m as of Wednesday the 11^th of September with the device scheduled to go on sale on September 20^th.
• These are big numbers and imply that Chinese consumers are willing to spend $14bn on a mobile device they have not seen, touched or experimented with.
• They also imply that if the price was lower, the numbers would be much larger which may have been a better strategy to get even more volume, but I am not convinced Huawei had much choice but to price the device at this level.
• Samsung’s current flagship is priced at $1,899 and I don’t think that adding an extra screen to a folding device would warrant an uplift of this degree.
• Consequently, it leads me to wonder why the price is so high and my suspicions immediately come to the silicon.
• Huawei was pretty quiet on this issue leading me to think that it will be using the Kirin 9010 5G processor or some derivative of it in this product.
• This chip is produced using the 7nm multi-patterning technique which both Intel and TSMC tried and discarded in favour of Extreme Ultraviolet (EUV) because they could not get yields to economic levels.
• This makes the few chips that are viable at the end of the manufacturing process extremely costly and I suspect that is a factor in the price of the device.
• Furthermore, tests have shown that the performance of this generation of silicon is mediocre at best, and this is going to be an area where Apple can take the fight to Huawei in China.
• China has no access to EUV technology and so it is stuck with the uneconomic multi-patterning technique, and I think that what we are seeing here is SMIC passing this cost to Huawei which has in turn passed it to the Chinese consumer.
• Consequently, I doubt that this device is likely to ship in any meaningful volume outside of China as this is more about geopolitical PR games than it is a serious attempt to make money in the smartphone market.
• This combined with the fact that Huawei is being seen as a symbol of national resistance to sanctions and the irrelevancy of Apple Intelligence in China is going to keep Apple on the backfoot in one of its biggest markets.
• Around 18% of Apple’s revenues come from China and the outlook is that this going to continue to decline with time as China continues to decouple from the rest of the world.
• This is just one reason why growth will be hard to come by meaning that the shares look pricey at 33.0 x 2024 PER.
• I am happy to stay away.

Apple FQ2 24: Bounces off the bottom.

• Apple reported reasonable results and predicted a better FQ3 as the stabilisation in the smartphone market and continued growth in the services business are arresting the revenue decline.
• Apple also sprinkled its commentary with as much AI as possible promising that it would share “some very exciting things with our customers soon” raising expectations that it intends to slay the generative AI bugbear at WWDC in June.
• FQ2 revenues / EPS were $90.8bn / $1.53 just ahead of forecasts of $90.4bn / $1.51 and the company guided better for FQ3.
• Here, the company overall is expected to grow by low single digits (1%-3%) and within that services will grow at double digits.
• Signs of stabilisation and the promise of answering generative AI critics within a month came as a relief and the shares rallied 6% in after-hours trading.
• Most telling of all is the massive $110bn stock buyback program which is a sure sign that Apple is now a middle-aged company and that growth from here is going to be very hard to come by.
• It will still continue to have the most valuable digital ecosystem, make the best smartphones, and print cash like there is no tomorrow, but real growth does not look like it is coming back.
• There is nothing wrong with this, but Apple will struggle to justify the 25x FY2025 PER multiple that it trades on and buying back $110bn of stock will help reduce the multiple without the share price having to fall.
• Hence, I think that the share price could easily underperform EPS expansion making this a lacklustre, albeit pretty safe place to invest which is not for me.

Peloton Q3 24: All hands on deck

• It is always dangerous to send a CFO to do the CEO’s job, but I thought that this was an exception and I got it badly wrong.
• Peloton reported relatively reasonable results, but CEO Barry McCarthy’s tenure has come to an end as the board is giving up on his ability to turn the ship around and is looking for another captain.
• Peloton has also announced a further $200m cost reduction program that will reduce headcount by another 15% which is an admission that the strategies for growth put in by Mr. McCarthy have not delivered as expected.
• In his defence, I think that some of the partnerships he put in place set the subscription business up well, but they have yet to deliver the value expected.
• The company is also engaged in restructuring its debt position in another admission that things are not going well at all.
• Q3 24 revenues / EPS were $718m / LOSS$0.45 broadly in line with forecasts of $718m / LOSS$0.36 but no one was paying attention to these.
• The only thing that matters is cash flow from operations and here the FQ3 24 numbers are still red at $99m but this is much improved from the $332m that left the business in the same quarter last year.
• The problem is simple, the business is carrying far too much general and administrative expenses for a company of this size, and it needs to be cut which is what has been announced.
• At its heart, the core subscription business is fine with 3m subscribers remaining pretty loyal, paying every month and delivering 68% gross margins.
• I think the problem boils down to Mr McCarthy wanting to fix the business and return it to growth all at the same time.
• What I would have preferred to see would have been a clean-up where the finances stabilize and generate cash so that the debt can be dealt with and then using those proceeds to invest for growth.
• Mr McCarthy didn’t really have that kind of time which is why I suspect he made the choices that he did.
• If one extracts the subscription business this is easily worth $4bn – $6bn on its own and the problem has always been cleaning up the mess that surrounds it.
• The problem is that the mess is much greater than expected and Mr McCarthy’s inability to execute the clean-up leaves the shares at all-time lows.
• What the company needs now is a hard-nosed fixer who will make the changes required to stabilize the business and at that time, I suspect a sale to private equity or a larger fitness player is probably quite likely.
• I bought a small position in Peloton at $6 and am now faced with the prospect of doubling up, getting out or doing nothing.
• There is still plenty of upside in the company but whether this will accrue to the shareholders or the debt holders is not clear.
• One for careful consideration.

• Huawei’s new Pura 70 Ultra smartphone sports some interesting satellite functions and uses a new applications processor but even a modicum of scrutiny reveals that the chip is both uneconomical to manufacture and further behind the cutting edge compared to a year ago.
• Huawei has launched the Pure 70 Ultra with some extra bells and whistles which will draw attention away from the fact that its issues in silicon are not getting better.
• These features include a retractable zoom lens and the ability to send compressed images over a satellite connection in an emergency but most attention should be paid to the silicon.
• This is because the applications processor is what will determine how fast the phone performs and how long its battery life is.
• These are key competitive features, and the signs are that Huawei is falling further and further behind.
• The Pura 70 Ultra is powered by a new chip from HiSilicon called the Kirin 9010 and while no one is yet sure, most commentators think that is made on the same process as the Kirin9000S that came before it.
• This process is a multi-patterning technique using older deep ultraviolet lithography that will allow chips to be made at 7nm and potentially 5nm without having to use extreme ultraviolet lithography (EUV).
• China has no access to EUV and so it has no choice but to use it if it wants to make chips at these geometries.
• Both Intel and TSMC found after trying to use this technique to make chips at 7nm, that the yields were so low that they abandoned it and switched to EUV for 7nm and below.
• When yields are very low, almost all of the chips that are made have defects rendering them useless meaning that all of the capital cost of manufacturing has to be earned on a tiny number of chips.
• This is an uneconomical state of affairs, and it is generally accepted that only through the use of EUV will yields be high enough to earn the cost of capital and some profit.
• However, without EUV, this is all Huawei is left with and the falling gross margins at SMIC (Q4 23 16% compared to Q4 22 31%) are a sign of how much economic pain this can inflict.
• Gross margins are expected to have fallen again in Q1 24 as a result of this activity.
• Furthermore, the Kirin6010 does not have cutting-edge performance which in the last 12 months has moved on yet again.
• Tests on the chip (see here) show it can perform to a similar level as Qualcomm’s Snapdragon 8 Gen 1 but will consume 30% more power to do so.
• This is not a big surprise as Snapdragon 8 Gen 1 is made on Samsung’s 4nm process and so one would expect it to consume more power.
• The current generation Snapdragon 8 Gen 3 is two generations ahead and although it is made on TSMC’s 4nm node, it is still 30% faster and consumes 20% less power than the Gen 2.
• This is a demonstration of how the limitations being placed on the Chinese semiconductor industry are causing it to fall further and further behind.
• This means that SMIC will be unable to make these chips in large volumes without financial assistance because as more of its production moves in this direction, the closer it comes to going bankrupt.
• This is why I don’t think we will see Huawei sell these devices outside of China because there will be no patriotic feeling that drives consumers to purchase a Huawei device.
• Furthermore, The Chinese economy is not in a great state and the government does have limitless funds to pour into the financial blackhole that is 7nm or 5nm manufacturing using DUV.
• Hence, I continue to think that the ideological struggle that is being fought in the technology industry continues to favour the USA as this problem is beginning to affect other areas like AI where China is a real contender for global leadership.
• Hence, 2024 looks like it is going to be a difficult year for China with economic problems and evidence of the USA restrictions having precisely the desired effect.
• This combined with China’s priority of control over free enterprise means that the Chinese technology sector will remain hobbled both in terms of its ability to develop technology as well as attract investment.
• This will serve to accelerate the decoupling which is now well underway as well as divide the technology sector into two distinct and incompatible pieces.
• Restrictions will only make China push harder for self-reliance, meaning that it will create its own standards wherever it can.
• The Balkanisation of the global network inevitably means less growth for all of the technology sector in the long term.

• There is little doubt in my mind that over the years Apple has engaged in some questionable competitive practices, but conclusively proving that Apple has harmed consumers through its practices will be difficult to prove.
• The US Department of Justice has filed an antitrust lawsuit in federal court that accuses Apple of imposing contractual limitations on developers and making it more difficult for users to switch devices.
• A great example of the US complaint was the issue over parental control apps that occurred in 2019.
• Parental control apps typically used a technology called mobile device management (MDM).
• This was administrator-level software installed on the device that allowed a 3rd party to see what was happening on the device, where it was, read the data, control installs and updates and so on.
• Apple had tolerated this software on its devices for years but co-incidentally decided that MDM violated the policies of the App Store once it had launched its own version the same thing called Screen Time.
• At the time, Screen Time was not nearly as comprehensive as some of the 3rd party products and offered far fewer options than they did but this threat was dealt with by banishing most of them from the store (see here).
• Apple will put up a perfectly rational argument as to how it had to do this for security and privacy reasons, and it will be up to the court to decide whether these are genuine or just a smoke screen.
• Over the last 17 years, there have been several examples of this sort and now I suspect that a large number of companies will emerge from the woodwork to support the government’s case.
• Despite this and other examples, I find it difficult to conclude that consumers have been harmed or that Apple’s current market position has been obtained by anything other than competition on its merits.
• The facts of the matter are that Apple’s user experience, its consistency and the seamless integration of different device categories are better than anything else on the market.
• This is why it has obtained the position that it has, and the government’s lawyers had better all switch to Android before the case begins or face being wrongfooted in the courtroom.
• Despite the merits (or lack thereof) of the government’s case, this is yet another uncertainty that Apple does not need right now.
• Apple is losing market share in its 2^nd biggest market, China, and its failure to launch a generative AI product of some description is causing the market to remember just how bad it is at AI.
• This is not a new phenomenon as Siri has been 3^rd rate for years, but the market is beginning to remember just what a hole in its armour this is now that the AI hype cycle is back in full swing.
• This case is going to drag on for years and there will be appeals, counter-appeals and a lot more back and forth before it is finally decided which creates long-term uncertainty that the company does not need.
• This is especially the case with the shares trading at 26.0x 2024 PER and 23.9x 2025 meaning that there remain much better places to look for a better long-term return.
• I am more than happy to watch this latest legal fracas from the sidelines.

• The latest upgrade for Apple CarPlay may seem to be small, but I suspect that it is merely the first change in a series of many that intend to end in a complete takeover of the infotainment hardware and software by Apple.
• Needless to say, this will be a disaster for the OEMs as they will have become nothing more than app developers for their own vehicles and digitally irrelevant.
• Apple has announced that in iOS 17.4, compatible vehicles will be able to display Apple Maps navigation data in the instrument cluster.
• Predominantly, this will be the next manoeuvre and how far it is to the turn and so on.
• This is a very far cry from what Apple confidently announced at WWDC in 2022 when it announced what looked like a complete takeover of the instrument cluster including critical data like speed and engine revolutions.
• The problem with this is that vehicle critical systems such as the instrument cluster have to operate at a higher level of redundancy and reliability than a smartphone can offer.
• This means that Apple’s idea of running the instrument cluster on the iPhone went nowhere as soon someone had to really look beyond slideware towards implementation.
• The projection of navigation information onto the instrument cluster is non-mission critical, so it is possible for data running on a smartphone to be projected into this space and for media, which it already does in many vehicles.
• The implementations that I have seen of this so far are pretty clunky and unappealing but admittedly I have not seen the launch product.
• So far only Volvo, Polestar and BMW will support this but if it becomes a popular CarPlay feature, others will be forced to follow suit.
• I have long thought that this is exactly what Apple wants as then users will begin to expect and demand it meaning that OEMs will be forced to support it whether or not they wish to.
• From there, it is a long and slippery slope that ends with users demanding a whole infotainment unit from Apple with a refusal to comply being met with a boycott of that OEM brand.
• This is why now is the time to push back against this strategy which is why I think that GM has done the right thing in abandoning both CarPlay and Android Auto in the vehicle.
• It will be much harder to evict Apple from the vehicle when its grip is much stronger than it is now and as the digital ecosystem in the vehicle has barely begun, the OEMs still have a good chance to be digitally relevant in the vehicle.
• This is crucial as this is the only way that they have a chance to be the distribution system for apps and services in the vehicle which in turn is their best chance at earning a decent revenue stream.
• This will be critical as RFM Research forecasts that vehicle shipments could fall by 50% or more as a result of electrification meaning that the OEMs desperately need another revenue stream to survive.
• Their track record to date in software is pretty awful and only Tesla is on track to fare well in the digital automotive ecosystem.
• RFM research has concluded that the advent of high-quality voice (LLM-powered) as a man-machine interface offers OEMs another opportunity to turn their fortunes around.
• They need to grab this with both hands as Apple and Google remain perfectly happy to turn OEMs into handsets on wheels regardless of what they say in their marketing materials.

• Samsung‘s new s24 line-up looks exactly like the s23 but the hope is that the new AI features (almost all of which come from Google) will provide all of the incentive to upgrade to a new Galaxy or horror of horrors switch from iPhone.
• As usual, there are three devices the s24, the s24+ and the s24 Ultra with a matt finish, a titanium body and some camera tweaks being the main changes from last year.
• All of the devices are running Qualcomm’s Snapdragon 8 Gen 3 and the combination of Google, Qualcomm and Samsung all working together is what has infused the device with AI-powered functions.
• Infused is the right word to use because there are no new apps or services but in many of the existing apps there is now a group of stars lurking in a corner from which the new functionality can be accessed.
• Those who are paying attention will realise that this group of stars is the Google Bard logo and so it is pretty safe to say that all of the new functionality that Samsung hopes will drive sales comes from Google.
• Of Bixby, there was no mention, but it is in the same place as before and I am pretty sure that users will quickly turn it off when they get their phones and then forget that it exists.
• I have seen no real progress in Bixby for years and with the latest crop of generative AI assistants, it looks even more dated and outclassed than ever.
• However, the AI features that Google is powering now finally have a chance to shine as limiting them to the Google Pixel almost guaranteed that no one would notice. ‘
• This is a classic example of why Samsung and Google should work much more closely together as each excels in the area where the other flounders.
• Deeper integration of Samsung and Google is the only hope for the Android ecosystem to mount a challenge to Apple and progress on this front is extremely slow.
• The new AI features are pretty much what Google announced for the Pixel such as real-time translation, generative AI photo editing, slow motion enhancement, circle to search and so on.
• When it comes to these sorts of features, Apple is miles behind but while Samsung continues to mess about with software and Google pretends that it has a chance in hardware, it ceases to matter.
• To be fair to Samsung, the device software that it does do is pretty good these days, but it has taken Samsung many years to get there and now all of the differentiation is in AI-enabled features.
• I don’t see AI as a core competence of Samsung so its best option to compete against Apple remains to go all-in with Google.
• AI is also Google’s best shot against Apple and Samsung remains its best chance at getting its new AI services into the hands of users and breathing new life into the Android ecosystem.
• This is going to take some time and so for the moment the challenge to Apple from Samsung and Google has yet to materialise in a meaningful way.
• However, the more AI drives device functionality, the more Apple is likely to fall behind and the legacy of the iOS ecosystem will only hold up for so long.
• AI is becoming a pressing issue for Apple where it has struggled for years but it has more resources than anyone else giving it the opportunity to catch up.
• With difficulties in China and a high valuation I would choose Google over Apple if forced but in absolute terms, I would not own either.
• There are better options elsewhere as big tech carried 2023 and I suspect that 2024 might be a different story.