I’m pretty sure that Tim Cook and the executives at Apple (NASDAQ:AAPL) aren’t necessarily fond of people like me. That’s not because I’m lacking as an AAPL fan. In fact, I love their products and have a lot of them. It’s just that I’m content with the ones I already own. I kept my iPhone 4 long past its prime and I have no plans to trade in my iPhone 7 anytime soon. It runs all the apps and programs I need. And it turns out, I’m not alone.
Apple’s phone sales have started to dwindle over the last few quarters as the refresh cycle has gotten longer.
To that end, Cook & Company are facing an interesting problem. How to get people into their latest phones and keep the cycle fresh. And Apple may have just found the answer in augmented reality. AAPL’s long predicted “smart glasses” could be coming sooner than you think and this should help sure forward demand for its higher margined phones.
For Apple stock, it could be the kick it needs.
A Big Sales Issue for Apple
A lot of digital ink has been spilled about Apple’s current revenue and sales problem. The truth is, the tech-super is selling fewer phones than it used to. During the first quarter, Apple reported revenues of $84.3 billion. That’s still a ton of sales, but it was 5% lower versus a year ago. Moreover, services drove the boat. Sales of devices shrank hard with iPhone sales plunging by 15% year-over-year.
The firm has blamed the slowdown in China for the hit. But the real issue is, no one is upgrading their phones as fast as they used to.
When you combine that with the fact that the technology leaps between models aren’t really that noticeable anymore, consumers don’t feel the need to upgrade every year or new model anymore. Going from an iPhone 3 to a 4S was a big deal and brought a lot of change. From iPhone 7 to an iPhone XR? Not so much. The average consumer can’t tell the difference between the A10 Fusion chip used in the 7 and the A12 Bionic chip in the XR.
And with that, Apple has a big-time sales problem.
Apple Leans On Augmented Reality
But Apple may have found a way to get some people to upgrade their phones. The answer could be in augmented reality (AR) or smart glasses. AR devices act as a deported display to provide information right in front of your eyes. As you’re walking around the city and look at a restaurant, you can pull up a menu for it and book a reservation. A tourism app could show information about sites. A quick glance could show where your friends are, what they are doing and even provide a coupon to join them.
This is just a quick idea of the consumer aspects of it. AR has plenty of professional applications as well. Mechanics can look into an engine and see where the problems are. Your surgeon could wear them to help guide them through a bypass operation, etc.
Apple turns out is getting into the AR game in a big way. Back with the launch of OS 11, AAPL created a framework for developers called ARKit. With it, developers have been able to create AR apps quickly and easily. Its latest moves are what could help push people into better and newer devices.
According to topnotch and Apple analyst Ming-Chi Kuo at 9to5mac, the tech giant has been working a new augmented reality headset and is nearly finished with it. Apple’s smart glasses should start going into mass production during the fourth quarter of this year and be for sale at the start of 2020.
The kicker is that unlike Google’s (NASDAQ:GOOG,NASDAQ:GOOGL) forays into the smart glasses market, AAPL’s will use an iPhone to do the heavy lifting and technically be an accessory for it. Your phone will do the processing, location tracking and provide all the networking/internet connection duties.
However, unlike the Apple Watch, the AR glasses will undoubtedly need higher computing to run efficiently and smoothly. You can’t have any drag time if you’re out walking or driving around. Would you want to be on the operating table and have your surgeon’s AR headset be slow? Things need to happen instantly and in real time for AR to work.
This provides an interesting opportunity for Apple to start the refresh cycle anew. Bundling its new AR glasses with a faster iPhone not only gets it the accessory revenue but puts people into its higher margined and newer phones. It’s a win-win.
Considering Apple’s ability to create tweak product categories and make them cool, it could be just what it needs to move the needle. Remember, Apple didn’t invent the idea of a tablet or even the smartphone, but it made them mainstream.
Most AR glasses currently on the market aren’t particularly “cool” looking. But I can almost guarantee that AAPL’s will look pretty darn slick looking when they are released. A few influencers stamps of approval and we’re off to the races.
A Big Win for Apple
While nothing official has been announced, the cards are lining up for Apple and its big win in AR. If and when, the firm launches its smart glasses, investors may get exactly what they need to help boost iPhone sales and continue seeing higher accessory revenues.
In the meantime, AAPL stock still remains cheap and throws off a hefty dividend.
Disclosure: As of the time of writing, Aaron Levitt did not hold a position in any stock mentioned.