Day 1 has passed at Best Ideas Newsletter holding Apple’s (click ticker for report: ), and we were hit with a barrage of news. The most pertinent issue of the day was the introduction of iOS 7, the iPhone and iPad’s new operating system. It is the first major overhaul of iOS, and it signals the company is serious about bringing positive changes. In addition to a new mobile operating system, Apple unveiled iTunes Radio, a streaming music service to compete with the likes of Pandora (click ticker for report: ) and Spotify. Lastly, the firm unveiled its newest Mac Pro—one of the most innovative products we’ve seen from the company in the last year.
iOS 7
Image Source: Apple
iOS 7 looks like a promising upgrade, in our view. The most striking difference is the appearance of the icons on the home screen. The font is more pronounced, and the colors and design of standard icons has been changed. Further, the company has enhanced productivity thanks to the inclusion of multi-tasking capabilities. In addition to using switching between apps with less effort, the new operating system will act more intelligently when performing updates and provide users with applications available at relevant times based on past usage. Apple also added an AirDrop function that allows iPhones within a close radius to transfer files.
Siri also got upgraded. Now Siri comes in male and female voices, speaks more realistically, and can change phone settings for users. Additionally, Siri now aggregates answers from Wikipedia and Microsoft’s Bing (click ticker for report: ) for search results. Although we’re sure Microsoft appreciates the new revenue stream, we do not believe it materially benefits Microsoft or hurts rival Google (click ticker for report: ). If anything, it underscores the deep hatred Apple has for Android’s parent company. If Google wasn’t so popular, we think Apple would have already banned its applications from the iTunes store.
One final upgrade iOS 7 received was filter (new editing) functionality. We believe this is long overdue since a pre-emptive filtering system may have stalled Instagram in its infancy. Though it’s a nice upgrade, we think Instagram is pretty well entrenched at this point. Facebook (click ticker for report: ) has no reason to worry that its $1 billion acquisition is facing any serious competition from Apple. Plus, even if users started posting pictures filtered in Apple, the pictures would likely go on Facebook or Instagram anyways.
Overall, we think iOS 7 does a nice job of making Apple’s mobile operating system look newer, though it comes at the expense of some design borrowing from Android. We think John Ive’s design will improve functionality while preventing users from getting “tired” of iOS.
iTunes Radio
Image Source: Apple
We wrote extensively about the “iRadio” rumor last week, so we were glad to see the service confirmed. As we predicted, Apple will have some exclusive content, and its service mimics Pandora and Spotify Radio. However, we must admit we’re a bit disappointed in the company’s decision to display text and audio advertisements. Yes, we think the service will be a serious competitor to Pandora, but we think iTunes Radio could have buried Pandora if it offered ad-free, unlimited streaming.
Since it will have some useful features that Pandora and Spotify lack (think on-demand song/album purchases), as well as a large installed base, we think iTunes Radio will gather steam quickly and establish formidable market share. Siri can even take station/song requests. Still, we think free streaming could potentially obliterate the competition and make iOS even more attractive and harder to leave. We’ll see how this story plays out, but we are disappointed Apple won’t be “Amazon-ing” Pandora.
Mac Pro
It hasn’t been since perhaps the iPad that we were struck with a “what is that?” moment. Apple proved it still has some innovation left in the tank when it unveiled its Mac Pro. The newest desktop offers a complete redesign inside-out. It is smaller and more powerful than its predecessor. We think this machine could be very attractive to consumers and business users.
In a positive read-through, Valuentum favorite Intel (click ticker for report: ) will have its 12 core Xeon processor power the device. Though not necessarily material, it demonstrates Intel’s dominance in the high-end computing space.
Unfortunately, the desktop market remains soft, and the product likely won’t push the needle for the company. However, we think it eliminates the rumor about the death of Apple’s innovation. In fact, a few years ago the Mac Pro would have stolen the show, in our view. The firm’s ability to rethink the desktop computer is a net-positive.
Valuentum’s Take
We’ve long thought the rumor of innovation death at Apple was a myth. The Mac Pro underscores the company’s ability to redesign and image hardware (Image Source, right: Apple). iOS 7 helps update Apple’s appearance, and we think the new features will help increase iPhone functionality. Of course, the OS has “borrowed” some elements from Google and Microsoft, but both companies have previously borrowed from Apple.
iOS 7 and the Mac Pro certainly met, if not exceeded expectations, but iTunes Radio was a bit of a letdown. Amazon has proven how easy it is to disrupt an industry by accepting low/no margins, and we thought Apple should have taken the tiny bottom-line hit to subsidize iTunes Radio. Nevertheless, we think Day 1 of the conference was an incremental positive for the company. We believe shares look attractively valued, and we hold them in the portfolio of our Best Ideas Newsletter.