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A year ago: customers testing the then-new iPhone 7 at an Apple store in Shanghai.
A year ago: customers testing the then-new iPhone 7 at an Apple store in Shanghai. Photograph: Johannes Eisele/AFP/Getty Images
A year ago: customers testing the then-new iPhone 7 at an Apple store in Shanghai. Photograph: Johannes Eisele/AFP/Getty Images

The $1tn question: how far can the new iPhone 8 take Apple?

This article is more than 6 years old
The company is within reach of a stock market milestone: this week’s product launches could see it achieve a 13-figure valuation

Apple’s stock market value is heading towards a new milestone and its latest product launch on 12 September could push the tech giant closer to becoming the first ever $1tn (£760bn) company.

At the end of last week, the company’s market capitalisation hovered around $830bn, continuing a 10-year run that has generally headed upwards since a low of $69bn in January 2009, during the financial crisis. Tuesday’s event, with the iPhone 8 the star attraction, will strive to meet investors’ – and customers’ – vaulting expectations.

But what will Apple tempt users with to justify Wall Street’s faith in its future profits? An Apple spokesman declined to discuss what will be revealed at the event in the company’s $5bn, spaceship-shaped Cupertino headquarters. However, although Apple is always tight-lipped, this year leaks from its suppliers, and from the company itself (through details embedded in a software update) have told us much about what’s coming.

iPhone

The smartphone market is more competitive than ever, with sophisticated devices available for much less than the rumoured £900 cost of the iPhone 8. Most rivals are swallowing losses by cutting prices to win sales but Apple is heading upmarket to protect the iPhone, which is crucial to its success.

Three new models are expected: two updating its present 7 and 7 Plus models (probably called the 7S and 7S Plus), and one entirely new – the iPhone 8. Internally known as “D22”, its screen will unlock via facial recognition, potentially replacing the fingerprint unlock system used since 2013. The screen will also cover more of the front, allowing the display to go right to the edges. And the screen will use a technology bought from Samsung – called Amoled, or active matrix organic light-emitting diode – which gives brighter colours. It could also mean the new phone will have a longer battery life because it does not need to be backlit, unlike the LCD screens Apple uses presently.

But none of these technological tweaks are cheap – hence the £900 price tag, compared to the £719 starting price of the larger iPhone 7 Plus.

Apple's share price

The new phone will be a tricky sell, says Jan Dawson, who runs US-based tech consultancy Jackdaw Research. “It has to get the balance just right, giving people a compelling upgrade in the successors to the iPhone 7 and 7 Plus, while also offering up a higher tier,” he explains. “It has to do that without alienating people who can’t afford or justify spending the higher price for the new device, but don’t want to settle for second best.”

The last time Apple had a “second best” phone, the plastic iPhone 5C in 2013, its sales were slower than expected, while demand for the top-end 5S outstripped supply. Apple needs to avoid that happening again, says Dawson: “It has to supply the new premium phone in high enough numbers so that if there’s a big demand shift from the standard models to the new one, it doesn’t end up depressing overall sales while there are supply constraints.”

Apple seems confident. For the current quarter, it has forecast revenues of $49bn-$52bn, which would represent growth of between 4% and 11% from a year ago, and bring its performance back to 2015 levels. Dawson expects that iPhone sales will grow year-on-year in the October-December and January-March quarters: “Much of the timing of that growth will depend on the supply constraints.”

Wearables

A few years ago, “wearables” – the market sector dominated by digital watches and Fitbits – were seen as the next technology hit. But the first Apple Watch, released in April 2015, underwhelmed many reviewers.

None the less, early adopters liked it; the research company IDC reckons 28.8m had sold by the end of July this year. Though Apple doesn’t release unit sales or revenues, it is definitely the world’s most popular smartwatch, while Google’s rival Android Wear business has failed to take off.

Now Apple is readying a version that can use 4G phone networks. It means those who have bought an Apple Watch for fitness reasons – the watch’s biggest customer base – can stream music or podcasts while they run and work out, as well as making FaceTime video or audio calls, getting map directions, and receiving and replying to messages. According to Bloomberg, the 4G version will be on sale at the four US mobile carriers, and possibly through European networks too.

Apple’s wearables strategy doesn’t stop at the Watch: its wireless in-ear AirPods headphones, which have been in short supply since their launch last year, have delighted those who managed to get their hands on them. With supply improving, they could be a Christmas hit.

The Apple Watch: liked by its owners. Photograph: Samuel Gibbs/The Guardian

Home

With the smartphone market now well established, the home is the new battlefield for the big tech companies. A few years ago most people expected that Microsoft would be a serious contender because its Xbox console was installed in millions of living rooms.

But instead Amazon has taken a lead, having sold an estimated 15 million of its voice-controlled Echo and Dot devices, which can provide weather, news and traffic reports and play music, as well as controlling digitally connected lights and similar devices around the home. Google joined in last year with its Google Home device. Now Apple is pitching in with HomePod, a high-quality music speaker controlled by its Siri voice assistant. As you might guess, it’s pricey, with a reported cost of around £349 in the UK.

Also expected is an update to Apple TV, the company’s set-top box, to allow it to stream higher definition pictures. On its own, that might not sound much. But the company has big ambitions in the US market, where millions of homes are abandoning expensive monthly cable-TV contracts and opting for cheaper services such as Netflix. Apple always wants to get ahead of those broader digital trends. Now it aims to become an alternative TV service, offering a la carte programming if you buy its hardware.

However, TV networks won’t license their programmes cheaply because they want to retain the viewers who in turn watch the adverts that provide their revenues. So Apple is having to make its own. Eddy Cue, the executive behind this drive, is well-armed for the fight. As well as hiring TV and film executives, he has bought the rights to James Corden’s Carpool Karaoke and has a $1bn warchest for producing original content. Although that’s a long way from Netflix’s $6bn annual spending, or Amazon’s estimated $4.5bn, Apple is ambitious.

Tim Cook: leading Apple into film and TV production. Photograph: Bloomberg via Getty Images

Software

A new iPhone means a new version of Apple’s iOS software, which will update about 500m existing devices as well as running on the new products. With iOS 11, iPhone and iPads will be able to run “augmented reality” (AR) apps, which can overlay Star Wars spaceships, or map directions, or geolocated information, on to a live camera view on the screen. AR apps are forecast to spark a new app boom; some of them will struggle, but it only takes one success to validate the entire field. And Apple will have an advantage over Android, where AR will only work on a few million devices by the end of the year.

Services

For the past seven quarters, and 12 of the past 19, the fastest-growing part of Apple has been its “services”. Most recently generating $7.2bn – more than either iPad or Mac sales – it includes Apple Music fees, the 30% cut of payments and subscriptions on millions of apps in the App Store, and payment for iCloud storage (where only the first 5GB is free).

Chief executive Tim Cook has repeatedly pointed out to analysts that, on its own, the services segment generates enough revenue to enter the Fortune 100 list of America’s biggest companies. As the iPhone user base grows, and people buy more apps, the services segment keeps growing. And if the Apple TV ploy succeeds, it could really take off. What Wall Street really likes about services, though, is its promise of recurring revenue, separate from hardware sales. If Apple grows its user base, the Services segment grows too; thus it also provides an indicator of the overall health of the company’s ecosystem of hardware, software, users and developers. Suddenly, a $1tn valuation looks attainable – and sustainable.

Surprises

What else is Apple working on? The company’s car project, code-named “Project Titan”, appears to have been scaled down and the firm will no longer build self-driving vehicles: according to reports, it will concentrate on the software behind autonomous cars instead. More likely to arrive sooner are “AR glasses” for putting augmented reality right in front of you. In March the Financial Times reported that Apple is working on such glasses; what’s unclear, as ever, is the timescale. Months? Years? We can’t be sure until Tim Cook shows it off on stage.

More on this story

More on this story

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  • iPhone X: new Apple smartphone dumps home button for all-screen design

  • ‘Let’s try that again…’ iPhone X facial recognition fails at launch – video

  • Apple event: iPhone X, 8 and 8 Plus release dates revealed – as it happened

  • Tim Cook: Apple products aren't just for the rich

  • The billion-dollar palaces of Apple, Facebook and Google

  • 'There’s more time to look and listen to what’s around you': readers on life without a mobile

  • From handsets to Hollywood: Apple joins the dash for content

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