We have long invested in the smartphone supply chain, but the pace of technological change has slowed in the last couple years. Where we once saw a fascinating evolution from the “brick phone” to the iPhone, we now observe a relatively dull progression of slightly improved devices.
Yes, the new iPhone X will probably sell well. But does it really excite consumers the way previous generations have? Our international equity team at R Squared just doesn’t see it—and we’re quite sure Apple is thinking the same. While they have had some success with the iPad and Apple Watch products, they must be wondering: “What’s next?”
We present, therefore, a story of glasses—past and future. The tech industry rumor mill suggests that Apple’s next big thing will be augmented reality (AR), and we believe this will happen.
Augmented reality is defined as “an enhanced version of reality where live direct or indirect views of physical real-world environments are augmented with superimposed computer-generated images over a user’s view of the real world, thus enhancing one’s current perception of reality.”
Having trouble imagining this? A fighter jet’s heads-up display is similar to augmented reality. The simplest application to imagine would be a pair of glasses that displays the time, visible in your field of vision as long as you are wearing the glasses. Our international equity managers, however, imagine so many more applications.
For example, someone who is terrible with pairing names and faces, imagine a pair of glasses that superimposes the name of a person over their head as you walk up to them—perhaps even reminding you of some additional details about that individual. The facial recognition technology already exists, just look at Facebook or Apple’s automatic tagging of pictures (and apparently undergarments…). A display that can superimpose generated imagery over what we see exists too—both in the ill-fated, but recently reborn, Google Glass and in Microsoft’s entertainment focused version, the HoloLens.
The question is, can they make it something that people will want to wear? And can they make it work well enough that people will want to use it? Snapchat briefly made technological glasses cool last year—but that was last year.
Apple’s design chops have been criticized of late, as they seem to have made compromises in the design of the iPhone X due to internal technology limitations. No one seems to have cracked the “on screen fingerprint reader”’ and Apple’s Face ID seems like a weird compromise to us. But the rumors are fast and furious about an in-development AR headset, and if anyone can change users’ opinions about digital eyewear, Apple is a likely candidate.
Remember, Apple didn’t create the digital music player or the touch screen phone—but they certainly were amazing at popularizing them and making them “just work.” It remains to be seen, however, if they can do the same for augmented reality.
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As international equity investors, the team at R Squared Capital Management (former team at Julius Baer / Artio Global) utilizes fundamental and macro analysis in our quest to correctly identify structural tailwinds and headwinds at the geographic, sector and company levels.
FROM THE DESK OF HARRY POLISHOOK
Harry Polishook is a Partner and Analyst at R Squared Capital Management.
Prior to joining R Squared, Harry was a Portfolio Manager and Analyst with the International Equities team at Artio Global Management. In 2000, he joined the firm, which was part of the Julius Baer Group, after serving six years as a Securitization Programmer at Deloitte and Touche.
Harry received a Bachelor of Science in Computer Science and Applied Math from the State University of New York at Albany.
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