Apple’s new iPhone is about eyes more than ears

September 7, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Apple’s new iPhone is about eyes more than ears. The removal of the headphone jack created most of the buzz for the latest version of the nine-year-old device. That and other new features unveiled on Wednesday should be enough to sell plenty of upgrades. A new camera, however, hints at Apple’s ambitions in virtual and augmented reality, which could be the bigger temptation.

The iPhone 7 offers plenty of iterative improvements. A faster processor means crisper graphics and apps launch more quickly. Battery life will last longer. Enhanced water resistance should come in handy pool-side. New phones include twice as much memory. And for audiophiles and early adapters, Apple’s new wireless earbuds are available for $159.

These developments fall short compared to the rapid pace of new features just a few years ago, but improving on such an inventive and profitable piece of technology is getting harder. About a third of consumers using Apple handsets are on the iPhone 6 or 6+, according to research outfit Kantar Worldpanel. They were released two years ago. All the small changes made since then add up to a notably better phone.

Some holdouts may wait a bit longer to buy a new phone. Older ones eventually need to be replaced, though, because screens scratch and batteries run down. Improved imaging on the more expensive iPhone 7+ also suggests Apple has bigger improvements in store.

There’s a second camera and programming to allow users to zoom in sharply and create the impression of depth in a photograph. That’s a start to creating and manipulating three-dimensional pictures and video. Moreover, the progress in chip speeds is handy for processing the huge amounts of data required.

Expectations are nevertheless low. Apple’s revenue is forecast by analysts to fall slightly in the current and upcoming quarters. Investors are even less sanguine. The stock trades at just 12 times estimated 2016 earnings, or a 40 percent discount to the S&P 500 Index. After adjusting for more than $200 billion of cash on Apple’s books, it’s even lower.

With so many phones in need of replacing, the valuation is probably too skeptical. Even without a headphone jack, there’s plenty of promise to see at Apple.

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