3 New Products Apple Could Release in 2014

On Monday, Apple  (NASDAQ: AAPL  ) released earnings that came in slightly ahead of expectations. Both sales and earnings beat expectations from the Street, yet the next day the company's share price slid 7.99%

Instead of focusing on Apple's surpassing sales and earnings estimates last quarter, investors zeroed in one key area: iPhone sales. Apple sold 51 million iPhones last quarter, well below the 55.4 million analysts hoped for. Not only that, but Apple's guidance for next quarter came in light. The implication? iPhone sales could once again disappoint next quarter. 

The story across the past year has been that Apple has been unable to keep up with global growth in both tablets and smartphones. Across 2013, researcher IDC estimated that Apple increased its smartphone shipments 12.9%, but the global smartphone industry grew 38.4%. That lagging growth rate is the result of smartphone growth moving to cheaper phones that can sell for less than $100. That's a price point where Apple doesn't have competing products, nor does it have much interest in joining the cutthroat low-end competition. 

Investors have begun focusing on what new product categories Apple might focus on, to continue diversifying sales beyond the iPhone and iPad. When asked on the company's post-earnings conference call if Apple would be expanding into new product categories in 2014, CEO Tim Cook answered "absolutely." 

Let's examine three product categories where Apple has expressed recent interest, and their potential to affect Apple's bottom line. In the past year, Apple booked $174 billion in revenue. So any product would need to see $17 billion in sales to account for 10% of Apple's revenue. 

Total Market Size: The television market could be viewed several ways. Looking at televisions themselves, researcher IHS predicted 226.7 million televisions were sold in 2013, down from 255.2 million in 2011. Looking at devices associated with televisions, Gartner pegs the video game console market at $44.2 billion in 2013; $15.9 billion of that total is the hardware in systems. 

Is Apple Interested in this Market?: Apple has a definite interest in the broader television space. Discussing the TV, Steve Jobs famously told his biographer Walter Isaacson that he had finally "cracked it." Apple currently produces the Apple TV, which it infrequently gives sales updates on. In the holiday quarter of 2012, the company sold 2 million Apple TVs. Not a bad number for a product described as "a hobby."

Potential for Apple: Including non-smartphones, Apple controls about 10% of all mobile phone sales. If televisions were a similar market where Apple could command roughly 10% market share selling a high-end television at about $1,500, the television market could add $34 billion to the company's top line. If Apple went the route of selling a cheaper non-television device, the company would likely price it somewhere between the low-end cost of Apple TV ($99) and a high-end video game system (up to $499). 

Roadblocks: The cable industry is a very profitable space for the companies involved; they're leery of change. Multiple reports note that major cable and media companies have declined to participate in television concepts proposed by Apple. A failure to get cable industry participation could limit Apple's ambition and opportunity in the television space. 

Total Market Size: Wearables are just emerging as a field of technology. The Consumer Electronics Association estimated that wearable fitness technology saw sales rise from $43 million in 2009 to $854 million in 2013. That doesn't include watches, a market that Global Industry Analysts pegs at $46 billion by 2017. Currently, just 23% of watches are digital while the remainder are mechanical. 

Is Apple Interested in the Market? Apple's patent applications paint of a compelling picture. The company has filed for numerous patents for wrist-based devices, such as the design below for a flexible, AMOLED watch-like device that was filed in August 2011.

Potential for Apple: Wearables aren't an established field like televisions, so the market size could vary wildly. In addition, the quality of products will determine whether people who don't even wear watches now might be interested in devices. Lastly, Apple has filed patents for Google  (NASDAQ: GOOGL  ) Glass-like devices, so it is currently exploring several types of wearable products that could serve different market sizes. 

Roadblocks: Samsung reports its Galaxy Gear smartwatch shipped 800,000 units during the product's first two months on sale. The important word there is "shipped." Sales to actual consumers are much lower. Reviews for the smartwatch were atrocious. Apple won't ship a major product like a watch unless the company believes it's an excellent product. That means significantly better battery life than Samsung's watch, and features that provide valuable features beyond what smartphones already offer. 

Total Market Size: Capgemini estimates that there were 333 billion transactions in 2012. The two dominant players in the industry, Visa (NYSE: V  )  and MasterCard (NYSE: MA  ) , have a combined market cap of more than $230 billion and produced over $12 billion in operating profit over the past year. The market continues growing as well -- non-cash transactions grew 8.5% in 2012. 

Is Apple Interested in this Market?: Tim Cook isn't shy about Apple's interest in the market. On the company's last conference call he said, "The mobile payments area in general is one that we've been intrigued with and that was one of the thoughts behind Touch ID. But we're not limiting ourselves just to that."

Potential for Apple: As seen in the quote above, Touch ID is being eyed as a security differentiator. Apple also has the advantage of having over 400 million credit cards on file. Merchants are generally slow to adopt new payment methods -- only 70% of the top 100 Internet retailers accept PayPal. Apple could be one of the few companies that has the size and customer base to compel rapid adoption across merchants. 

Roadblocks: Relative to television and wearables, payments will be the toughest market to crack. The first credit card company was Visa. It's still the largest. The first mobile payments company to gain traction? That was PayPal, and it's still the dominant player in the industry. The first movers in payments are normally very dominant. As we've seen from Google's own attempts in the space to gain traction with its Google Wallet program, becoming a player in payments is potentially lucrative, but insanely difficult to break in to. 

Add it all up

That's just a glance at some of the potential markets Apple could enter across the next two years. Remember that Apple's introduction of the iPhone created a high-end phone market that's substantially larger than what existed when Apple was considering entering the mobile space, so the size of the market today isn't necessarily the total opportunity.

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Read/Post Comments (10) | Recommend This Article (32)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 31, 2014, at 8:06 AM, jdmeck wrote:

    Could, could, could! The TV has been a could for how many years now? All this could, is a waste of time.

  • Report this Comment On January 31, 2014, at 3:32 PM, Avi wrote:

    car dashboards, payment, tv, wearables, game consoles, home monitors, to name a few.

  • Report this Comment On January 31, 2014, at 7:00 PM, Trololololo wrote:

    Wait!! I've got it!! I boldly predict that Apple is about to launch - get ready - an 80" wearable TV!

    There. That will make analyst Gene Muenster happy. After all, he keeps shouting from rooftops that Apple must produce a flat-screen TV.

    Like that's going to happen. Not.

    Think about it: TV sales are, well, flat. It's a mature, low margin market, and consumers don't turn over their TVs very often. That's exactly the market that a company like Apple would choose not to enter.

    Instead, if the rumors are true, Apple is working on expanding the concept of the AppleTV box. And that has greater potential in my view. A $100 purchase is easier for the consumer to make, especially if that little box offers a world of content, including games, and app store, and more.

    Persistent rumors also suggest that Apple is putting the pieces in place not just for a watch of sorts, but software and relationships/partnerships that would make a watch/fitness/health tracking wearable device more feasible.

    On the payments processing front, Apple has been laying the ground for quite some time. Several generations of the iPhone can work with the iBeacon, which is now being rolled out in Apple retail stores, major retail chains and starting the coming season, at Major League Baseball parks across the country. (Read up on iBeacon. It's pretty fascinating.) Add to that the security functions that Apple has embedded into the iPhone 5S (TouchID), its Passbook technology, new payments technologies that are part of a large patent portfolio, and partnerships that Apple is now negotiating. And there is much more to this.

    The point is that Apple is and has been laying the ground for a large-scale technology/partnership ecosystem to support payments processing.

    It will be fascinating to see how this plays out over the next few years.

  • Report this Comment On February 01, 2014, at 12:53 PM, biju77 wrote:

    STEVE,WE MISS YOU LIKE CRAZY!

    Of all things,Apple needs to offer more iPhone

    choices. A bigger size phone is of utmost urgency and yet for two years,Mr. Cook and his team have

    been busy doing other things! Doesn't everyone know

    Henry Ford's folly in refusing to offer more than one

    color for his cars?

    Steve Jobs would have realized

    what Apple's priorities should be, and pushed his team to offer more iPhone choices within months of

    competing products. After all, iPad, iMac, iMac Air,

    iPods all come in various models.iPhone will remain

    Apple's most important product for sometime, and it

    badly needs line extensions.

  • Report this Comment On February 01, 2014, at 1:02 PM, SinecureFool wrote:

    Steve - the company needs you.

  • Report this Comment On February 01, 2014, at 1:44 PM, SnowLeopard1518 wrote:

    How about some kind of fruit? They could hang it in a tree and tempt men.

  • Report this Comment On February 01, 2014, at 2:38 PM, bobmeinet wrote:

    AAPL could buy ebay and pay over half in cash.

    PayPal would be an almost ideal payments engine if it were only managed correctly. The ebay management don't comprehend that their biggest opportunity going forward is PayPal, not flea-bay.

  • Report this Comment On February 01, 2014, at 6:10 PM, wjcoffman wrote:

    Since 10/5/2011 (date of Mr. Jobs' passing)(realizing these aren't oranges to oranges comparisons):

    APPL - up about 37%

    AMZN - up about 62%

    GOOG - up about 135%

    and, the S&P 500 has risen about 56%.

    Not the numbers an innovative technology company should be putting up and especially in comparison to the S&P.

    I didn't want to think one person a company could make but there you have it. Until they find another innovator, someone that somehow knows what consumers want, then I think you're buying AAPL for the dividend. Improvements to existing products is not innovation.

  • Report this Comment On February 03, 2014, at 4:09 AM, CraigWPowell wrote:

    Medicine at your fingertips with Dr. Apple:

    iOS 8 will come in September and will transfer each iPhone to medical diagnostic device by the help of iWatch sensors.

    According to:

    I Know First algorithmic system

    $AAPL is excellent long term investment

  • Report this Comment On February 03, 2014, at 10:20 AM, 48ozhalfgallons wrote:

    Lets see.... an Apple TV costing $1500 would measure about 32 inches diagonally.

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