Earlier this year, Forbes magazine rated Apple (NASDAQ:AAPL) as the most valuable brand in the world for the 10th straight year. That's pretty impressive for a company that's focused on technology, an industry in which things can change at light speed. Yet Apple has gotten to become the largest company in the world by market cap not by trying to become the largest smartphone vendor, but the most beloved. More than any other tech company, Apple has always heralded the end user experience above everything else, not merely the speed, storage capacity, or other technological specs of its gadgets.
That commitment to melding technology with the liberal arts was established under late founder Steve Jobs, and it continues to this day under current CEO Tim Cook. And as long as Apple's future management takes care of the brand and expands it into new areas, Apple should continue its strong track record.
Apple's innovations are usually incremental, applying its design chops to the latest consumer tech trends. Apple didn't invent the MP3 player or the smartphone, but it went on to dominate those products through its focus on design, user experience, and brand cachet.
Looking out 10 years, the Apple of 2030 should continue to incrementally improve its hardware products and even introduce some new ones -- but in a new twist, Apple will also expand its brand to develop a suite of bundled consumer services. That will be a big challenge for the tech giant, but also an opportunity. And of course, there's the possibility of a new out-of-the blue blockbuster invention during the next decade as well. Here's what customers and shareholders can look forward to in the Apple of 2030.
Still making gadgets and iPhones
While many think we'll all be living on Mars and communicating through telepathy in 2030, I think we'll still be using smartphones as our primary gateway to the world. Of course, it will be a far better, faster, and more functional smartphone, operating on one of the 5G networks currently in their early buildouts today.
The 4G standard was introduced in 2009 and is still in use today. 5G, which has just begun, will probably take a longer time to ramp up because of the complexity of building out expensive "small cells" throughout the country. Given the difficulty involved in building out 5G networks, the 5G standard will probably also last well into the 2030s before the introduction of "6G," whatever that may be.
Apple's first 5G iPhone was due to come out this September, but rumors are that the introduction will be pushed back about a month because of the coronavirus outbreak. Still, even though a 5G iPhone will probably be out this year, a lot of the new space-age applications that many anticipate probably won't be ready until networks are more fully built out in next several years. This is why Apple took its time in releasing a 5G phone well after other Asian smartphone vendors.
Some also think there could be another gadget "beyond" the iPhone that becomes the new communication super-gadget. One possibility is "smart glasses" that might allow a person to communicate, read, and interface the internet in an augmented-reality-like screen on the lens, rather than the screen of an iPhone.
Rumors are that Apple is already working on pair of augmented and virtual reality (AR/VR) smart glasses that could be released as early as 2022, according to Apple analyst Ming-Chi Kuo. Apple did make a recent AR-based acquisition just this month, acquiring NEXTVR for roughly $100 million in mid-May. NEXTVR enables the watching of sports, music, and other entertainment events through all of the major VR headset vendors, and it has already inked deals with the NBA, Wimbledon, Fox Sports, the WWE and other sports productions entities as well.
Aside from potential smart glasses, Apple is also rumored to be working on a self-driving car. However, the Apple car, code-named Project Titan, has gone through several fits and starts over the years, with some believing Apple has now abandoned the car idea altogether to focus on autonomous software systems. However, Apple made a key automotive hire as recently as late 2018, bringing in ex-Tesla (NASDAQ:TSLA) executive Doug Field, leading many to believe the Apple car project is still on. For his part, Ming-Chi Kuo thinks an Apple Car will be released somewhere in the 2023-2025 timeframe, bringing in another potential star product into Apple's arsenal of devices, with the car being the biggest and boldest project yet.
Besides these new, futuristic projects, I'd still expect Apple to still be selling plenty of iPhones, Apple Watches, iPad tablets, laptops, and desktops alike, even 10 years out. After all, the personal computing laptop was invented 40 years ago, and I think it's unlikely to change very much as mankind's main tool to get work done.
Services will be key
Since the iPhone established itself as the world's most important electronic device in 2007, it has only grown in importance to consumers ever since. As Apple investor Warren Buffett said of the iPhone: "It's a very, very, very valuable product to people that build their lives around it. And that's true of 8-year-olds and 80-year-olds."
In other words, the iPhone isn't just a phone but is now the best distribution platform in the world. That has enabled Apple to profit handsomely from sales of iOS applications through the app store, for which Apple typically takes a 30% cut. However, it appears that Apple itself will become more of a services company, releasing more and more of its own "private label" services. Apple has put a lot of money and resources behind a slew of new Apple-branded services over the past year: Apple TV+, the Apple credit card, Apple News+, and Apple Arcade, supplementing the existing Apple Care, iCloud storage, Apple Music, and Apple Pay services the company had already developed out over the past few years.
Look for these services to grow in importance over the next decade. Last quarter, Apple's services business grew 16.6% to $13.3 billion, making up 22.9% of Apple's total sales, while hardware sales fell. Even better, services gross margin is higher than those of Apple's hardware products, with gross margin of 65.3%, versus just 30.3% for hardware.
Like other large tech giants, Apple will make a big effort to create a bundled ecosystem of consumer services over the next decade, as hardware sales inevitably slow down but Apple's installed base expands. I expect several new private-label services to be introduced over the coming decade, and for the existing services to get better over time. By 2030, it's quite possible there will be an Apple-branded version of just about every type of entertainment, financial, or other consumer service. A big acquisition or two may happen to accomplish this feat as well in certain areas. By 2030, it's possible that over half of Apple's sales come from these services, as management takes Apple's brand beyond mere gadgets.
And of those new services, the most consequential could very well be consumer health.
Can healthcare be a game-changer?
Of Apple's healthcare initiatives, CEO Tim Cook once said, "If you zoom out into the future, and you look back, and you ask the question, 'What was Apple's greatest contribution to mankind?' It will be about health." That sounds pretty bold, given that Apple has invented some of the most consequential technology innovations in modern times and is definitely not a healthcare company by trade.
At least not yet. Apple has always been about the intersection of technology and humanity, and as we become more and more attached to our electronic devices, it's not a surprise that these devices, which are on or near our bodies virtually 24/7, would become pivotal tools in improving our health.
Apple currently has a number of health initiatives going, at least those of which we know about. The company has enrolled Apple Watch users in three separate studies across heart health, gynecological health, and hearing. Apple Watch's built-in electrocardiogram (ECG) function can detect irregular heartbeats from a condition known as myocardial ischemia, a potentially life-threatening condition. Most recently, a German woman's Apple Watch detected her ischemia that even her hospital's ECG machine didn't pick up, potentially saving her life. One can expect upcoming versions of the Apple Watch to have even more life-enhancing features around wellness, such as sleep tracking, blood oxygen monitoring, stress measurement, and more.
Apple is also taking on the big challenge of solving the problem of electronic health records, as many health systems use different formats, making gathering a patient's information difficult. But by standardizing on an Apple format, care facilities may hope to bring in a patient's records seamlessly and easily, no matter where the patient had been treated before. As of last November, Apple claimed it had achieved 16% penetration into U.S. health systems.
Finally, Apple may also play a key role in helping to trace the coronavirus, if its new contact tracing application built into iOS gets regulator approval and rolls out soon. Apple also recently donated $10 million to COPAN diagnostics to ramp up its sample COVID-19 testing kit production to millions of tests per week by this summer.
When asked on the recent conference call with analysts if COVID-19 had opened up new doors for Apple, Tim Cook said: "I wouldn't say that the health door opened wider. I would say it was already opened fairly wide."
A brave new world for Apple
As Apple's devices become more and more intimately intertwined with our own lives, there's tremendous opportunity for the company, but also risk. After all, creating beautiful devices is one thing. However, now that Apple is a distributor of a credit card, will it take on brand risk if any sort of malfeasance happens around its financial services? After all, Wells Fargo (NYSE:WFC) was also a beloved banking brand until it slipped up in 2016, and it hasn't recovered since.
Apple is also now producing its own TV and film content. What kind of content should it make? Family-friendly fare, or gritty, challenging content aiming to shake up the status quo? Can it do both? What is more closely aligned with Apple's brand as it becomes more of a global mainstream company? And is it too late to catch up with Netflix (NASDAQ:NFLX) and others, which have been at this for longer? Moreover, as Apple digs further into people's health, that opens up a whole can of worms around liability and also privacy.
These are all issues Apple is going to have to grapple with in the 2020s, but the company will need to contend with them if Apple is to become more a services company by 2030, which is key to its profit growth.
However, as long as the company adheres to its brand principles, admits mistakes, and keeps improving its products and services while maintaining its technological edge, shareholders should still have a lot to look forward to over the next decade.