Have you used the Vision Pro?
Okay. So, if you use the Vision Pro, I would encourage you to borrow mine or you can go to an Apple store. The visual quality is amazing. It's the best movie watching experience once your eyes see that quality.
Oh, these are the glass, these are the big headsets.
Yeah. I saw someone say recently they watched Citizen Kane on their Vision Pro and they said it was amazing.
Yeah, it's amazing. Anyways, obviously it's a better experience than watching a big screen TV on your couch if you don't have a family.
That's the thing. I find something so dystopian about like two people sitting on a couch with their glasses on and they have marketing around that like, and they're trying to make two people wearing a Vision Pro have better interactivity. I think it's crazy.
I guess you can hold hands while you do it.
Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.
And I'm Tracy Alloway. Tracy, do you know what iPhone you have and what iOS you're currently on?
No, I have no idea. I will say I think it might be like an iPhone 11. It is definitely on its last legs because in the past two days I can only charge it when it's standing up and plugged in like that, you know. And so I've been creating elaborate like jerry-rigged systems at my desk to actually get this thing to charge. So I got to get a new one.
So you know what? You don't have to get a new one. If you go to like any one of these like little random like sort of Apple fix-it shops, they can like take care of that in 10 minutes. And wait, I have the right to repair my iPhone. Is that true?
They put a little vacuum cleaner in there. That's what the issue is.
I don't think that's it because I tried it already. I think the battery is like legitimately dying. I had it for like eight years.
Well, I've had my... Okay, so I think I have no idea what iPhone I'm on. I think I've had it for about four years. I don't know anything, but there was a point in my life in which I could have answered, right.
You just said you don't know anything.
I don't know anything about my phone. But there was a point where I could have answered, right. Like if you, like, if at some point in the early 2010s for sure, if someone would say like, what app, what iPhone do you have? You're like, oh, I got the iPhone 4. I got the iPhone, whatever it is. And that was just part of like, I would say pop culture, like knowing like what generation it is. And it's been so long, you know, those Apple presentations, everybody would like tune in like it's a World Cup game or something like that. Like it's been so long since like these were like top of mind things for people, you know?
So, I have never been an Apple watcher, as evidenced by the state of my phone. But I think part of the issue is also like the products got pretty good, right? To the point where you don't need to replace them literally every two years for the latest upgrade. Or maybe it's just Apple can't think of the enticing upgrades that people need to see in order to buy.
Something that I had forgotten about until someone I think pointed out recently, there was a period in which it was very common to see like people with like very cracked iPhone screens, right?
That was just like, oh, and they just like really look, but they were still usable. When was the last time you saw like a badly cracked iPhone screen?
Yeah. They never, and like you can drop them now and they're very likely to survive. I remember I dropped this phone from the stands at the Jackson Hole Rodeo.
Oh yeah, you were there. Did it fall underneath?
It fell all the way down and it was fine. It was probably like 15 ft or something.
Setting aside the fact that okay, Apple is still a huge successful company, but we should talk about Apple because it is actually one of these things that it's at the intersection of so much that we're interested in right now. It's at the intersection of, you know, the future of manufacturing in China. It's at the intersection of memory costs and the degree to which that's bleeding into consumer prices. It's the primary way so many people interact with computers and the internet, and yet it's not a major player in like building AI models. So like how will AI change our relationship to just like either like computing or the... it sits like at the center of so many like important topics right now. So I sort of want to know like what's going on with Apple.
The thing I'm really interested in are the recent price increases.
Yes. Because you think like the story in consumer tech for decades now has been deflation. Right. Things get cheaper to buy and at the same time you know it becomes more expensive to live because food prices go up and healthcare and childcare, whatever. But the story in tech is that prices have been going down and suddenly we have this sea change announced by Apple I guess a few weeks ago or a couple weeks ago now saying that actually they're going to raise prices pretty much for the first time ever on a bunch of their products. It's really wild. Like we think that there should just be some like mechanical law that if it's like a gadget it goes down in price and for years and years, I mean it was just a thing and so it's extraordinary to see like this actually reversing. So I don't know, I want to know what's up with Apple.
It's a good time to talk about Apple.
Well I'm very excited to say we do literally have the perfect guest. Someone outside of probably Tim Cook. There's probably no person in the world, no, including employees at Apple. There is probably no person outside of Tim Cook that knows the company better. The ultimate Apple watcher, not Apple Watch, it's an Apple Watch. The ultimate Apple observer, knower for years and years. Literally the man who watches Apple. And he is a colleague of ours at Bloomberg. And I don't think we've ever had him on the podcast before, which is a shame. But we are now going to be speaking with Mark Gurman. He is the managing editor of Consumer Tech at Bloomberg. He's the author of the Power On newsletter, which everyone should subscribe to. So Mark, thank you so much for coming on Odd Lots.
Yeah, thank you both for having me. Really appreciate it. Good to be here.
Wait, I noticed you have the orange iPhone.
It's a tank. But can you explain like what is it about the orange iPhone specifically? Because the, you know, is this a thing?
Yeah, it is. It is a thing because I noticed that like, you know, in the old days you get lots of colors but all the cool people and all the people who like actually like have like regularly refreshed their phones, they all have that orange iPhone. There is something special about it beyond just being one of the Apple colors that they've always had.
So here's the backstory, right? For years the iPhones, they came in black or white and then back in 2013 they added gold for the iPhone 5S. Why did they do that? They were trying to break into China. Everyone knows gold is a hot color in China. They were trying to break into China.
That's what my one is. It's gold.
Right. Right. And then over time they started coming out with new variations of the iPhones. The cheaper phones. You had the 5C. You had the XR. Now the base phones like the 14, 15, 16. Those had a lot of fun colors, bright colors. You had yellow, you had green, you had blue, purple, pink, whatever. But the people who bought the top-end phones, the pro phones, these are the $1,500 phones. They were like, 'I'm kind of getting tired of just black every year or white every year, gold every year, or silver, these muted colors.' And so people had started complaining to Apple, 'We want more colors.' And Apple said, 'What can we do unique for the iPhone Pros?' And it just so happens that for the Pro phones, right, the 17 Pro and Pro Max series, they needed to move to a new material.
So the big deal with the iPhone 15 back in 2023 was they moved to titanium.
Okay? And they started this ad campaign around titanium that your phone is using the same materials that they use on outer space.
Yeah, they always come up with some interesting marketing material. But the problem with titanium, and they only seem to realize this was such a big deal after the phone shipped, was that titanium doesn't dissipate heat well. It dissipates heat about a tenth as well as aluminum. And Apple obviously was famous for aluminum products for many years. And so for the 17 series, they ditched titanium, went back to aluminum. Aluminum not only dissipates heat much better, but you're able to get color to stick to it much better than you can on titanium. And so they wanted to do a bunch of fun colors for this first generation aluminum pro phone. And so they've got orange. They have classic silver, which I think actually looks really hot. And then you have a dark blue. But orange, it's the hot color. It's in all their marketing materials. Everyone wants to show, hey, I have the new one. The easiest way to know you have the new one is to get this bold orange phone. They call it cosmic orange. And then in China, the orange in particular has been a hot seller. The word on the street is that's because the orange is kind of like Hermes orange. To my eyes, I'm a little color blind. I don't think this orange looks anything like Hermes orange, but it's close enough. And then this year they're moving to a red from orange to red or like a dark wine color. And why is red important in China? The dragon, right? Obviously very popular there. So in other words, I think they know what they're doing when it comes to color.
Wow. The Hermes orange iPhone sparks Apple comeback in China according to a random post on Reddit.
Well, okay. Since we're talking about China and pop culture to some extent, the other big piece of Apple news recently is that Tim Cook got a World Cup Labubu from the Pop Mart CEO. Have you seen that?
I saw that. I saw that this morning. Tim Cook's not going to have too many more of those opportunities to have people come visit him at Apple Park and take pictures with him. It's all about John Ternus, his successor, very soon. We're just a few weeks away from the new CEO taking over. And this is something obviously I'm watching very closely. If you had me on your podcast two and a half years ago, I could have told you this was the guy. No one else other than me saw it coming, but did a big... Well, tried to do more than hint, but wrote a few about him the last couple years because I knew he was the guy. And I think it's going to be an interesting time at Apple over the next three years.
Well, this is another way that things have changed, which is that Steve Jobs was a pop culture figure. Tim Cook became a pop culture figure after taking on the mantle of CEO. And I suspect that if you went around and asked a hundred people who the person that they named as the replacement, they wouldn't... I am curious if you went onto the streets of Manhattan, you asked 100 people who's the next CEO of Apple, how many would know? One. That seems high to me. I mean, one seems high.
Well, maybe you ran into me.
If I ran into you. Okay. Well, let's maybe this is a good because obviously the frame is like what is the Apple that he is inheriting? But before we get to that, what is it about him that either you recognized two and a half years ago and then the board and the company decided like this is the man to take Apple into its next era?
Oh, it's actually quite simple. Believe it or not, two factors. Okay. Factor one is the products. One of when you doing your speech at the beginning of the show, Tracy, you remarked that you don't know which phone you have. You know, you stopped counting which number you're at. But I think the big difference is that there's nothing remarkable about the new numbers anymore. The iPhone looked identical for six years up until this big change with the orange phones and what have you, right? So I think the board recognized, certainly consumers recognized, people in the company recognized that the product is just lacking in I would say sexiness. For lack of a better term. Victim of its own success. But remember in the Steve Jobs days, right, in the early Tim Cook days, every other year you were getting this breakthrough new phone. Like when was the last time you went and picked up a new Apple product and you were like, 'Holy, this thing is totally different, totally amazing.' It's been a while. And so I think Apple needed to resuscitate its product design, its hardware, its product genes, coming out with innovative new things. And John Ternus, right, he was the senior vice president of hardware engineering. He was the guy actually in charge of product development. And so for a company looking to shake itself out of a product lull, he's quite new in his senior VP role, your new product person in charge of things. That makes a lot of sense. You don't want another operational person. You don't want a marketing person. You don't want another finance person. We've went down that road now with Tim Cook for 15 years. Hugely successful. Time for a new era.
The simpler answer is that John Ternus is 50, 51 years old. Every other person on the Apple executive team who could have theoretically replaced Tim Cook with their experience, 60 plus. Okay. Some of them 65 plus. And Apple, the way they're run is they're run for the long term. They wanted to avoid a Bob Iger to Bob JPEG situation where you're putting someone in who you know is going to fail or you know is going to retire in 3 to 5 years. The Verizon hiring Dan Schulman at 67 years old to be their new CEO. That's a 1 to 3 year thing. Apple does not operate in the short term. They operate in the long term. So who's the person we can appoint that's going to be CEO for the next 15, 20 years? John Ternus. The only option. I'm not saying that he's the perfect choice in the world, but he's the perfect choice for Apple because he really was the only choice. And maybe they fell backwards into him being the only choice. Maybe they didn't. Maybe this was all calculated years ago. I don't think it was. But long story short, I think this is the man for the job at the right time.
Well, so I don't know anything about John Ternus other than what you just said and some of your pieces that I've read before, but do we have any evidence that in terms of product design, like he can be quite creative and he can come up with the sexy new features that might get people interested in iPhones again? Because if he's been doing it for a while, then I would say maybe not.
He's not particularly known as an innovator or hasn't been particularly known as an innovator inside Apple. Some people call him a treadmill runner doing the same thing over and over again. But he also has the awareness to know that Apple needs to do things differently and he has the credibility and charisma to let Apple do things differently. And quietly the last three to four to maybe five years Apple has been working on its most impressive and you know packed product lineup product overhaul in its history. The next three years are going to be the biggest three product years in Apple's history. There is so much stuff coming. I'm having a hard time wrapping my head around it and I've already removed my credit card from my wallet and put it in my drawer, locked it, and threw the key out the window. Not really. I'm going to get all of it. But point being, there's a lot coming. If you're an Apple fanboy like myself, I'll admit it. If you are a tech enthusiast like myself, this is so freaking exciting.
We obviously have to talk about the next three years, what these products are, but just one quick question before we get into that conversation. You know, there was a time where I think everyone disputed that from a smartphone perspective, or everyone agreed that from a smartphone perspective, the iPhone was unambiguously the best product in the world. That there were other phones that like maybe on a price, you know, adjusted standpoint, maybe were better deals or whatever, etc. There are really good phones now being made by other companies including Chinese manufacturers who like I saw the foldable phones and things like that. They're actually really cool and they're good and I think in some cases maybe the camera quality is better for some of these others though I'm not sure. Where is if you take buy the most expensive iPhone that you can buy right now, is it unambiguously the best smartphone in the world and what is the gap between that and the next biggest best?
In the Western world, the iPhone is unambiguously the best smartphone when you factor it in totality. But they're not the most creative phone. They don't have the best form factors. They don't have the best screen technology. I would probably give that to Samsung by a small margin. Don't forget Samsung designs and develops, you know, all those components, right? From a camera perspective in the Western world, you're talking about Google. Google identified a decade ago that the magic to making a better camera isn't necessarily the sensors and the hardware. It's the AI. And Apple, as we've undoubtedly know, has not been exactly a leader in the AI space. But when you're talking about the combination of design, hardware, accessibility, right, like a product that people understand how to use, ecosystem, customer service, the whole nine yards, Apple is certainly in the lead. You go to China, it's a whole different world. I don't think people understand that China is just literally a different planet when it comes to technology. They have foldables. They have trifolds. They have this. They have that. They have glasses. They have bigger tablets. They have these tabletop robotic devices on people's desks. The cameras on the phones in China, you're talking about Vivo, you're talking about Xiaomi, Huawei, they will destroy Apple head. It's a big big difference. And so, Apple needs to step it up in China when it comes to hardware. I think the iPhone Air and the iPhone 17 Pro Max were good steps in that direction. But if you want to talk about the product roadmap, we can I can dive into that. I think the foldable phone, I'm calling it the iPhone Ultra. Apple's coming out with it in September, October time frame, is going to be really hot, really successful in China. It's going to be a status symbol. People are driven to status symbols in China. It's going to be $2,500 roughly. And so I think it's going to be a big seller there given how popular foldables are there. I'm certainly going to be first in line because I have been waiting for a foldable iPhone for a number of years. Samsung absolutely the pioneer in the category. They've been working on them for a long time now. They finally got really suitable for daily use a year or two ago. Apple will be there from day one. I would just not want a non-iOS phone if I'm being honest with you.
Yeah. Right. That's still a huge thing. I'm going to save the rest of the product launches for the end of the podcast so we entice people to listen all the way through. But you mentioned Apple and AI, so I think we should talk about this, but like why does it seem that Apple has in large part, I guess, missed the boat on AI?
Tim Cook, his worst decision in his history at Apple was who he hired to manage artificial intelligence at Apple. Bless his soul, perfectly nice guy. Bless his heart, as they say in the South. Yes, he's that bad. John Giannandrea, JG, as he goes as inside of Apple. He was the senior VP of AI at Apple. He was hired in 2018. This was the guy who was supposed to make sure that Apple became dominant in AI, in generative AI. Totally missed the boat. Apparently didn't see it coming or if he saw it coming did not put the right staff and resources on it. So clearly that was a big miss and Apple should still be embarrassed about it.
I think it's worth noting by the way here Apple is trading at an all-time high and actually some of the other like some of the companies that are among the really big tech companies that have invested more in AI and are doing quite better are not necessarily... Yeah. You know, Apple I would be happy for them if this was a strategy. They fell aspect to it. I'm totally I totally get it. But what I'm saying is that the market has not really penalized them for the fact that they're not really a player in AI. Whereas you have these companies that are very serious players in AI and I'm thinking like Google and Microsoft and they're like the market has not rewarded them for having technology that is near the AI frontier. Now when we talk about AI at Apple I think there's sort of like two different things that we could be talking about. So, one of them is what we'd say like edge-based AI. Is there AI that's like on the chip that can make a photo render much better than say like a traditional camera architecture? That's like one kind of way we talk about AI. Symbols does a better job of like capturing what the user wants to capture using artificial intelligence. And then there is this other question of like well is the company building something that we call a large language model which is a very separate conversation. It's a different way of like understanding what we're talking about with AI right here right now 2026. So it's like okay inside Apple we want to be we want to correct our past 10 years of like missing out on AI. What do they want to achieve with AI?
Wow. There's a lot here and I think I'll take it back to why Apple's at an all-time high. Okay. I think investors are smart and they actually have a good understanding of what kind of company Apple is. And Apple is not an AI company. It's not a hardware company. It's not a software company. It's a product company. The magic of Apple, and this was Steve's big thing, is bringing it all together in one package. Apple may not have the best phone in terms of the technology or the camera, but the complete package unambiguously the best. I think consumers realize that AI is going to shift into products and products that combine hardware, software, services, and AI. And you're going to see some great stuff from them coming in the future. We'll get back to it in the road map section of the podcast, but I think that's their goal to create products that merge all these things together where the AI disappears into the background. Now, I want to go back 12 years ago. 12 years ago, Apple started this big project. The idea was to compete with Tesla and build an autonomous car. I remember that. And that project was cancelled in February of 2024. So two and a half years ago, they spent well over 10 billion on it, hired thousands of people, reorganized the company around it, and closing a project of this magnitude is not something that has a comparison in Apple history. This was unprecedented. It was a complete disaster, a huge failure. But there was one piece of the pie there that is actually really interesting. It's called the Apple neural engine. And so in order to do self-driving cars, you need to process a ton of data at very high speeds in real time. See the world around you, process it, and so the car knows where it's going. And the magic sauce that Apple was trying to create for the Apple car was the smartest onboard computer or chip in order to do level five autonomous driving. That chip they started working on around 2014 eventually got shrunk down into what they call the neural engine or the ANE and they put it in the iPhone X in 2017 and that's what allowed features like Face ID and Animoji and augmented reality to work. So the only reason that Apple has some of the more sophisticated AI hardware on-device processing in their phones and computers and what have you is because of the Apple car project 12 years ago. And so that's a little secret background. If it wasn't for the Apple car, Apple would be even in a more terrible place when it came to artificial intelligence.
Okay. But it seems like that was kind of accidental, right? Like... Well, it's all accidental, right? It feels like the common theme with Apple is that they're lucking out a lot. Yeah. Okay. But would we expect that? They would say that's strategy, but I don't think so. But do we have a sense of what they actually want to achieve in AI? Like or are they just going to experiment with some stuff and maybe it'll stick, maybe it won't, maybe it'll be useful 10 years later.
You know, monetizing AI, you know, the jury is still out on how exactly you do that. I mean, you see the amount of money that OpenAI is making versus how much they're losing. It's not entirely clear yet, but I think Apple has a proven business model. It is hardware with very high margins, right? And we can talk about that with the price hikes later, but Apple wants to roll out AI hardware products. AirPods with cameras, pendant with cameras, smart cameras. AirPods. A pendant. Smart glasses. A necklace or put on your pocket here. Eyes and ears for your phone. AI cloud processing in order to feed context into your phone and your iCloud account to do AI tasks. Those are going to sell and those are going to make money and so Apple has a proven business model there. The other thing is...
They have this new Siri AI, and what they've done is they took their artificial intelligence models. Those are called AFM, or Apple Foundation Models. That whole team just basically got blown up over the last year. A bunch of them went to Meta for $50 million pay packages, right?
A bunch of them went to Google, Anthropic, Microsoft, you name it. And so Apple opened up the hood of their models. They're paying billions of dollars to Google to have redeveloped the underpinnings of their models. And so now Siri is confident and competent. Let me say that again.
So now Siri is competent.
Wait. So this is, I mean, this is one of the ironies is that Apple was truly one of the pioneers in talking to computers in plain language.
Well, they launched Siri. Yeah. They launched Siri. They launched Siri in 2011. And I was on another show here the other day and the host was telling me that he asked Siri, he's got the old Siri still, when is the next Fed meeting? I know you guys like talking about that. And Siri's response was, there are no Fed meetings in your calendar. Okay. I have the new Siri AI and so I said, when's the next Fed meeting? The next Fed meeting gave me the date.
Wait, so sorry. Is Siri, what powers Siri AI's intelligence today?
It's Apple Foundation Models that have been rebuilt with Google underpinnings.
It's Gemini.
Okay. So, and going forward is the idea that Siri will just be a Gemini skin, as they would say? Like, is that a, from a sort of, just from the language sort of the way we all talk about AI today, is like a model, whatever this thing you talk to.
It's like a reskinned Gemini. Okay.
That has access to your personal data. So, you can ask it about your text messages, your photos, your emails. It's actually pretty nifty. You know, one thing I've been doing, people send me calendar appointments on like my work computer. I take a picture of my work screen with the phone and then it just adds it to my calendar through Siri.
So, you know how many people have that use case? I don't know. But it does work. It's extremely competent. I would say you guys know video editing software.
Okay. You know the room. So there's like iMovie versus Final Cut Pro.
All right. So before Siri AI, Apple had nothing. Now they've got iMovie. ChatGPT is Final Cut Pro.
They've got a competent product that 95% of the world can use. But they don't got that step up which allows you to do hardcore research. Yeah. Documents, drafting, editing, etc. Travel planning, everything you want to use ChatGPT for.
Can't do all of it. Got it.
Well, let's talk about the price hikes because this was a pretty big sea change both for Apple, the company, and I guess in a macroeconomic sense, right?
So, we're told that the increases are because of memory shortages and component shortages and competing with the hyperscalers for all these things. How much of that is true?
95% of it.
Okay. I think that the other component of this, speaking of components, is that inflation, real thing over the last, you know, five, seven years, Apple product prices really have not increased over that time as other components got expensive and as you know inflation has gone up. And so I'm not one of those people who think this is a conspiracy theory to finally, you know, raise prices and blame memory. Memory is a real thing. If you look at the price adjustments that they've made, it is entirely in line with how much more they're paying for memory on a product-by-product basis. For instance, the Vision Pro went up by $200, right? 6%. Nobody's buying the Vision Pro. They're not going to do anything to lose 1% of their margin. And so they probably set a date on the calendar several months ago and they said, 'We're going to use our cash balance or whatever. We're going to use our margins to eat the additional cost in memory up until this date.'
The date hit. They flipped the switch. They did the price hikes. And you'll see them do more price hikes in September for these new phones.
And it just occurs to me is on the AI component. It's like you see these huge budgets that the Alphabets and the Amazons and the Microsofts of the world are spending. If there's one company that knows about why don't we let someone else do the big capital expenditures, it's Apple, right? That's what they're doing. This is their, but their core history from partnering with Foxconn is essentially, you know, there's this really expensive aspect of the process where it's very physical. Let's just get another company to do the really high capital expenditure.
You're spot on. It's straight out of that playbook. But AI is pretty darn fundamental. And I think eventually they're going to have to rebuild the AI research team and spend the money to rebuild AI. Now I'm saying you can do it without those hyperscaler expenses. Apple never wanted this. Apple's vision for AI, and they talked about this two years ago, was on-device model processing. It was about using Apple Mac chips in the cloud. Not this whole hyperscaler situation with Nvidia that you're seeing from OpenAI, Anthropic, Google, you name it. And so the irony here is that this is not a world that Apple was trying to push. They want it all on the phone. And I think eventually these LLMs are going to be able to shrink to the point where you can put them on the phone. But for right now, cloud is the game in town to make better artificial intelligence.
And do they have other options for getting chips and components? I know they've been trying to source out of China, for instance.
So they are testing memory from CXMT and YMTC. Those are two Chinese memory providers. There's actually, you can count on your fingers, that's the number of memory suppliers there are in the world. There's about five, right? You've got Micron, SK Hynix, Samsung, and the two Chinese companies I named. They already use the other three, the Korean one and the American ones. They're going to do this. Like I'm convinced that they're going to start using Chinese memory instead of Chinese iPhone SKUs. Apple already has a unique SKU for China. So being able to, you know, add the Chinese memory into that and carve that out, I think is not that big of a lift from an operational standpoint. The bigger issue for them will be the PR campaigns for Micron and Korea. You know, trying to make Apple look bad for using Chinese memory. If you're using Chinese memory in Chinese phones, I think people in China know the deal there. I'm not really sure why it's the problem of any other country.
If Siri is reskinned Gemini,
It's a little bit more than that.
