00:00:02
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

00:00:18
Speaker 2: Hello and welcome to another episode of The Odd Lots podcast. I'm Jolle Wisanal and.

00:00:22
Speaker 3: I'm Tracy Alloway.

00:00:24
Speaker 2: Tracy, do you know what iPhone you have and what iOS you're currently on?

00:00:29
Speaker 3: No, I have no idea. I will say I think it might be like an iPhone eleven. 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 Riggs systems at my desk to actually get this thing to charge. So I gotta get a new one.

00:00:50
Speaker 2: 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 ten minutes.

00:00:58
Speaker 3: And wait, I have the right to repair my iPhone? Is that true?

00:01:02
Speaker 2: They take put a little vacuum cleaner in there, that's what you I don't.

00:01:05
Speaker 3: Think that's it because I tried it already. I think the batteries like legitimately dying. I've had it for like eight years.

00:01:10
Speaker 2: Well, I've had my Okay, so I think I have no idea what what iPhone I'm on. I think I've had it for about four years. I have no like, I don't know anything. But there was a point in my life in which I.

00:01:23
Speaker 3: Could have answered, I said, you don't know anything.

00:01:25
Speaker 2: I don't think about my phone. But there was a point where I could have answered, right, like if you're like, yeah, sure, if at some point in the early twenty tens, for sure, if someone would say, like what app what iPhone do you have, You're like, oh, I got the iPhone for I got the iPhone whatever it is. And that was just part of like I would say, pop culture, like knowing like what generation 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 people.

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Speaker 3: 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 place 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.

00:02:19
Speaker 2: Buy something that I had forgotten about until someone I think pointed out recently there was a period in which was very common to see like people like very cracked iPhone screens, right, that was just like and they was just like really looked and but they were still usable. When was the last time you saw like a badly cracked iPhone screen? Yeah, they never and like you could drop them now and they're very likely to remember.

00:02:42
Speaker 3: I dropped this phone from the stands at the Jackson Hole Rodeo.

00:02:47
Speaker 2: Oh yeah, you were there, fall underneath.

00:02:49
Speaker 3: It fell all the way down and it was fine. Yeah, it was probably like fifteen fee years of the.

00:02:54
Speaker 2: They work really well anyway. I think sitting aside the fact that, okay, Apple is still a huge, 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 China. It's at the intersection of memory costs and the degree to which that's bleeding into consumer prices. It's the primary ways so many people interact with computers of the Internet, and yet it's not a major player like building AI models, So like, how will AI change our relationship to just like either like computing or there. It's it's 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.

00:03:45
Speaker 3: 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. Ye, right, things get cheaper to buy and at the same time, you know, it becomes more expensive to live because food prices go up, in healthcare or 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 of weeks ago now saying that the actually they're going to raise prices pretty much for the first time ever. Yeah, on a bunch of their products.

00:04:19
Speaker 2: 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's just the 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.

00:04:35
Speaker 3: It's a good time to talk about Apple.

00:04:37
Speaker 2: 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, including employees at Apple, There's probably no person outside of Tim Cook that knows the company better. The ultimate Apple watcher, not Apple watches, watch the Apple, the ultimate Apple observer, no or for years and years, literally the man who watches Apple. And he is a colleague of ours at Bloomberg. 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 German. 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.

00:05:25
Speaker 4: Yeah, thank you both for having me. Really appreciate it. Good to be here.

00:05:27
Speaker 2: Wait, I noticed you have the Orange iPhone.

00:05:31
Speaker 4: Yeah, and like it's what it's a tank.

00:05:34
Speaker 2: It's a tank, But can you explain, like what is it about the Orange iPhone specifically, because you know 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 pupil and all the people who like actually like have like regularly refreshed their phones, they all have that orange I phone. There is something special about it beyond just being one of the apple colors that they've always had.

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Speaker 4: So here's the backstory. Right, for years, the iPhones they came in black or white, and then back in twenty thirteen they added gold for the iPhone five S. Why did they do that? They were trying to break into China. Everyone knows gold is a lot of color in China. They were trying to break into, right, And then over time they started coming out with new variations of the iPhones. The cheaper phones you had the five C, you had the ten R. Now the base phones like the fourteen, fifteen, sixteen, 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 prophones, these are the thousand and fifteen hund dollars phones, they were like, I'm kind of getting tired of just black every year, white every year, gold every 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 profhones, right the seventeen Pro and Promac series, they needed to move to a new material. Okay, so the big deal with the iPhone fifteen back in twenty twenty three was they moved to titanium, and they started this ad campaign around titanium that your phone is using the same materials that they use on outer space. They always come up with some interesting marketing to you. But the pron with titanium, and they only seem to realize this was such a big deal after the phone ship 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 seventeen 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 prophone, and so they've gotten orange. They have classic silver, which I think really hot, and then you have a dark blue.

00:07:56
Speaker 2: Got it?

00:07:56
Speaker 4: But orange to the hot color. To an all their marketing material, 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 cellar. The word on the street is that's because the orange is kind of like Ermez orange. To my eyes, I'm a little colorblind. I don't think this orange looks anything like Ermez orange, but it's close enough and close enough, 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.

00:08:37
Speaker 2: Wow, Ermez orange, iphund Sparks Apple come back in China. According to a random post on Reddit, well.

00:08:43
Speaker 3: 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 labooboo from the PopMart CEO.

00:08:53
Speaker 4: I saw that. I saw that this morning. Tim Cook's not gonna 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 Turnis, his successor. Very soon were 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.

00:09:18
Speaker 3: But he did write some profile piece.

00:09:22
Speaker 4: Yeah, well tried to do more than hint, but wrote a few about him the last couple of years because I knew he was the guy, and I think it's going to be an interesting time at Apple the next three years.

00:09:31
Speaker 2: 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 one hundred people, who's the person that they named as the replacement, they wouldn't.

00:09:53
Speaker 4: I am curious if you went onto the streets of Manhattan you asked one hundred people who's the next CEO of Apple? How many would know?

00:09:58
Speaker 2: One that seems high.

00:10:01
Speaker 4: One seems I yeah, maybe you ran into me.

00:10:04
Speaker 2: If I ran into you. Okay, well, lit'sten. Maybe this is a good because obviously frames like what is the Apple that he is inheriting? But before we get to that, what is it about him that either you recognize two and a half years ago? And then the board and the company decided like this is the man to take Apple into it's next era.

00:10:23
Speaker 4: Oh, it's actually quite simple, believe it or not. Two factors, Okay. Factor one is the products. When you're doing your not monologue, but your speech at the beginning of the show, Tracy, you remark that you don't know which phone you have. You know, you stop counting which number you're at. But I think the big difference is 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 say sexiness, right for lack of a better term, lack of victim success, 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 crap, this thing is totally different, totally amazing. It's been a while, and so I think Apple needed to resuscitate its product design. It's hardware, it's product genes coming off innovative new things. And John Turnas, 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, putting you're new, 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 fifteen years, hugely successful. Time for a new era. The simpler answer is that John Turnas is fifty to fifty one years old. Every other person on the Apple executive team who could have theoretically replaced Tim Cook with their experience sixty plus, okay, some of them sixty five plus. And Apple the way they are run is their run for the long term. They wanted to avoid Bob Eygert a Bob Jpek situation where you're putting someone in who you know is going to fail or you know is going to retire in three to five years. The Verizon hiring Dan Schulman at sixty seven years old to be their new CEO, that's a one to three 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 fifteen to twenty years. John turnus 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 st story short, I think this is the man for the job at the right time.

00:13:04
Speaker 3: Well so I don't know anything about John Turnas 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.

00:13:25
Speaker 4: 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 packed product lineup product overhaul in its history. The next three years are 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 gonna 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.

00:14:41
Speaker 2: All right, So 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 when I think everyone agreed that from a smartphone perspective, the iPhone was unambiguously the best product in the world. Other phones that like, maybe on a price you know, adjusted standpoint, maybe we're better deals or whatever, et cetera. They 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. If you take by the most expensive iPhone that you can buy right now, is it on ambiguously the best smartphone in the world, and what is the gap between that and the next biggest best.

00:15:39
Speaker 4: 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, 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. At Apple, as we've undoubtedly no 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, 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 shao Mi Huawei. They will destroy Apple. 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 seventeen Promax were good steps in that direction. But if you want to talk about the product roadmap, 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 timeframe, 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 twenty five hundred dollars 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.

00:17:55
Speaker 2: You, Yeah, right, that's still a huge thing.

00:17:57
Speaker 3: I'm going to save the rest of the product launches for the end of the podcast, so we entice people tell 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.

00:18:12
Speaker 4: 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.

00:18:22
Speaker 3: Guy, bless his heart.

00:18:23
Speaker 4: Yes, yes, John by all accounts of a thought leader and artificial intelligence, but also a skeptic of AI. And so John G JG as he goes as inside of Apple. He was the senior VP of AI at Apple. He was hired in twenty eighteen. This was the guy who was supposed to make sure that Apple became dominant in AI and 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.

00:19:00
Speaker 2: I think there's word noting by the way here, Apple is trading 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.

00:19:15
Speaker 4: Yeah, but you know Apple, I would be happy for them if this was a strategy.

00:19:19
Speaker 2: No, No, they 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. It does a better job of 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, and it's a different way of like understanding what we're talking about with AI right here, right now, twenty twenty six. So it's like, Okay, inside Apple, we want to correct our past ten years of like missing out on AI. What do they want to achieve with AI?

00:20:46
Speaker 4: Well, there's a lot here, and I think I'll take it back to y Apples at an all time high. 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 roadmap section in 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 twelve years ago. Okay, twelve years ago, Apple started this big project. The idea was to compete with Tesla and build an autonomous car. And that project was canceled in February of twenty twenty four, so two and a half years ago. So they spent well over ten 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 twenty fourteen, eventually got shrunk down into what they call the neural engine and the A and E, and they put it in the iPhone ten in twenty seventeen, 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 twelve 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.

00:23:15
Speaker 3: Okay, but it seems like that was kind of accidental, right.

00:23:18
Speaker 4: Well, it's all accidental, yeah, right, Okay. It feels like the common theme with Apple is that, yeah, they're lucking out a lot.

00:23:24
Speaker 3: Yeah okay, But would we expect that.

00:23:26
Speaker 4: They would say that strategy? But I don't think so.

00:23:29
Speaker 3: 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 ten years later, you.

00:23:38
Speaker 4: Know, monetizing AI, you know, the jury is still out on how exactly you do that.

00:23:42
Speaker 1: Yeah.

00:23:42
Speaker 4: I mean, you see the amount of money that open Aye is making versus how much they're losing. It's not entirely clear yet, but I think Apple has approven business model. It is hardware with very high margins, right, and we can talk about that with the price sikes later. But Apple wants to roll out AI hardware products AirPods, cameras, pendant with cameras, smart cameras, AirPods, AirPods, appendants, smart glasses.

00:24:07
Speaker 2: Is not like a thing you'd put it like kind of a necklace, a.

00:24:09
Speaker 4: Necklace or put it 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 serie 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 fifty million dollars pay packages, but of them went to Google, Anthropic, Microsoft, you name it. 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, now Serri is competent.

00:24:56
Speaker 2: Wait wait so this is I mean, this is one of the iron new is that Apple was truly one of the pioneers and talking to computers in plain language.

00:25:06
Speaker 4: Well, they launched Siri. Yeah, they launched Siri. They launched Siri in twenty eleven. 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 series still, when is the next FED meeting? I know you guys like talking about that in series. Response was, there are no FED meetings in your calendar. Okay, I have the new serie AI. And so I said, when's the next FED meeting? The next FED meeting? Gave me the date?

00:25:29
Speaker 2: Wait, so sorry, what powers serie AIS intelligence?

00:25:33
Speaker 4: Today? It's Apple foundation models that have been rebuilt with Google underpinnings. It's Gemini Okay, okay, got it?

00:25:41
Speaker 2: Okay? So and going forward, is the idea that Siri will just be a Gemini skin as they would say, like, is that s more 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 it's like.

00:25:58
Speaker 4: 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 my work computer.

00:26:10
Speaker 2: Yeh.

00:26:11
Speaker 4: 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 iMovie yah yeah, okay, so there's like imomovie versus Final Cup Pro. Yeah yeah, all right, So before Serie AI, Apple had nothing. Now they've got iMovie, chat GPT's Final Cup Pro.

00:26:39
Speaker 2: Got it.

00:26:40
Speaker 4: They've got a competent product that ninety five percent of the world can use. But they don't got that step up which allows you to do hardcore research, documents, drafting, editing, et cetera, travel planning. Everything you want to use chat GPT for can't do all of it.

00:27:10
Speaker 3: 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 of it? Okay?

00:27:31
Speaker 4: I think that the other component of this, uh, speaking of components, is that inflation real thing will 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 in 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 two hundred dollars, right six percent. Nobody's buying the vision Pro. They're not going to do anything to lose one percent of their margin. And so they probably set date in 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 and memory up until this date. The date hit they flipped the switch, they did the price sikes, and you'll see them do more price sikes in September for these new phones.

00:28:28
Speaker 2: It just occurs to me, just 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.

00:28:47
Speaker 4: That's what they're doing.

00:28:48
Speaker 2: This is their but their core history from partnering with fox Con 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.

00:29:02
Speaker 4: 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 that 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 hyperscalar situation within video that you're seeing from Openingianthropic, 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 lms 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.

00:29:47
Speaker 3: And do they have other options for getting chips and components. I know they've been trying to source out of China, for instance.

00:29:52
Speaker 4: So they are testing memory from CXMT and YMTC. Those are two Chinese memory providers. There's actually that 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 Heinix, Samsung and the two Chinese companies I named. Did they already use the other three, the Korean one and the American ones. They're gonna do this, Like I'm convinced that they're going to start using Chinese memory instead of Chinese iPhone skews. Apple already has a unique skew 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 and 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.

00:30:44
Speaker 2: If Siri is re skinned Gemini.

00:30:48
Speaker 4: It's a little bit more than that.

00:30:49
Speaker 2: Yeah, Okay, does that create issues for China in terms of like using Siri in China?

00:30:55
Speaker 4: And they do?

00:30:57
Speaker 2: They are they going to have to use like deep seek or something like that for the Chinese use. How are they handling that?

00:31:01
Speaker 4: Okay? And this is actually a timely question because earlier this week, after a two year delay, Apple finally got Chinese government approval to launch Siri in China. Now we're talking about the old school Sirie, not the new SERIII. But here's what they've done. So there's basically two components to Siri that you can break down. You've got the Apple models and then you have integration with Google and you have integration with open Ai. That's the situation in the United States. And so in China you've got Apple models and then the outside partners by Do, they're the big Google equivalent for search, and so that makes sense to have them instead of open Ai in China, which both don't work in the region. But there's also one other player. It's a company you may have heard of called Ali Baba. And so what Apple's doing with Ali Baba is They've got Ali Baba models in the system and it serves as what I call a censorship engine. And this censorship engine is constantly calling back between Apple and the Chinese government, getting Chinese government approval on updates to the models on the phone.

00:32:05
Speaker 3: Yeah, because the censorship announcements like get updated really really quickly, right, like keywords are now problematic that weren't five minutes ago.

00:32:13
Speaker 2: But that model from Ali Baba is essentially way of keeping the by Do model in check and.

00:32:22
Speaker 4: The Apple model okay, and the Apple model. But yes, that is what's there to do is is a censorship engine. Isn't that crazy.

00:32:30
Speaker 2: Yeah, it's models on top of models.

00:32:32
Speaker 4: Yeah.

00:32:32
Speaker 3: Models all.

00:32:33
Speaker 4: Well, that's the ultimate vision for Apple Intelligence and for Siri is to make the model interchangeable. Now we haven't even talked about this big war between Apple and Open Ai. Yeah, but the phone, as you know it has Chat GPT baked in as a serie extension. Basically, if you ask Siri something that Siri doesn't know the answer to, it'll fall back to Chat GIPT and grab the answer from there. With the new SerII, it's going to know the answer to basically everything you ask. You don't really need Chat Gypt. These current iOS twenty seven betas have Chat Gypt still as part of that system. But the ultimate goal, and I think this is going to happen more quickly because of the lawsuit. Apple's going to pull the Chat GPT exclusivity in my opinion, and they're going to allow you to install any third party LM onto your phone to use through Siri.

00:33:24
Speaker 2: Interesting.

00:33:25
Speaker 3: Wait, okay, talk to us about the lawsuit because this seems important, seems traumatic.

00:33:31
Speaker 4: Two years ago, three years ago, Dude named tank Tan vice president of iPhone product Design, Apple Watch, product Design, AirPods, Acoustics, successories, all sorts of stuff. One of the most senior executives at Apple and by all accounts the number two under John Turnas and the hardware engineering organization comes to Turnus, comes to Apple it he says, I'm out of here. I'm going with startup. This is early December of twenty three. They're like, okay, well, you have your tentacles tied up in so many different areas. You can't leave immediately. So they're like, okay, stick around till February. So he sticks around till February. But in behind the scenes he's already cooking up a new AI devices company with Johnny Ive, the former Apple design chief, and Sam Altman, who runs open Ai obviously at the time still does, and their whole goal is to create a new range of devices that will destroy the iPhone, combining the engineering and design prowess of some of the best people who used to work at Apple with what at the time was widely considered the best AI lethal Combo and Tang Tan has been hiring over the last year two years an exceptional number of people from Apple. They've pillaged Apple's hardware engineering ranks. They have four hundred former Apple employees in their hardware division at Open Air right now, My guess that's between five and eight percent of the total open employee pool is a former Apple employee. Kind of nuts, okay. Apple has been beside itself for two years about this, the hiring, the poaching, the fact that they're trying to compete with them using their best former people. Nothing you could really do about it. Reverse the beginning of this year, Apple finally had what they think is a smoking gun, an engineer named Changlu. He allegedly breaks into Apple servers and steals engineering presentations and such and gives them to Open AI. And so Apple begins building a big case against Changlu and Tang Tan, who they allege was bringing Apple employees into open A offices with prospective job offers and asking them to bring in Apple prototypes and other internal Apple equipment to give them a look at what's coming down the road.

00:35:35
Speaker 3: What's the open AI's defence here, because when you read the complaint.

00:35:39
Speaker 4: It seems here's my take overall, the complaint is very thin, really very thin. The stuff about Tang Tan very thin. A lot of that is common practice in Silicon Valley for recruiting and meetings with employees that they've drummed up into a Netflix special. That's my take. The chang Lu stuff, if true, is extremely serious and he's in trouble and that's a big problem. Okay, So that is the delineation there. Advice I say in terms of the recruiting and pillaging apples harder engineering ranks. I don't know how kosher that is. I'm sure there were some you know, funky stuff going on.

00:36:14
Speaker 2: That strikes me as just business in California's business in California.

00:36:18
Speaker 4: But we'll see where this lands. But the one thing I'll say is if you read the Apple complaint, they say so many times in that complaint we need to do discovery to know what's going on.

00:36:27
Speaker 2: This is a good say too, like the new form factors that we might expect for gadget and there the Google glasses like fifteen years ago and people hated them.

00:36:39
Speaker 3: And people still hate them.

00:36:40
Speaker 2: My old colleague and business insider, he like got beaten up or like got yeah remember that story in California.

00:36:47
Speaker 4: Because someone tried wanted to steal them.

00:36:49
Speaker 2: No, he was wearing the Google glasses and people found it. You know, it was just like very upset about people really hate.

00:36:55
Speaker 4: Yeah because of the recording yeah everything, Well, Apple has a high bar to us there because their next big thing is glasses.

00:37:02
Speaker 2: So this is what I'm getting at, And there's a lot of interest in this, and we know that Meta obviously is like really pushing on this hard et cetera, setting aside like market demand for some of these new form factors. It feels to me like we are very close to crossing a deeply uncomfortable cultural threshold with all of this stuff, where it's like people do not want you know, if you had a little pendant on in your pocket, Yeah, your body can like right now recording this and it's like, oh yeah, I have the like people would be very uneasy. But yeah, they say the.

00:37:39
Speaker 4: Least, there's a high bar, we think.

00:37:41
Speaker 2: So when we think about the range of like quote AI gadgets, setting aside even pure market demand, are we going to be in this era where like we're really going to have to like have some serious cultural fights about what's acceptable for people to have on their person at any given time.

00:37:58
Speaker 4: I walked into a family member's house a couple of weeks ago, I got the new Meta glasses for review and They were very upset that I walked in with the meta glasses, thinking that I'm recording them, right, and how are they supposed to know I could be recording them. I wasn't. I assured them of such.

00:38:18
Speaker 3: But people like jail break the light.

00:38:20
Speaker 4: Yes, it's it's uncomfortable, you know. They are people who, yeah, use a black sharpie to cut out the light.

00:38:26
Speaker 2: And if they and someone will sell a phone from China that doesn't have any light or any outward India, it's uncomfortable being looking like they will look. There's no doubt. It's the short term. There will be glasses that are absolutely indistinguishable from the normal glasses.

00:38:42
Speaker 4: Yes, and then metas talking about what they call the super sense glasses right now, which are recording at all times versus the current ones where they record as you snap or ask it to record. Yeah, I don't know. From Apple, No.

00:38:56
Speaker 2: From all there are gonna be a lot of these products.

00:38:58
Speaker 4: You've got new ones on.

00:39:00
Speaker 2: We will not know. We will have no idea who's recording what's going well.

00:39:04
Speaker 4: You know, Amazon's got new ones coming, Apple's got new ones coming or their first ones coming. Google is working on this, Samsung is about to launch theirs. Everyone's doing this, and so you know, Meta has a lot of privacy baggage and they've sort of, you know, soiled the market for Apple and these other players ahead of time by making people uncomfortable with this stuff. And I think Meta gets a little bit too hard of a time, right. I think people go a little bit harder on Meta than they should. But there are serious privacy questions that are being raised here, serious privacy questions that are being raised here. And it's going to be a very high bar for Apple to meet this moment and get people using these things despite those concerns.

00:39:43
Speaker 3: All right, Well, other than the glasses that everyone seems to hate, talk to us about what we should actually be saving up our money for. I guess in terms of new product launches.

00:39:51
Speaker 4: Yeah, well, this foldable phone, the Ultra is going to be really fantastic. Open it up. It's like an iPad Mini. Pretty excited about it. You know, it's not going to be as durable or priced as well as like a prophone or the one of the low end phones, but I think it's going to be pretty exciting. I think the AirPods, the pendant, the smart glasses are going to be very exciting the smart home. So they're coming out with three different smart home products, but one is an in home security camera system tied to a new Apple security system. I think they want to compete in some fashion with ADT or some of the home security companies. There's a Landmark smart home device, which you know, you can put on your desk, put on your wall, and you can walk up to it and it'll know who it is. It'll basically bring Serie AI to life, pull up your music, you can do video conferencing, you can do apps, smart home appliances, etc. It's like a smart home command center. And then there's another device. It's a robotic version. So the one I just describe has a seven inch screen. Then there's a nine inch screen version and it's going to be on a robotic arm so it can move around on your desk so you can look at it, you can point it to look at people on a video conference. It's kind of nifty. I don't know how well that's going to do, but you know what. They're trying things at least. And then tons of new Macs, new MacBook NEOs, new Imax augmented reality glasses. Is the Biggie probably end of decade, early next decade, taking the glasses but being able to give you information. A.

00:41:13
Speaker 2: Yeah, I was gonna say, so, you know people are talking about AR ten years ago, fifteen years ago and hadn't taken off. What is it going to be different that it's like, Okay, now people actually like AR and find use for it.

00:41:27
Speaker 4: It's the visual fidelity, okay, it's the quality. Have you used the vision Pro no? 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.

00:41:42
Speaker 2: Oh there, these are the glass A. Yeah, yeah, I saw someone say recently they watched it in cane on their Vision Pro.

00:41:49
Speaker 4: It's amazing.

00:41:50
Speaker 2: It's amazing.

00:41:50
Speaker 4: Yeah, it's amazing. Anyways, it's a.

00:41:53
Speaker 2: Better experience than watching a big screen TV on your couch.

00:41:56
Speaker 3: If you don't have a family, if you Yeah, I find something so just topian about like two people sitting on a couch with their glasses on, and.

00:42:03
Speaker 4: They have marketing around that, like and they're trying to make two people bring a vision Pro have better interactivity I think it's crazy.

00:42:08
Speaker 3: I guess you can hold hands.

00:42:11
Speaker 4: But long story short, the glasses of ten years ago, when even today the ar glasses, the visual quality is garbage, right, you can hardly see what's going on. Apple. Their goal is to make a leap frog aur products. They're not gonna get anywhere near the vision pro quality, but they're gonna get to a you know, a high quality place.

00:42:29
Speaker 2: Okay, So the next three years anything else. So it's like foldable phones.

00:42:33
Speaker 4: So we'll start off with the foldable phone and the eighteen pro and pro Max. This fall, you're gonna get a new oled iPad Mini.

00:42:41
Speaker 3: I was gonna ask. No one even cares about the new iPad Mini. It doesn't mention until now. Yeah, that's what I'm excited about.

00:42:48
Speaker 4: I wrote a story about it today. So you're gonna get a new old display, so same visual clarity that you get on an iPhone. The current ip admitte is stuck on an old LCD. Next year, you're gonna get some of the wearables, so you're gonna get that foldable phone two actually in the fall, but you're also going to get the AirPods with cameras, and you're going to get the smart glasses. And then the other big one next year is the twentieth anniversary iPhone, the iPhone twenty or the iPhone xx, whatever you want to call it, and that is going to be an all glass phone that meshes well with the liquid glass. The new software they rolled out last year and updated this year. The year after that, you're going to get things like the tabletop robot. I talked about the smart home appliances and what have you. So it's a big next three years for Apple and augmented reality glasses. Behind that, they've been playing with this big tablet, foldable tablet, foldable iPad with a twenty inm screen, and then that main smart home device. I talked about the smart home hub that'll be in the next few months. So that's an exciting one.

00:43:47
Speaker 2: Mark German, thank you so much for coming on odd Lawns. That was great. Oh quite a bit good.

00:43:51
Speaker 4: Thanks for having me. This is awesome.

00:44:05
Speaker 2: So Tracy, I thought that was very interesting. I needed that catch up on this company that once like occupied a little bit of my mind share, and now I hardly ever think at all. I do think it's interesting, like as a starting point for all of the like they're not the best phones in the world, especially when you bring China into it. They've been stumbling on AI for over a decade that it's like the one big tech stock that right now today July sixteenth is an all time high.

00:44:32
Speaker 3: Well, I thought it's interesting. I mean, to some extent you can say, Okay, they missed the boat on AI. But on the other hand, you know, they've sort of stuck true to their ethos as a product company that often I don't want to say leeches off the technology of others, but like it's very good about sourcing techs they from other companies, right.

00:44:51
Speaker 2: Right, I would say, you know, Mark described it's a product company, right, but the other thing is it's a supply chain and creation story. Obviously that was like that's what Tim Cook's expertise was, et cetera. You know, there's an interesting episode we did remember with Sam Demico the Impulse Labs.

00:45:11
Speaker 3: Yeah, he was talking about it.

00:45:13
Speaker 2: And he said that term and I guess it's actually originally an Elon term, which is that the factory is the product, right, which is really interesting, and so he was like, why have they been this unified experience that combines really good hardware with really good software. The product is their ability to integrate. It's not like a that's what they're good, that's their thing. They can integrate many different things better than anyone else, and then people really like the product. Yeah.

00:45:39
Speaker 3: But then on the other hand, I guess the question is if something like a camera, if the edge on a camera now comes from AI, yeah yeah, versus like the actual hardware components, then are you going to get a big AI company, a hyperscaler that starts, you know, becoming a product company.

00:45:55
Speaker 2: Or you just have like one of these Chinese companies where AI is like one and they do and even that is ten times better than the you know what I'm saying. And so I do think, like pretty clearly from a pure product standpoint, there is probably a limit to your point of like how far they'll go if their core technology is just not frontier. And it's so crazy to me that like there were years ahead of everyone else in terms of conceiving of talking to your computer with your voice and then they just like completely drop the ball on that.

00:46:30
Speaker 3: Well, I do also think the other thing, you know, we talked about their ability to entice buyers for these new products and a lot of the stuff. It sounds cool a robotic arm that sits on your desk and points at people, I guess. But on the other hand, how much of it do people actually need? How much is it going to cost? Given that, as we were discussing, memory and components are in short supply at the moment, I don't know.

00:46:54
Speaker 2: I also think, who knows, I guess part of it. Maybe you know. Other companies are all going to build the similar gadgets et cetera. Like again the iPhone, bringing together this entire ecosystem, Like what are the I just like, I don't know, I guess. The The flip side is like, we don't care at all anymore about what iOS were on, et cetera, and it hasn't hurt the company.

00:47:16
Speaker 3: Well, I was gonna say one question we should have asked Mark, and I forgot, but how much of a mote is iOS now?

00:47:22
Speaker 1: Actually?

00:47:23
Speaker 3: Because people will say, like, oh, I don't want a non iOS phone. But on the other hand, you don't know what iOS you're on.

00:47:29
Speaker 1: No.

00:47:29
Speaker 2: All I know is that if I didn't have one, all my friends would make fun of me for being green. Text in the group chats yea, who's that's the important Who's the android person that's making the group text show up in green chat? Expose yourself and so I don't want to be that person?

00:47:44
Speaker 4: All right?

00:47:44
Speaker 3: Shall we leave it there?

00:47:45
Speaker 2: Let's leave it there.

00:47:46
Speaker 3: This has been another episode of the au Bots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

00:47:52
Speaker 2: And I'm Joe Wisenthal. You can follow me at the Stalwart. Follow our producers Carmen Rodriguez at Kerman Arma, dash Ol Bennett at Dashbot, kel Brooks at Kilbrooks and Kevin Lozano at Kevin Lloyd Lisano. And for more odd Logs content, go to Bloomberg dot com slash odd Lots or of a daily newsletter and all of our episodes and you can chet about all these topics twenty four to seven in our discord Discord dot gg slash od Loots.

00:48:15
Speaker 3: And if you enjoy odd Lots, if you like it when we provide you with Apple updates, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening, Ey,