00:28:38 · Patrick McGee
[00:28:38] S8: Yeah. So, look, Apple really likes to push the boundaries on what's even possible in design and then in manufacturing. And so it's not at all uncommon to have defects in the early process of of of building out and scaling a new product. What's really strange here is that this is happening after they're shipping to consumers. Right? Usually, this is something Apple would have worked out months, before, at least weeks before they're actually shipping to consumers. So that's sort of the the big thing. As far as how big of a problem is this, I kind of think we have literally no data because we're dealing with anecdotes in terms of how many people are on social media. And let's say the number was just orders of magnitude higher than you and I thought. Let's say it's 10,000 defective units. Right? That would be absolutely remarkable. Well, not if they sold 2,000,000 in the first month. Right? Like, that would be a hilariously high yield rate. In other words, like, the number of defects as a percentage would be incredibly low, and yet Apple is just such a sort of, I don't know, iconic company producing such an iconic device that, it can still go wild on social media even if it's not actually that problematic. So, you know, I think where you're gonna see problems is the fact that they are having difficulties actually building these things. I don't wanna say they have... They're having difficulty meeting demands. That's sort of Apple's line, and yet I don't think it's actually clear that there's so much demand for this product. But if you have a defective Duo, you go back to the Apple Store and they frankly don't have one to give you as a replacement, then you've got a real problem on your hands. And that certainly happened in some instances, but in other instances, they just give you a new one. So I think time's gonna tell how problematic this is gonna be. And, of course, we are leading into the most important quarter for the year. So, it could be a major problem, but, honestly, it might just be basically over with. They they could have very well fixed the supplier issue at this point. And, at the end of the day, maybe it's only a few dozen units, and we move on.
00:30:30 · Ed Elson
[00:30:30] S4: Ternus talked a lot about Siri AI, which the new voice enabled chatbot. He also got a lot of questions about AI because this seems to be the most important strategic decision that Apple has made, which is that they have not joined this AI arms race, which every other big tech company has decided to pursue. And so they're getting a lot of questions about it that... A lot of questions that he and the management team didn't really seem to answer. At least they didn't seem to answer those questions very directly. What do you make of that decision at this point? I mean, we know how much money all these other guys are spending on on AI. Hundreds of billions of dollars by Meta, Google, Microsoft, all of these players. Apple's not spending seemingly anything, on on CapEx. Is that the right move?
00:31:18 · Patrick McGee
[00:31:18] S8: You know, when markets are bullish on AI, then Apple looks like it's this old timer who sort of can't keep up with the times. And when markets are bearish on AI, then Apple sort of plays the safety trade, and it and it looks genius. And, of course, right now, the markets are in a bit of a tailspin due to, all the spending and CapEx on AI. So Apple's looking good. So, I mean, this was great timing for John Ternus' first first interview, you know, for earnings. But you're right. Yeah. We learned very little. I mean, that's very typical Apple. You know? If you learn something about John Ternus on the earnings call, it's that it's it's Tim Cook two point o in terms of will we actually hear anything interesting. I mean, very, very tame, in terms of what he was actually saying on the earnings call and and the other executives as well. So, you know, it's gonna be difficult to know because I guess if you are AGI pilled, then it's insane that the world's most iconic company really isn't playing the game of investing loads of money into AI. But if you're not AGI pilled, then it's a genius move to sort of sit back and let people subscribe on their Apple hardware. You know, where Apple's actually doing quite well is with the Mac minis and the Mac studios. Right? These are bits of hardware that are really good at running AI models, and you can download, like, the the open weighted models and have them running on your Mac studio, without a subscription fee fee to the likes of Claude and ChatGPT. As as they continue to iterate on this technology, Apple could have a very, very winning AI strategy, but it's in hardware. And what people are wanting is sort of in software, in Siri, in data centers. And they're not... It's not that they're not playing that game. They're not executing very well. But in times of, sort of panic over how much CapEx is going on, Apple is sitting pretty.
00:32:54 · Ed Elson
[00:32:54] S4: One of my struggles with Apple. I mean, the... It's done incredibly well this year. It's up more than 20% year to date. It's crushing all of the other big tech names. It's also very expensive. It's trading at 36 times forward earnings, which is by far the most expensive of the big tech companies despite the fact that its earnings are growing significantly slower. And so I think that that investors, they're happy that Apple isn't just saying, okay. We have to join the AI race as well, and we're gonna do the same thing that all of these these other guys are doing, which I respect. But at the same time, investors are thinking they're gonna do something incredible. And for me, I look at the company. I'm like, okay. What is that incredible thing? What... All that... Those hundreds of billions of dollars that you're not spending because all of those guys are in this arms race that's not necessarily gonna work out. What is your big project? And I look at the Duo, and I'm like, I don't think I don't think it's that. Certainly not the Vision Pro. I mean, what do you think is the next thing? And do you agree with me that they have to come up with something that is, like, generational, something as big as the iPod or as the iPhone?
00:34:07 · Patrick McGee
[00:34:07] S8: It's funny. I think journalists have been asking Apple this question since around 2012, and I think they've basically been wrong the whole time. I mean, Apple sort of realizes that the, you know, six inch rectangle in everyone's pocket that they stare at for four to six hours per day, is the thing. There is no next big thing. I mean, maybe there is at some stage, but I don't think they have to be investing in glasses. I mean, I don't know if you have sort of any propensity to go to the store and buy the latest smart glasses. I have none. And even if those come out, I think they're most likely to augment the smartphone rather than displace it. So I think I think the the question of, like, what's after the iPhone is, in a sense, still too early to be asking. There... There's just no sign that people are gonna stop buying the iPhone. In fact, I would say the biggest thing they could be doing isn't a new product... Or I'm sorry. This is this is what they they are doing is improving Apple silicon. So the more that you can run AI software in... On your device, I should say, rather than in cloud. In other words, you could be on an airplane, right, with no airplane access, no Internet access at all, and still be running all these models because it's on the device, the better. And not only, is that is that just like a good service to have in general, but if, Apple is able to sort of keep a pace with the with the developments. In other words, what's going on in the cloud can mostly be done on your phone, and then they're iterating on that, then you might want to upgrade, to the latest iPhone, every two years or something. Right? So you might get, like, a sort of, a more, narrow super cycle in terms of how many mass upgrades are happening. And so that doesn't sound like a sexy answer because I'm not saying, oh, the new new glasses are gonna blow your mind. The Vision Pro two point o is finally gonna really, you know, become a mass market product and have in price. But I think in a sense, that was kind of the genius of Tim Cook that he realized that at the end of the day, it's journalists asking for the next big thing. Consumers just want reliability, faster processor, better camera, and and, you know, and that's about it. And they'll they'll continue buying iPhones.
00:35:59 · Patrick McGee
So I know we want the sexier answer, but I don't actually think that's what builds the company.