Why Apple Is Heading Into a Pivotal Moment

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1:34Don't go down the rabbit hole. Amazon Health AI gets you the right care fast. Healthcare just got less painful. Bloomberg Audio Studios Podcasts Radio News Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

2:05And 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. 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.

2:41Wait, I have the right to repair my iPhone? Is that true? They put a little vacuum cleaner in there? That's what the issue always is? I don't think that's it because I tried it already. I think the battery is like legitimately dying. I've had it for like eight years. Well, I've had my – OK. So I think I have no idea 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 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?

3:11Yeah, sure. If at some point in the early 2010s for sure, if someone would say like what iPhone do you have, you're like, oh, I got the iPhone 4. I got the iPhone 5. 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 for people, you know?

3:43So 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? Yes.

4:13That was just like, oh, and it was just like really looked, 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 survive. Do you remember I dropped this phone from the stands at the Jackson Hole Rodeo? Oh, yeah. You were there, I think. Did it fall underneath the- It fell all the way down. And it was fine, right? And it was fine. Yeah. It was probably like 15 feet or something. They work really well. Anyway, I think setting aside the fact that, okay, Apple is still a huge successful company,

4:44but 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 way so many people interact with computers and the internet, and yet it's not a major player in like building AI models.

5:15So like how will AI change our relationship to just like either like computing or the internet? It sits like at the center of so many like important topics right now. And 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. 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 health care and child care or whatever.

5:46But 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, I mean, it was just a thing. And so it's extraordinary to see like this actually reversing. So I don't know.

6:16I 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, you know, including employees at Apple. There is probably no person outside of Tim Cook that knows the company better. The ultimate Apple watcher, not Apple watchers and Apple watchers, the ultimate Apple observer knower for years and years.

6:47He's 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 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. Yeah. And it's a tank. It's what? It's a tank. It's a tank. But can you explain, like, what is it about the orange iPhone specifically?

7:21Is 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 back story, 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?

7:52They 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 $1,000, $1,500 phones, they were like, I'm kind of getting tired of just black every year or white every year or gold every year or silver, these muted colors.

8:27Yeah. 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.

8:57But the problem with Titanium, and they only seemed 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.

9:32And so, they've got orange, they have classic silver, which I think actually looks really hot, and then you have a dark blue. Got it. 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 colorblind. I don't think this orange looks anything like Hermes orange, but it's close enough.

10:04It's close enough. 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. 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 libubu from the Pop Mart

10:34CEO. Have you seen this? 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. Oh. No one else other than me saw it coming, but did a big- You did write some profile pieces that definitely hinted at it.

11:05Yeah. 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 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's the person that they named as the replacement, they wouldn't-

11:35I am curious. If you went onto the streets of Manhattan and you asked a hundred people who's the next CEO of Apple, how many would know? One? That seems high to me. I mean- One seems high? Yeah. Well, maybe you ran into me. If I ran into you. Okay, well, let's- maybe this is a good- because obviously, oh, 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.

12:08Two 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 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, 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, right?

12:44For lack of a better term. Lack of interesting- Victim of its own 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, its hardware, its product genes coming out with innovative new things. And John Ternus, he was the Senior Vice President of Hardware Engineering.

13:16He was the guy actually in charge of product development. And so, for a company looking to shake itself out of a product lull, putting your 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 15 years. Hugely successful. Time for a new era. The simpler answer is that John Ternus is 50, 51 years old.

13:47Every 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 Bob Iger to Bob Chapek 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 67 years old to be their new CEO, that's a one to three year thing. Apple does not operate in the short term.

14:18They 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

14:50pieces 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.

15:22And 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 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

15:52and 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.

16:10What if you could use AI to research your investment portfolio and ask, find profitable mid-cap energy companies with growing cash flow? Which AI infrastructure stocks appear undervalued? Or rank stock opportunities based on valuation, growth, and risk? With interactive brokers, you can connect ChatGPT or Claude to your investment portfolio

16:44to research investments, analyze your holdings, and uncover potential undervalued opportunities. AI accelerates the research. You can make every investment decision. Open and fund an interactive broker's account in minutes at ibkr.com slash invest. Restrictions apply. AI integrations provided by third parties. IBKR does not verify content generated by AI platforms. This is the Bloomberg Tech Minute brought to you by ChatGPT.

17:14Now with ChatGPT work. I'm Carol Masser. Globetrotters hunting for airfare bargains are in for a rude awakening, as the days of stumbling across a cheap seat on a popular flight could soon disappear. Bloomberg's Wan Ha reports that airlines from Delta to Virgin Atlantic are adopting artificial intelligence to change seat prices more quickly by weighing dozens of variables in real time, helping capture more revenue while shrinking pricing gaps that once allowed travelers to find bargain fares. Machine learning models can more accurately forecast demand by analyzing historical booking

17:48patterns, seat inventory, and seasonal trends, while also continuously tracking competitors' fares and capacity changes to update prices in near real time. The technology could lead to higher fares on busy routes as airlines pack flights closer to capacity, but may also result in lower fares on off-peak and lower-demand routes. That's the Bloomberg Tech Minute brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com today by selecting Work Mode, available on Plus and Pro Plans.

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18:53All right, so we obviously have to talk about the next three years and 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, that there were other phones that like maybe on a price, you know, adjusted standpoint, maybe were better deals or whatever, et cetera. There are really good phones now being made by other companies, including Chinese manufacturers

19:28who like I saw the foldable phones and things like that. They're actually really cool and they're good. And so 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 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

20:00totality, 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.

20:34But 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.

21:04The cameras on the phones in China, you're talking about Vivo, you're talking about Xiaomi, Huawei, they will destroy Apple head to 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, 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.

21:35is 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.

22:07I 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 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.

22:37Bless his heart. Yes. He's that bad. John, by all accounts, a thought leader in 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 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.

23:09So 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 high-time high. Yeah, but, you know, Apple, I would be happy for them if this was a strategy. No, no, no, no. They fell ass back into it. I totally get it, but what I'm saying is that the market has not really penalized them for

23:44the 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.

24:15Is 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. AI 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, and it's a different way of, like, understanding what we're talking about with AI.

24:48Right here, right now, 2026, so it's like, okay, inside Apple, we want to correct our past 10 years of, like, missing out on AI, what do they want to achieve with AI? Well, 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. Yeah. 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

25:22one 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 12 years ago.

25:54Okay. 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 canceled in February of 2024, so two and a half years ago. So 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.

26:26But 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

27:00the Neural Engine or the A&E, and they put it in the iPhone 10 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.

27:30But it seems like that was kind of accidental, right? 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? 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.

28:01It'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 glasses. AirPods with cameras? AirPods, a pendant, smart glasses. Is that like a thing you'd put out like kind of a necklace type thing? A necklace or you put it on your pocket here. Eyes and ears for your phone, AI cloud processing in order to feed context into your phone and

28:32your 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 packages. A bunch of them went to Google, Anthropic, Microsoft, you name it. So Apple opened up the hood of their models.

29:03They're paying billions of dollars to Google to have redeveloped the underpinnings of their models. And so now Siri, now Siri is competent. Wait, 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.

29:34And 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. What powers Siri AI's intelligence? Today, it's Apple Foundation models that have been rebuilt with Google underpinnings. Because it's Gemini. Okay. Okay. Got it. Okay. So going forward, is the idea that Siri will just be a Gemini skin, as they would say?

30:04Like, is that a sense? From the 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 re-skinned 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. Yeah. I take a picture of my work screen with the phone, and then it just adds it to my calendar through Siri. Oh, that's pretty nice. That's useful, yeah. So, you know, how many people have that use case? I don't know. But it does work.

30:35It's extremely competent. I would say, you guys know video editing software? A little bit. Okay, you know iMovie? Yeah, sure. Okay, so there's like iMovie versus Final Cut Pro? Yeah, yeah. All right, so before Siri AI, Apple had nothing. Now they've got iMovie, ChatGPT's, Final Cut Pro. Got it. 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, documents, drafting, editing, etc. Travel planning, everything you want to use ChatGPT for.

31:08Can't do all of it.

31:25This is the Bloomberg Tech Minute, brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Masser. Globe Trotters hunting for airfare bargains are in for a rude awakening, as the days of stumbling across a cheap seat on a popular flight could soon disappear. Bloomberg's Juan Ha reports that airlines from Delta to Virgin Atlantic are adopting artificial intelligence to change seat prices more quickly by weighing dozens of variables in real time, helping capture more revenue while shrinking pricing gaps that once allowed

31:56travelers to find bargain fares. Machine learning models can more accurately forecast demand by analyzing historical booking patterns, seat inventory, and seasonal trends, while also continuously tracking competitors' fares and capacity changes to update prices in near real time. The technology could lead to higher fares on busy routes as airlines pack flights closer to capacity, but may also result in lower fares on off-peak and lower-demand routes. That's the Bloomberg Tech Minute, brought to you by ChatGPT.

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34:05Copyright Truist Securities Incorporated, member FINRA and SIPC. 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. I think that the other component of this, speaking of components,

34:35is that inflation, real thing over the last five, seven years, Apple product prices really have not increased over that time as other components got expensive and as inflation has gone up. And so I'm not one of those people who think this is a conspiracy theory to finally 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?

35:066%. 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 of 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. You know, it just occurs to me, just on the AI component, it's like you see these huge budgets that the Alphabets and the Amazons

35:37and 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. 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 part. You're spot on. It's straight out of that playbook. But AI is pretty darn fundamental.

36:08And 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 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.

36:38And 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. 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.

37:13They already used 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 inside 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 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.

37:45If Siri is re-skinned Gemini... It's a little bit more than that. Yeah, okay, okay. Does that create issues for China in terms of, like, using Siri in China? And do they, like... Is it a good question? Are they going to have to, like, use, like, DeepSeek or something like that for the Chinese SKUs? How are they handling that? 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 Siri, not the new Siri AI. Not the old one. But here's what they've done. So there's basically two components to Siri that you can break down.

38:18You've got the Apple models, and then you have integration with Google, and you have integration with OpenAI. That's the situation in the United States. And so in China, you've got Apple models, and then the outside partner is Baidu. They're the big Google equivalent for search. And so that makes sense to have them instead of OpenAI in China, which both don't work in the region. Yeah. But there's also one other player. It's a company you may have heard of called Alibaba. And so what Apple is doing with Alibaba is they've got Alibaba models in the system,

38:49and 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. Yeah, because the censorship announcements, like, get updated really, really quickly, right? And, like, keywords are now problematic that weren't five minutes ago. But that model from Alibaba is essentially a way of keeping the Baidu model in check.

39:21And the Apple model. Okay, okay. And the Apple model. But yes, that is what Alibaba is there to do is a censorship engine. Isn't that crazy? Yeah. It's models on top of models. Yeah. Models all the way down. 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 OpenAI. But the phone, as you know, it has ChatGPT baked in as a Siri extension. Basically, if you ask Siri something that Siri doesn't know the answer to,

39:53it'll fall back to ChatGPT and grab the answer from there. With the new Siri AI, it's going to know the answer to basically everything you ask. You don't really need ChatGPT. These current iOS 27 betas have ChatGPT 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 ChatGPT exclusivity, in my opinion, and they're going to allow you to install any third-party LLM onto your phone to use through Siri.

40:24Interesting. Wait. Okay. Talk to us about the lawsuit because this seems dramatic. Two years ago, three years ago, a dude named Tank Tan, vice president of iPhone product design, Apple Watch product design, AirPods, acoustics, accessories, all sorts of stuff. One of the most senior executives at Apple, and by all accounts, the number two under John Ternus and the hardware engineering organization, comes to Ternus, comes to Apple, and he says,

40:55I'm out of here. I'm going with startup. This is early December of 23. 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 until February. So he sticks around until February. But 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 OpenAI, obviously, at the time, still does. And their whole goal is to create a new range of devices that will destroy the iPhone,

41:25combining 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 Tank 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 400 former Apple employees in their hardware division at OpenAI right now. My guess is that's between 5% and 8% of the total OpenAI employee pool is a former Apple employee. Kind of nuts.

41:56Okay. 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. Reversed the beginning of this year, Apple finally had what they think is a smoking gun, an engineer named Chang Liu. He allegedly breaks into Apple servers and steals engineering presentations and such and gives them to OpenAI. And so Apple begins building a big case against Chang Liu and Tank Tan, who they allege was bringing Apple employees into OpenAI offices with prospective job offers

42:29and asking them to bring in Apple prototypes and other internal Apple equipment to give them a look at what's coming down the road. What's OpenAI's defense here? Because when you read the complaint, it seems pretty bad. Here's my take. Overall, the complaint is very thin. Really? Very thin. The stuff about Tank 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 Liu stuff, if true, is extremely serious and he's in trouble and that's a big problem.

43:04Okay. So that is the delineation there in my head. Oh, I see. In terms of the recruiting and pillaging Apple's hardware engineering ranks, I don't know how kosher that is. I'm sure there were some, you know, funky stuff going on. That strikes me as just business in California. It's business in California. 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. This is a good segue to, like, the new form factors that we might expect for gadgets. And there were the Google glasses, like, 15 years ago when people hated them.

43:39People still hate them. The new glasses. My old colleague at Business Insider, he, like, got beaten up or, like, got physically. Yeah. Remember that story in California? Because someone wanted to steal them? No, he was wearing the Google glasses and people found it, you know, is just, like, very upset about, you know. People really hate them. Yeah. Because of the recording. Yeah, everything. Well, Apple has a high bar to cross there because their next big thing is glasses. 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.

44:11Setting 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. Yes. With all of this stuff. Yes. Where it's, like, people do not want, you know, if you had a little pendant on in your pocket right now. You mean my body cam? Yeah, your body cam, like, right now recording this. And it's, like, oh, yeah, I have the, like, people would be very uneasy, to say the least. There's a high bar.

44:41So 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? I walked into a family member's house a couple weeks ago. I got the new metaglasses for review. And they were very upset that I walked in with the metaglasses thinking that I'm recording them, right?

45:14And how are they supposed to know? I could be recording them. I wasn't. I assured them of such. But people, like, jailbreak the light and stuff, right? Yes. It's uncomfortable. You know, there are people who, yeah, use a black Sharpie to cut out the light and all sorts of stuff. And someone will sell a phone from China that doesn't have any light or any outward indicia. It's uncomfortable. Of it being looking. Like, they will look. There's no doubt. It's the unknown. In the short term, there will be glasses that are absolutely indistinguishable from normal glasses. Yes, and then Meta is talking about what they call the SuperSense glasses right now, which are recording at all times versus the current ones where they record as you snap or ask it to record.

45:53Yeah. I don't know. This is coming for sure. From Apple? No, from all. There are going to be a lot of these products. You've got new ones coming. And we will not know. We will have no idea who is recording what's going on. Well, you know, Amazon's got new ones coming. Apple's got new ones coming or their first one's 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.

46:24And 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. 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. Yeah. Well, this foldable phone, the Ultra, is going to be really fantastic.

46:56Open 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 pro phone or one of the low-end phones. But I think it's going to be pretty exciting. The AirPods, the pendant, the smart glasses are going to be very exciting. The smart home. So they're coming in with three different smart home products. 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,

47:28and you can walk up to it and it'll know who it is. It'll basically bring Siri AI to life, pull up your music. You can do video conferencing. You can do apps, smart home appliances, et cetera. It's like a smart home command center. And then there's another device. It's a robotic version. So the one I just described 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.

47:59And then tons of new Macs, new MacBook Neos, new iMacs. Augmented reality glasses is the biggie. Probably end of decade, early next decade. Taking the glasses but being able to give you information. Google Glass. Yeah, I was going to say. So people were talking about AR 10 years ago, 15 years ago, and hadn't taken off. What is going to be different that it's like, okay, now people actually like AR and find use for it? It's the visual fidelity. Okay. It's the quality. Have you used the Vision Pro?

48:31No. 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 glasses. The Apple goggles. These are the big headsets. Yeah. 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. It's a better experience than watching a big screen TV on your couch. If you don't have a family. If you have a family. Yeah. I find something so dystopian about like two people sitting on a couch with their glasses on.

49:03And they have marketing around that. 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. You can hold hands. But long story short, the glasses of 10 years ago and 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 leapfrog AR product. They're not going to get anywhere near the Vision Pro quality, but they're going to get to a high quality place. Okay. So the next three years. Anything else? So it's like foldable phones, Vision Pro.

49:34We'll start off with the foldable phone and the 18 Pro and Pro Max this fall. You're going to get a new OLED iPad mini. I was going to ask. No one even cares about the new iPad mini. It doesn't get mentioned until now. Yeah. That's what I'm excited about as an Apple Luddite. I wrote a story about it today. So you're going to get a new OLED display. So same visual clarity that you get on an iPhone. The current iPad mini is stuck on an old LCD. Next year, you're going to get some of the wearables. So you're going to get that foldable phone 2 actually in the fall. But you're also going to get the AirPods with cameras and you're going to get the smart glasses.

50:07And then the other big one next year is the 20th anniversary iPhone, the iPhone 20 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 20-inch screen.

50:40And 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. Mark Gurman, thank you so much for coming on OddLots. That was great. I learned quite a bit. Good. Thanks for having me. This was awesome. So, Tracy, I thought that was very interesting. I needed that catch up on this company that once occupied a little bit of my mindshare and now I hardly ever think at all.

51:14I 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 16th, is at an all-time high. 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, is very good about sourcing tech from other companies, right?

51:51Right. I would say, you know, Mark described it's a product company, right? But the other thing is it's a supply chain integration story. Obviously, that was, like, that's what Tim Cook's expertise was, et cetera. You know, there's an interesting episode we did. I remember with Sam D'Amico, the Impulse Labs. Yeah, he was talking about it. 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?

52:28The product is their ability to integrate. And it's not like that's what they're good at. That's their thing. They can integrate many different things better than anyone else. And then people really like the product. Yeah. 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 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? Or you just have, like, one of these Chinese companies where AI is, like, one random thing they do.

53:01And even that is 10 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 are 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. Well, I do also think the other thing, you know, we talked about their ability to entice buyers for these new products.

53:36And 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, like, 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. I also think, who knows? I guess part of it may be, you know, other companies are all going to build similar gadgets, et cetera. Like, again, the iPhone bringing together this entire ecosystem, like, what are the, I just, like, I don't know.

54:10I guess the flip side is, like, we don't care at all anymore about what iOS we're on, et cetera. And it hasn't hurt the company. Well, I was going to say one question we should have asked Mark, and I forgot. But how much of a moat is iOS now, actually? 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. No. 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. That's the important thing. Who's the Android person that's making the group text show up in green chat?

54:41Expose yourself. And so I don't want to be that person. All right. Shall we leave it there? Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at Carmen Armand, Dashiell Bennett at Dashbot, Kale Brooks at Kale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And for more Odd Lots content, go to Bloomberg.com slash Odd Lots. We have a daily newsletter and all of our episodes. And you can chat about all of these topics 24-7 in our Discord, discord.gg slash Odd Lots.

55:15And 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.

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