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Article / 09 September 2015 at 13:30 GMT

Is Apple about to launch a game-changer?

Head of Editorial Content / Saxo Bank
Denmark
  • Apple event likely to see new iPhone, Apple TV launched
  • Gaming-centric Apple TV could face difficulties
  • AAPL ultimately undervalued at present: Garnry

Media invite
Apple's invitations to today's event are as opaque as ever, but analysts are fairly unanimous 
in their expectations of an iPhone 6S and a new Apple TV. Photo: Apple 

By Michael McKenna

It is now a matter of mere hours before Apple’s ”special event” in San Francisco. Although the company, as per usual, has been fairly mum about the exact nature of the event, it is widely expected to feature an update of the iPhone 6, a new and massively upgraded Apple TV, and possibly a larger, more powerful iPad.

There will also likely be some discussion of the Apple Watch for the four of you who are still interested.

AAPL 'undervalued': Garnry

Earlier today, Saxo Bank head of equities strategy Peter Garnry said that he considers Apple shares “undervalued”; on August 24, when AAPL traded as low as $92 in the Black Monday chaos, Garnry stated that “one should be a very aggressive buyer of Apple because it shouldn’t be priced at these levels”.

Had one been fortunate enough to grab AAPL shares near that day’s low, the trade would have netted a 20%-plus profit within the week.

Tuesday saw AAPL close at 112.31 and trade up to 113.67 in the after-hours session, a move that could well reflect investors forecasting gains on the back of today’s event.

Interestingly, however, a SeekingAlpha article posted yesterday investigated a “rumour” maintaining that Apple shares generally fall after a publicity event and concluded that this hypothesis is generally well-supported.

In the longer term, however, “sell the news”-type price action only goes so far. More important are the products themselves and their potential to create either expansion or new revenue streams for Apple.

In this regard, it is the Apple TV upgrade that is perhaps most important for AAPL investors as it is widely expected to bring Apple into the hotly contested realm of console gaming – a domain that Apple has long left to competitors such as Microsoft and Sony.

The Apple TV has long been something of an afterthought in Apple’s product line. A small, sleek (of course) set-top box that provides access to streaming providers such as Netflix and Hulu and provides a home-theatre front-end to Apple’s own iTunes and Music offerings, the Apple TV functions in much the same way as it did when first introduced in 2007.

The peaks and troughs of Apple's share price in the last three months
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Source: SaxoTraderGO

Game of thrones

Many analysts and Apple mavens expect today’s event to introduce a vastly more powerful and feature-rich TV that adds gaming capabilities to its traditional suite of home theatre uses. If this is indeed what Apple has in store – and if it proves successful – it could potentially open up an entirely new, multi-billion dollar market to Apple.

Speaking live to From the Floor this morning, Garnry noted that Apple’s successful entry into this sphere could wind up isolating competitors Microsoft (Xbox) and Sony (PlayStation) in much the same manner as gaming pioneer Nintendo was isolated by the boom in iPhone gaming.

Over at Ars Technica, however, columnist Kyle Orland is sceptical about Apple’s ability to make serious inroads into the “microconsole” (i.e. a low-power, low-price home gaming console) market.

“These kinds of gaming microconsoles are products that serve a niche market need at best,” says Orland, adding that “if Apple is indeed looking to become a player in TV gaming, it will face the same challenges that other microconsole makers have failed to overcome”.

Essentially, these challenges revolve around the fact that the low-powered device and its likely suite of mobile or mobile-style games is not something that will excite gamers. According to Ars Technica, “We just don't think there's a large market of people willing to spend $150 for a new, unproven console built on warmed-over mobile games that are not willing to spend $300 or $400 for a proven system with a large library of high-end exclusives”.

For AAPL investors, then, the exact nature of the new Apple TV – its price, its specifications and the concessions it makes in order to be both a gaming device and a home theatre box – will be key in determining whether Apple has created a real inroad into the enormous market that is gaming or merely another “niche” device.
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Apple's definitely after that lucrative, captive audience. Photo: iStock

The meaning of "S"

On the iPhone side, today’s event is far less of a binary phenomenon. While some have noted that the iPhone 6S has a “tough act to follow” in the form of the sales record-breaking iPhone 6, Apple’s “S” models are always evolutionary rather than revolutionary, and the iPhone 6 is still very close to being one of the world’s best smartphones, regardless of platform.

If rumours of an improved camera, the addition of the “Force Touch” haptic feedback technology included in the new MacBook and Apple Watch, and a new colour or two prove to be correct, we suspect the iPhone line will remain poised to continue the 6’s stock-boosting run.

(One interesting introduction would be a smaller, iPhone 5-sized model to compete against mini-flagships such as Sony’s Xperia Z3 Compact, but there has been little mention of such a thing in the leak-heavy pre-event media-blitz. For the moment, it appears as if smartphones are only getting larger.)

Selling the news?

At present, AAPL is trading at 113.55 in the premarket session. If the Apple event is in line with expectations, and sees a new iPhone, a new, gaming-focused Apple TV, and an updated iPad join that still-fairly-hapless Watch, then the company will have largely met expectations.

In such an event, the lasting impression would likely be fairly neutral, and the premium attained in yesterday's after-hours and today's premarket sessions could well evaporate.

If the new Apple TV presents a compelling case for Apple's future as a home gaming titan, then the Cupertino-based firm will have managed to position itself at the edge of a new and vast market, one in which knockout successes are measured in the billions.

"There is a risk that Apple may disappoint on the gaming front, which could depress the stock", said Garnry.

"Ultimately, though, AAPL is still undervalued."

Apple Store
Pictured: the sort of consumer reaction AAPL investors 
hope will follow today's event. Photo: iStock

Michael McKenna is an editor at TradingFloor.com

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