In 2020, Apple announced that they were going to ditch Intel and use their own chips in
Macs.
This decision effectively broke a 15 year partnership with Intel and was a major surprise
for many who weren’t closely following the industry.
Given that Apple’s unit sales have more or less stabilized, Apple has been able to
focus on diversifying their business and bringing various aspects of their business in house.
And, it looks like their next target will be even more surprising to many as they are
looking to potentially ditch carriers and rival SpaceX at the same time.
By now, I think we’ve all heard about Starlink and what SpaceX is trying to accomplish with
Starlink.
But if you haven’t, SpaceX is basically launching thousands of satellites into the
sky in order to provide fast and reliable satellite internet to rural places around
the world.
This is a pretty clever idea, as broadband providers either don’t support rural areas
or they employ monopolistic pricing schemes while offering terrible service.
So, this market is no doubt ready for disruption and it’s likely that Starlink will be extremely
successful amongst this population.
Despite these merits though, at the end of the day, Starlink is only appealing to a niche
demographic.
The vast majority of people live in large cities or in the suburbs of large cities.
And, broadband internet providers are quite competitive within these areas.
Not to mention, many of these areas have fiber internet which starlink simply can’t compete
with, at least not today.
There is a large market that SpaceX is leaving on the table though, which is the cell phone
carrier market.
Fast and reliable satellite internet for cell phones makes a lot of sense.
I mean, you don’t move your house around everyday, but you do move your phone around
all over the place.
And, even in the largest cities around the world, cellular service is often dodgy in
many areas.
So, a satellite internet service for your cell phone would be quite useful especially
if it increases reliability.
Satellite internet can of course not compete against the max speeds of 5G.
But, here’s the thing, 5G is not even that reliable at this point, and virtually no one
even needs those speeds on their phones.
When it comes to cell phone service, reliability is generally much more important than speed,
so if satellite internet is able to drastically improve reliability for a similar price, it’s
likely that most will spring for the satellite internet option.
Considering this massive opportunity, why didn’t SpaceX target this market?
Well, the answer is that they can’t.
Satellite internet requires that the receiving end has a dish or specialized antennas designed
for to receive signals from space.
So, SpaceX needs cooperation from cell phone makers in order to make satellite cell phone
service possible.
Apple on the other hand is the cell phone maker, so they’re able to incorporate satellite
capability into iPhones if they want.
And, this seems to be exactly what they are doing.
In December of 2019, Bloomberg noticed that Apple was hiring dozens of engineers who specialize
in satellite and antenna design.
Apparently, this secret team is developing a method to beam internet directly to iPhones,
iPads, and Macs from space.
This technology does already exist, but satellite phones are extremely large and bulky.
So, this team is likely focusing on making this technology compact and seamless.
The bloomberg article also points out that Tim Cook is behind the effort, so Apple is
likely taking the project extremely seriously.
At the time, Bloomberg expected that if Apple does end up following through with the project,
we’ll likely see a roll out in 5 years meaning around 2024 or 2025.
Apple doesn’t have launch capability though, and I don’t think they’re going to develop
a rocket just to launch their satellites.
If they’re looking for the most economical way to launch their satellites, it’ll probably
be through SpaceX.
So, ironically, SpaceX would be helping Apple set up their own satellite internet business.
Apple doesn’t have to necessarily use their own satellites though.
They could choose to simply rent out a portion of the starlink constellation or even partner
with SpaceX to deploy cell phone specific satellites.
But given that Apple can easily afford to create and run their own constellation, I
don’t think this scenario is as likely.
That’s all cool and all, but how popular would an Apple cell phone service even be?
After all, Apple is notorious for using kidneys as their preferred unit of pricing.
Well, while that is true for many of their top level products, it’s actually not true
at all for their services.
In fact, Apple is extremely competitive when it comes to their services.
Take Apple Music and Spotify for instance.
They both charge $9.99 a month for their individual plans, $14.99 a month for their family plans,
and $4.99 a month for their student plans.
On top of this, apple music has a more extensive music library and better integration with
apple devices for obvious reasons.
This is the same case with iCloud and Google Drive as well.
Apple’s cheapest tier offers 50 GB for $0.99 per month while Google’s cheapest tier offers
100 GB for $1.99 per month.
The price per gigabyte is the same, but Apple actually does have the cheaper entry price.
Both companies also offer 200 GB and 1 TB tiers which are priced identically.
It should be noted that though you can save 16 to 17% by going with Google drive if you
choose their annual planes.
Nonetheless, Apple is quite competitive with iCloud as well even though they don’t really
have to be.
After all, you can’t back up your iPhone to Google Drive.
Considering Apple’s history of being competitive when it comes to services, it’s likely that
they will be competitive within the carrier market as well.
With that being said, let’s take a look at just how profitable this venture can be.
At the start of 2021, Apple announced that there were officially over 1 billion iphones
in active use.
Even if Apple was able to capture just 10% of this market, they would be able to grow
a subscriber base of over 100 million customers.
And, honestly, this wouldn’t be that hard for Apple to accomplish given their past success
with subscription services.
Apple Music, for instance, had a total of 72 million paid users at the end of 2020.
But even that is nothing in comparison to their total paid subscriber base which stood
at a mind boggling 585 million customers.
And that was in October of 2020.
By now, they’re well above the 600 million customer mark.
Also, don’t forget that all of those customers are buying optional services.
You don’t actually need apple music or apple tv or icloud.
But, virtually everyone who buys an iphone needs a cell phone service.
And, if satellite based internet is more reliable and Apple is competitive in terms of pricing,
choosing Apple wireless or whatever its called will be a no brainer.
I mean just think about it.
You’d be getting better wireless service from Apple themselves for the same price.
And that’s not even considering the side benefits.
Apple will likely offer bundles with their other services which may even allow you to
save money by switching to Apple wireless.
It’s also likely that many people will switch simply to get away from legacy carriers who
people seem to despise.
At&t for instance has a customer rating of 1.2 stars with 91% of customers having a 1
star experience.
Similarly, verizon has a customer rating of 1.3 stars with 86% of customers having a 1
star experience.
Considering this, I don’t think it will be too terribly difficult for a company like
apple to rack up 100 million subscribers around the world.
But, how much money will that even make?
Well, the average American pays $70 per month for their cell phone service.
If Apple’s average subscriber pays the same amount, Apple would pull in $7 billion per
month or $84 billion per year from 100 million customers.
Taking a look at Apple’s most recent earnings report, we’ll see that their gross margin
on their services is almost exactly 70%.
But that doesn’t account for operating expenses.
We aren’t exactly sure what proportion of their operating expenses goes towards their
services and what proportion goes towards their products.
But if we say that their operating expenses are proportional to the revenue from each
sector, we’ll see that about 12% of their revenue goes towards operating expenses with
6% going towards research and development and 6% going towards selling, general, and
administrative expenses.
At this point, Apple has 58% of their revenue remaining out of which 16% will go to taxes
leaving Apple with about 49% of their revenue as net profit.
We want to estimate conservatively though, so we’ll cut that down substantially and
call it a net margin of 30%.
With $84 billion in revenue, we’re left with $25 billion in net profit annually.
To put that in perspective Apple netted about $75 billion over the past 12 months meaning
that Apple wireless could easily increase their net income by 33%.
Currently, Apple’s P/E ratio is about 30 which means that the company is worth 30 times
their annual income.
The stock market is overextended right now and Apple’s PE ratio will continue to come
down as business matures even further.
So we’ll assume that their PE ratio is down to 20 by the time they rack up 100 million
wireless subscribers.
Even at that rate, Apple wireless would add $500 billion onto Apple’s market cap.
Where it gets really interesting though is if Apple is able to get a bigger portion of
the pie which in my opinion is highly likely.
For instance, if Apple had 300 million wireless subscribers they would pull in $252 billion
in revenue and $75 billion in net profit.
Even with a PE ratio of 15, Apple wireless would add over $1.1 trillion onto Apple’s
already monstrous market cap.
At the end of the day, given the shortcomings of traditional cell phone services, there
is a massive untapped market for satellite based cell phone service that’s done right.
Apple is in a unique position where they can basically grow a monopoly centered around
providing this service to their billion iPhone users around the world.
By providing this service Apple will not only be able to grow their bottom line by tens
of billions of dollars and add hundreds of billions onto their market cap, but they can
also ditch their reliance on carriers and rival Starlink at the same time.
Did you guys realize the massive gold mine that Apple has been sitting on?
Comment that down below.
Also, drop a like if you guys thought that this video explained the opportunity well.
And of course, consider joining our discord community to suggest future video ideas and
consider subscribing to see more questions logically answered.