Office Hours #Q&A #WWDC #transcript
Recording and transcript of the June 9, 2026 Asymco One Office Hours, recorded the day after Apple's WWDC 2026 keynote. Horace Dediu shares his impressions of the event and takes questions from Asymco One subscribers.
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Horace speaks carefully and with knowledge about opinions, facts and fantasies, and shares what he thinks John Ternus’s most important job is.
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The commodities strike back
Alphabet generated $73.266 billion in free cash flow in FY2025, which sounds enormous until you look at what's coming. CEO Sundar Pichai has guided for 2026 capital expenditures in the range of $175 to $185 billion. For context, Alphabet's FY2025 operating cash flow was $164.713 billion. If capex hits the midpoint of that guidance range, it consumes essentially all operating cash the business generates.
The trajectory has been accelerating hard. In 2023, Alphabet spent $32.3 billion on capex. In 2024, that rose to $52.5 billion. In 2025, it hit $91.4 billion, a 74% year-over-year increase. The proposed jump to $175-185 billion in 2026 would be another near-doubling. Q4 2025 alone saw capex grow 95% year-over-year to $27.9 billion.
This dynamic is playing out across the peer group. Amazon already lived this story in 2025: FY2025 free cash flow collapsed 65.95% year-over-year to $11.194 billion as capex hit $131.8 billion. CEO Andy Jassy has guided for approximately $200 billion in capital expenditures across Amazon in 2026.
Meta and Microsoft are spending aggressively too. Meta's FY2025 free cash flow declined 19.39% year-over-year to $43.6 billion against 2026 capex guidance of $115 to $135 billion. Microsoft's Q2 FY2026 capex alone was $29.9 billion, up 89% year-over-year.
Patel's broader point is that tech insiders understand the technology better than financial markets, and that returns on AI infrastructure will ultimately justify the spend. The businesses backing these bets are not struggling — Alphabet posted Google Cloud revenue of $17.7 billion in Q4 2025, up 48% year-over-year, with a 31.6% operating margin at the Alphabet level. Full detail is in Alphabet's SEC filing.
Whether it's applied enough is exactly what Patel is questioning. If you believe AI infrastructure is a winner-take-most game and Alphabet and Amazon are positioned to win it, the FCF compression looks like the price of admission. If you think the returns won't materialize at the scale management expects, zero free cash flow at a $1.7 trillion market cap is a very different conversation.
Source: Yahoo Finance
NB: Even before these future investments are considered, for the trailing twelve months Alphabet's EV/FCF has his 73 vs. a P/E ratio of 29. If FCF goes to zero…
An Office Hours question asked by Fred S., May 1, 2026
Q: Ever since Johny Srouji started talking about Apple Silicon and the power consumption for the performance and the unified memory, and now we've seen the Mac mini surge, I just wonder about high-end computing. The whole area of where that Mac architecture may go beyond its success as an individual consumer computing product. From all the high-end workloads that might be coming their way.
The story of Apple is one of personal computing. It's not a story of servers, it's not a story of clouds, it's not a story of centralized computing. They've tried once or twice to make a server product, and they abandoned it. They've even abandoned the high-end Pro product, and created the almost-as-fast Studio product.
Now, that does not mean they're shying away from high-power computing. They're just saying, we're going to put that high-power computing in a desktop, or in the laptop, or even in the phone. Everyone who's grown up throughout the personal computer era can remember Moore's Law, and how exponential growth has driven computation to levels that seemed impossible just a few years earlier. We've hit some slowdowns, but fundamentally, the potential exists.
And by the way, it's not even a classic computational CPU problem. We're dealing with AI. We're mostly dealing with high bandwidth, large data, and we're dealing with simple calculations on it in parallel, which means the architecture is much more around large matrix computations. This is why Nvidia came from graphics. Graphics was the same problem — a graphics accelerator is a matrix problem. And so is machine learning. So different variations of these have come in as a sort of a parallel to the CPU, the general computation problem.
The idea Apple has is that they're going to catch up with whatever is done on the server, they're going to do it on the device. You can call it Edge, you can call it personal — the old term was personal computing.
I may be naive, but I think we'll get very powerful desktop computers that can do what is essentially AI, but for the individual. The other aspect here is that Apple is a consumer company, not a B2B company — it's a B2C. They want to bring that power to as many people as possible. And they're certainly delivering hundreds of millions of computers a year. Nvidia's making tens of millions of computers a year. Apple is capable of doing orders of magnitude more.
So I think they're going to affect the disruption in AI. It's not going to be that there's no profit in AI, it'll be that it'll be done with Edge more, especially as it doesn't have to be a world model — it can be a personal model. If you want to look up something globally, you can use the cloud, but if you want to deal with tasks in your world, you're going to work with Apple computers.
It may take years to get there. But in the meantime, I don't think a centralized service — these OpenAI, or Anthropic, or Microsoft, who are trying to make us a singular superintelligence — is necessary for everyone. It'll be a good reference, but it's not how you want to handle your personal information. So I think that's what the future is, and I think Apple's very much planning for it.
It sounds cliche, but when Apple started, it was IBM that dominated computing. And IBM was about centralized computing, and their thesis was everything we now call "the cloud" — but it was all in one big computer that served the entire organization, whether that organization is a government or a big company. And then we went to mini computers, then we went to desktop computers, then we went to portable computers.
Then, fast forward 25 years and we had Google. Well, now central computing is the internet. In the internet, everything needs to be indexed to be able to be found. So they created an index in the cloud. And then a lot of companies moved that computing they used to have locally into the cloud, as a shared resource from Amazon, AWS, and others, and that became cloud compute. Even now, those are the drivers for growth for Microsoft and Amazon and Google.
The AI part of that is tiny — there's revenue from AI, but there's a lot of revenue from cloud. That still is valuable. But that's not a job for consumers. You do some things in the cloud — you store things, you search, you communicate in messages and so on. But most of the data that matters to you will get also indexed locally, so you can pull up your photos, pull up these things, and it'll be a blend of the two.
So that's where Apple lives, and I don't see anything fundamentally changing about this, because computation tends to commoditize. Software tends to be replicated. Algorithms tend to be replicated. In fact, even the AIs we have today were all because people publish papers, and one company invents it, another implements it, as was the case with the transformer. As far as I understand, it was Google who actually wrote the paper on it.
Editor's Note: This was one of the questions asked by the participants in Asymco's May 2026 Office Hours live Q&A sessions, open to Asymco One subscribers.
Office Hours #2026FQ2 #presentation #transcript · 2 comments
A transcript of the May 1, 2026 Asymco One Office Hours, recorded one day after Apple's Fiscal Q2 2026 earnings call. Horace Dediu presents his analysis of the quarter and takes questions from Asymco One subscribers. Hosted by Horace Dediu and Farshad Nayeri.
Horace Dediu: So I'll do a short presentation, and then we're going to open it up for questions. We are speaking approximately one day after Fiscal Second Quarter 2026 earnings call. Let's dig into it and see if we can understand it even better.
First, I think that there was a comfortable beat from already a highly elevated expectation.
So we had a range of estimates— I collected those from Yahoo and TipRanks, each one had about 30 [analysts], probably a lot of overlap between them. So we had a range of about 105 to 115 in terms of revenues in billion, and then we had EPS in a range of about 1.6 to about 2.15.
And not only did it beat the consensus, but also you can see what happened a year earlier, which is the circle at the bottom of the graph. So the beat was from already a pretty high growth rate expected from the year before.
So we have a measure of how each of us, myself included, performed relative to the actual results.
I was about 1.8% under revenues delivered, and 1.6% on EPS. And then you can see red is Yahoo and blue is TipRanks.
So speaking for myself, I was perhaps a little bit too conservative on my revenues, and I was a little bit more accurate, relatively speaking, on EPS. Roughly speaking, again, I think these are not big errors, 1% to 2%. Worst case, 3% on the consensus basis.
Now, on the segments, these are the actual growth that we ended up with, iPhone almost 22%, 16% on services, 8% on the iPad, which is impressive. 5.7 on the Mac, we'll talk about that a little bit, and 5% on wearables and growth.
Segment level, again, the worst case, you're looking at an 8% overestimation on the Mac. The Mac— I think a lot of people, once they saw the Neo come out, once they heard about the Mac mini stockouts, when they heard about the Claude bots, you know, everybody buying up all these Macs, there was an expectation of a big boom in the Mac, but those all happened fairly late in the quarter. My expectation was a little bit over, but not as much. I was off about 3% on that estimate. So although we saw 5.7% growth, some people expected double digits. Also, the pros had the same fault there.
Overall, though, I think these are pretty impressive. I didn't break out the geographic segments. China grew extremely well. Rest of the world, that grew very well. Management also pointed out that they're doing very well in developing markets. So overall, regionally, there were some extraordinary performances. But as we see here, just the iPhone was incredible, 22%. Very similar to performance in the previous holiday quarter, where, again, unprecedented growth, or at least in the near history of the product.
And we'll get into some reasoning why that is. People talk about super cycles, people talk about the assumption that we have these giant surges once in a while. Well, here's how to look at it.
There are two graphs here. The bottom graph shows in green the net sales, but trailing 12 months, so it's smoothed out, so we don't see the spikes on the holidays. That's the green line. Above that, we have the EPS line. Now you'll see how they tracked very similarly for a while, and then they began to diverge. That occurred around COVID. It also occurred during the surge in services, especially subscriptions and services. But still, there's a similar pulse, if you will, a cyclicality to it.
I mean, part of that has to do with the introduction of a new form factor. This has been true all the way back since 2012. When a new iPhone comes, especially a new, distinctive-looking iPhone, people will go out, especially in China, buy it for showing off that they have the latest, which there's nothing wrong with that. But then the second year usually is not the same, the phone is not new, it's the same form factor. That has to do a lot with tooling. That's a long, old story, that the tooling is depreciated on a two-year schedule, so you're going to produce roughly the same look a couple of years in a row, and then by the next cycle, you'll see people upgrading or replacing their older phones. So you're going to have this— I guess what they used to call a super cycle.
And you see it also in the upper graph, where I try to separate out of sales just the phones. Now this is an estimate because we have no unit sales for the phones since 2018, so some of that is an estimate. But you'll see again, once you smooth out the cyclicality, you'll see these surges once in a while. Now, again, this is a valid observation, but I don't think it's the main driver. The oscillation isn't huge, it might be significant, but it's a blend of many things.
The bottom graph is particularly interesting. The gray areas are when the stock price fell. And the red line represents the derivative of EPS. And you'll see how, when that is about to dip, there's usually a stock price sale going on. I wouldn't say it's predictive, but it's an interesting pattern to go through.
So what's happening now? You'll see from the iPhone, there's a new surge happening. Now, when Tim has been asked this question, he says that, well, the iPhone 17's really nice, people really love it, and that's a good answer, but the fact is, it's a distinctive-looking product. Some say it's the orange color, but it's certainly attractive. So we're seeing this pattern, a nice surge.
We'll get into the guidance in a minute, and that actually demonstrates that we're in some kind of an acceleration. But here's the thing, underneath all that, services is just absolutely steady growth, compound growth, and as a result, it just lifts the whole story.
Here, services is at the bottom. Normally, in a graph like this, you want to put the oldest products at the bottom and the newer ones at the top, but I wanted to highlight the fact that services is foundational, in the sense of showing how it holds up everything else.
Most people put it the other way, they say the iPhone holds everything up, but services is looking more and more to be the thing that keeps people in the ecosystem. There's a lot of value there. There's a lot of things people depend on there, and I think it's one of the reasons people don't switch. So it's another one of these stories that people aren't appreciating enough. It's been years and years of pounding the table on services, but here you see it, just how important it is. It's the tide that lifts all the boats, and the boats being all the products.
So let's now talk a little bit about margins. Unbelievable, unbelievable margins. We just hit almost 50% on gross margins. Gross margin here is the blue line. And that's composed of two subcategories. We have services in red at the top, and we have products with the purple triangles.
And although products margins are exceptional— they're right around 40%— those services, again, are pulling the whole average up, and you can see that bend in the curve in the blue line, where we were very steady around 40%, but as services took more and more; it just pulled the whole curve up.
And we also see here operating and net margins, which also are going up, naturally. There is a little bit more operating expense. We'll get into that, which maybe decreases the slope of the bottom line. But this gross margin is absolutely incredible. We just haven't seen anything like this since 2010-11. We saw that surge back then, and then it sort of leveled out, and everybody was happy with 40%, and now we're flirting with 50. I just cannot believe it.
Just one more thing. I remember being an analyst decades ago, when I was looking at different companies in hardware and software, in phones and computers and so on, and everybody was really impressed by Microsoft, because Microsoft, had an 80% gross margin, because there was very little cost of sales. That's exceptional. An 80% margin business is a money printing machine. And everybody was impressed and jealous of Microsoft that they could pull that off. Of course, Microsoft, a software company, is going to have extraordinary margins, right?
And so for a phonemaker like Nokia, there was something to be jealous of. And here we are with Apple services, a significant component on the business, approaching also almost 80% right now. And it's still rising. I just can't get over how impressive this is.
A little bit about the difference between gross and net— you have to take out the operational expenses, and this is what we have here. It's interesting what's happened. Obviously, you see R&D overtaking on the absolute basis. So R&D overtook SG&A already in 2021. And now it's just [going] almost vertical.
By reading a little bit the guidance, I think it's going to taper a bit into the next quarter. But what we see is a significant R&D increase, also as a percent of sales, which you're seeing below in the graph below, but in a stacked fashion. In that sense, the two of them together are now approaching— haven't yet reached— a percentage of sales that was in evidence around 2007 and 8, when the iPhone was just emerging. But you'll see back then, R&D was tiny, SG&A was huge as a percent of sales. So much so that R&D—this is during Steve Jobs era, R&D was like 2% of sales. And now it's approaching 8%, which is extraordinary. Because that's an engineering company that's doing breakthrough work.
And that's something that Apple's not recognized for doing. There's a negative side of spending a lot on R&D. The positive, though, is that Apple is doing a lot of fundamental research now. This isn't fixing products, this isn't updating OS. This is engineering that is really driving what might be considered breakthrough. And that's something— and I've said this to the media when interviewed about Ternus and the succession— I said, the new CEO will need to be— this is before he was announced— I said [the CEO] would need to be someone who is acceptable to engineering, because Apple is an engineering company today. Fundamentally, culturally, operationally, it's an engineering company, and it is being now led by an engineer.
Steve Jobs was not an engineer. And none of the other CEOs were engineers. Tim Cook was an operations manager. He was excellent in a fundamental part of the business. And that is acceptable to engineers, culturally speaking. But the thing is that John is an engineer's engineer. He understands the culture of engineering and will understand how to motivate and retain talent, as well as to allocate capital effectively, not wasting it on pipe dreams. Engineers have a tendency to try to chase dreams, by the way, so you got to be harsh sometimes to shut things down. So, keep an eye on the R&D— it's a great story.
However overdoing it can be a problem. There are downsides to an engineering-led company where, again, it turns into kind of an engineering welfare state. Engineers tend to get projects and do a lot of navel-gazing, which needs to be managed carefully.
Now, let's just touch on ACTIVE. Active is the number of users, the fundamental measure of the value of the company. It's not counting iPhones. It's counting users, and these are the comments from management, just so we capture them. They come every quarter. Sometimes some products are mentioned, sometimes they're not.
So here's what we have exactly on the topic. Record upgraders and customers new to the Mac. They mentioned that Mac lifespans have been long, which is good and bad. They talk about the iPad, half the customers being— over half— new to the product. Same with the Apple Watch, this has been going on for a while.
So this is going to be important when we measure installed base, because if we see every quarter an estimate for the number of watches, or Macs, or iPads, you just take half of that and allocate it to the installed base, and the other half is growth of the installed base. So there's an interesting way to measure that, and I've been applying it. We're going to keep an eye on this.
And finally, there was a mention with respect to India during an answer to the question. The citation is that the iPhone, Mac, iPad, watch, all of these have a majority of customers that are new to the product in India. As you would expect, part of the developing market story. But this drum is still getting beaten. And that's a positive. Always want to look forward to that every quarter.
So let's jump in now to what I thought was the most unexpected comment during the call. I've pasted in here exact, verbatim the comments from the CFO. I need to point out a few things here, and I've highlighted these things in bold.
One is the dividend. The dividend number is 3.8. Last quarter was 3.9, so that's not a surprise. However, open market purchases were only $11 billion. Now, that is represented in the graph by the buyback, and that is this mustard color. And you'll notice it is extremely low. The previous quarter, we were over 25 on buyback, so we're less than half that. This is an anomaly. You'll see that it does not match the rest of the graph at all.
The blue area is dividends. The reddish area is net share repurchases, or settlements. And there's a pattern to both. Dividends has been growing in a predictable fashion, very steady. Buybacks have been somewhat steady, but up and down a little bit. During the last few periods, we've seen something unprecedented.
Now, you'll see that the 11 from last quarter was offset by a much higher number the previous quarter, but on balance, we're still down. And there's also these comments that say that they are abandoning the net cash neutral position. And I'm wondering if it's already started, because this $11 billion caught me by surprise.
I've highlighted that "our repurchase activity at any time can be affected by a number of factors that we take into account." So this was essentially explaining why sometimes there's a difference in the amount of purchases, right? And then in the middle of that commentary, he says, "as you're aware, we recently announced a CEO transition." Why does that comment fit in the middle of a paragraph, talking about the general theme?
I read this as it suggests that already the CEO choice is deciding how much to allocate to capital returns. And it appears— and again, I could be wrong— but it appears that John is probably against the idea of huge returns to shareholders in capital form. So keep an eye on this. This was, I found, very, very strange and out of character in a way. Very out of character of a Tim Cook presentation. I'm not judging it, I'm just pointing out that it isn't normal.
So here's the bottom line. This is the graph representing what's happening with the entire cash position and return of capital. The debt has decreased slightly, and it has been decreasing. And that's a good thing. As interest rates go up, you don't want to hold debt. A lot of that is fixed rate, but they're not taking on more. It seems like they're paying it down.
Net cash, which is the blue dotted line, has now been increasing two quarters in a row. Now, it's increased in the past, but never for long. It's had only one tick, during the holiday period. Here, where we're seeing two ticks— holiday and the quarter after.
Now, if you'll notice here, I'm going to try to zoom in. Those red lines represent what I would say were the trajectories to get to net cash zero. So that blue line, since they announced it, they kept missing the target. You would see that, another year goes by, and there's a notch up. Overall, the trend is down, but they haven't kept that path down all the way to zero. And that is now completely abandoned.
Again, we'll have to figure out why. The buyback, as I mentioned, halved— at least more than halved— to 11. Net cash zero abandoned, $100 billion net cash reduction. You'll see that this blue dot line has gone down by about half. It was down even further than that until it came back a bit. So that is going from about $160 billion net cash to the current $62 billion, which is why we get to 100 reduction. And $1 trillion overall return, which is, again, something they mentioned. In fact, they're at $1.085 trillion. And still $100 billion will be allocated further. Whether they actually spend it is another matter, but that's been approved.
So now— is this good news or bad news? I don't think it matters. I think at the end of the day, the value of the company doesn't change because of this. The value might be captured in the share price, or it might be captured as a percentage of the company that has been increasing.
In fact, let me just pop into the next slide. What does this mean? Are we never going to reach what I call the halving? Well, we were at the maximum 26.5 billion shares. And now we've reduced that to about 14.6. Half would be 13.2. So we're still going down. But there's 1.4 billion shares to go before it's half of what the max was. Now, this is an arbitrary figure. I just thought it was an interesting target to have. And as you can see, it's getting asymptotic as the price goes up. It should be harder and harder to get there. But we have $100 billion allocated. $260 billion at the current share price would need to be spent to get to half. But probably we're not going to get there. I really don't— if I were a betting man, I would say we're probably going to see this taper.
Let's look a little bit at guidance. This is based on what management already communicated. So if you put in the numbers they gave us, you will get revenue growth of 16%, coming at about— well, they guided 14 to 17, so I'm estimating 16 conservatively right now. That gets you to $108.7 billion. If you put in the other numbers— the margin, the OI&E and the tax— and do something about this share reduction. (We're still going to probably see a share reduction.) We're going to look at EPS 1.92. Which is another 22% growth. This is what we had last quarter as well.
I'm putting gross margin at the top of the guidance. [Last quarter] they went over. They guided high, and even so they went over, so I'm going to assume they're going to still hit towards the upper end of the range. I'm exactly at the upper end of that range.
If those things are true, the iPhone almost necessarily has to grow about 19%. Now, here, I'm dialing the Mac way up to 18% growth, because I do think they're going to get a lot more Mac Neos into customers' hands. Now, that's a lower price point, but it will drive sales. So yeah, I could be a little bit high on this. If I am, then iPhone needs to go a little bit higher because I still think they're going to get the revenue there.
They did warn that iPad is facing a tough comp, so I'm putting iPad down 3%. Wearables and home, 4%. It was 5% last time, so maybe consistency there. And Services, just the same as before, 16%, could come in a little bit less. But if it does, again, it's going to be put into something else like the iPhone.
So overall revenue growth, I think 16% is very much being telegraphed. And as I always say, they already have April on their books. They're communicating exactly at the end of April. They're not going to lie to us and withhold data from April. They know about a third [of the quarter] already, so that's why this guidance is so useful.
And, as you saw with my error analysis, nowadays, people's estimates are very close. There's a lot of consistency. We're not off more than a couple percentage from each other. That's just because they're so accurate on their guidance.
And speaking of analysts, one more graph. This is just some of the latest price targets. I'm just trying to bring everything together that came out today. This is all very brand new. A lot of targets moved up. Not that it's all that important, but people are getting more and more excited. Almost all the targets from anybody who has a positive— effectively a buy rating— is now above $310 as a target. There's two who are negative, that are at 270 and below. This is Barclays and Rosenblatt. And then there's a few which have no ratings. So they're typically neutral.
But overall, all these numbers are higher than they used to be. Now, again, I don't use that very much, but it's worth keeping an eye on things just to get a sense of how the sentiment is out there. And it looks like the stock is responding positively today. Not by much— 3% or so, last I checked. But that's the story today.
So given that, this is my first take on the quarter. Love to take questions.
-- End of Presentation --
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As you know, as we crossed into 2001, the great crash occurred.
Ben Thompson • 25:05
Yep. And suddenly a job offer from a big phone company sounds pretty great.
Horace Dediu • 25:09
Yeah, but the crash occurred and it impacted my startup because I couldn't raise money anymore. And that's why I'm throwing in the towel. I'll take this idea to Nokia and build it inside of this company. So for the first year, I worked out of the U.S. and then they invited me to come to Finland. And I fell in love with it, not to mention finding someone to fall in love with. Yeah, I'm still here.
So we created an internal venture called media distribution. And it struggled for a couple of years. We partnered with a publishing company here in Finland that is the biggest newspaper and magazine company. And we worked with them. 9-11 happened. We worked with them throughout that period to test this idea of distributing content on phones. That's how I met my wife. She was working for the publishing firm. Remember when Apple News launched? I forget how many years ago it was already. It was five, six years ago. [My wife] texted me during the keynote. She goes, "you realize that's what we were working on together in 2001?"
It was called Project Melissa. Project Melissa was this idea of Apple News today. And that was [our project] 20 years earlier. That just goes to show you the story of my life. I was doing search 10 years before Google existed. I was doing e-books 10 years before Amazon launched the Kindle. I was doing smartphones and media distribution on smartphones 20 years before Apple showed how it's done.
So my problem has been that I see things happening or see where things are going, but way too early. And that's why one of the theses I have over time is the idea that the difference between a futurist and a billionaire is knowing when one thing happens. So it's not about knowing what's going to happen. A lot of people are very good at that.
Ben Thompson • 27:31
Including Nokia, to your point.
Horace Dediu • 27:33
Nokia, science fiction writers, Elon Musk, a lot of people predict this. But getting the timing right is where the money is made. And so that was one of those lessons I learned.
Ben Thompson • 27:45
Well, when you talk about the publishing and Nokia and the reading and all those sorts of things, what it makes me think of is when the iPhone comes along in 2007, And I'm very curious to get your perspective on what that was like inside Nokia when the iPhone launches.
Horace Dediu • 27:59
I'll tell you exactly.
Ben Thompson • 28:00
But before I get there, but to this publishing point specifically, the key bit was the Internet was permissionless in terms of producing content. Like, it's great that you met your wife, but the fact that you needed to be in a situation where you could meet your wife was actually the reason why it wasn't going to happen. Because if you have to make a deal to do everything, it's just never going to get there. Whereas if you can just surf the Internet, the real Internet, and no one needs to do anything to adapt to it, suddenly you get it all for free. And then you get the virtual cycle going where they're making stuff for you. And that was sort of the, that's the timing bit is like the, the external structure around what you're doing.
Horace Dediu • 28:41
Yeah, it's, it's, it's complex and it's multi-causal and you're right. It's multiple, the reasons why things happen the way they are. And it's just not foreseeable. The internet was, and by the way, the thing that really caused the project to fail and be abandoned--this media distribution side note-- it was the fixation on DRM.
DRM actually killed a lot of great businesses with content ideas back in the day, whether it was music or video or textual. It was people just obsessed about protecting it before they obsessed about distributing it and making it great. And this is why when iTunes came along, even though there were some circumstances there with being on a Mac and not on the PC, that the publishers finally said, why don't we go ahead with this?
So long story there. But as far as what Nokia was doing, after four years of doing this startup inside of Nokia that did not work out, I got into the job of strategy analysis and competitive analysis. So they asked me to do Microsoft.
Microsoft was the biggest worry for everyone because they had intentions of being in the phone business. They made no secret about it. They had prototypes. They were working with competitors to Nokia. [Intending to] give them the operating system so that [for instance] Samsung running Microsoft [Mobile]. That was the effort.
They were pushing on all fronts. Nokia was holding out and saying "we've got our own operating system" and so on. So they gave me this job because every other competitor was hardware. All the analysts were covering hardware. I was the only guy who was covering a software company.
And in doing that, I was also sort of nibbling at Apple a little bit because the iPod had come out. The iPod was doing amazing, but it wasn't a phone product. And I was kind of looking at it a little bit.
Now Christensen comes back in the picture, because his book had taken off. He had already written the second book, which is The Innovator Solution. And I was like, hang on a second, a lot of stuff that I read in the book, and I remember back from my days at school, applies to Apple here because they're doing a lot of interesting things with being disruptive as the case may be.
Nokia itself had been disruptive in its early years. But I'm focused on Microsoft. And my point was that we can fight this battle and win, but we got to be very careful. And there's a lot of twists and turns there, but I took it upon myself also to understand what's going to happen with this media product from Apple.
And then I began to write a few internal notes because nobody was covering Apple. This is interesting and important. Imagine you have a team of a dozen analysts, you could put them on multiple jobs, assign people to multiple problems. No one thought that Apple was a problem to be looked at, even part time. No, there was nothing interesting about it.
And part of that had to do with the fact that [Nokia perceived that Apple had been] one foot in the grave already in the 90s. And now they were this little toy media company. They didn't really have scale. Phones were on the orders of billions of users already. And this iPod was in the tens of millions, maybe a hundred million. So it was orders of magnitude. There was no real worry there.
But I was really annoyed at this thing. And I started building a model. I remember distinctly opening a spreadsheet, looking at research reports and thinking to myself, let's look at the history of the iPod, how it's growing. And I started to match that to the Razr, which was the most viral product at the time, the Motorola Razr.
Even Nokia was jealous about this thing. At that time, [Motorola] had cumulative sales of 50 million, which was considered way too scary. (And BlackBerry was another one, by the way.) So I'm doing this and I'm like, hang on a second, what if they do a phone and it's a combination of the Razr and the iPod, could that resonate? And I just put it out there. I said, it's possible. And there was a rumor of the iPhone coming out.
Ben Thompson • 33:31
So Apple did do a Motorola Razr with iTunes functionality. Did that actually end up, because that was a flop. And did that actually make people not as like more relaxed?
Horace Dediu • 33:46
Because we knew that it didn't run an operating system. It didn't have a developer API, there was nothing, no hooks in it. It was just an appliance. And as such, it was like a feature phone. And that was not interesting. We had been talking and pounding the table on smartphones already since 2001. Remember, when I joined, we had a communicator. We had Symbian, Series 60. We had the interfaces. We had all picture phones, music, etc.
Ben Thompson • 34:20
I was a user as well.
Horace Dediu • 34:22
And I had done the numbers, and by 2005, people were burned out on smartphones. Because the projection was like this, but it was more like this. It wasn't growing as much as you thought it would. And so a lot of people said, especially the top management was like, "you guys are very enthusiastic about the software stuff, but it's just not working out. We're going to double down on hardware."
So there was a lot of burnout. So, but I kept looking at the phone at Apple and I suggested, hey, what if this thing scaled anyway? Like I said "what if they could sell as many as 50 million?" That was my provocation. And people were like, dude... I was essentially taken aside and told, tone it down. First of all, you're not doing yourself any favors by being so provocative. You're just going to lose credibility. My boss, who's a great guy he just took me aside and said, just don't do that. You know, it's bad for you.
Ben Thompson • 35:22
And this is like 2005, 2006, around then?
Horace Dediu • 35:25
Well, already 2006, because the iPhone was rumored. It wasn't out, but it was like, if you're going to have iPod success and you're going to do this crap phone with Motorola, you're probably thinking, maybe they're going to do something interesting beyond that, because we knew they could, in theory, do something.
We didn't see the touch interface, but we saw maybe like a scroll wheel or something. You know, Tony Fadell was running the thing. So, bottom line is, when it finally came out, it was January 2007. It came out and was not for sale, but it was on stage. And I was so excited. And I said, this is unbelievable.
I remember running into the office the next day. Usually you socialize at lunch hour, sitting in the cafeteria, talking to your friends and asking them what do they think about this? And most people just said, oh, it doesn't look that interesting. aspects of it were copied. There were copies from here and there. There are other people that do touch. You know, a stylus has been around for a long time with BlackBerry also doing amazing things with keyboard and so on and so on.
So there was a lot of cynicism and sort of not really interesting. I said, man, it's running OS X, it was running a full operating system. And I said, this is going to get developers working on it. But again, the other thing, the other head fake from Apple was that Steve Jobs said they're not going to put any apps on this thing unless Apple write them. I was anticipating far more than even was being talked about. And for that reason, it was just super frustrating. Anyway, I left in 2009. But by then, Nokia were still not following Apple.
Ben Thompson • 37:13
How is that possible? Like even two years on, this device is out there.
Horace Dediu • 37:19
Because it still didn't have distribution. And this is the thing that consumed everyone following the iPhone in the beginning. It's like they had one launch partner. It was initially Cingular, became AT&T. Don't forget that the old AT&T had nothing to do with this AT&T. It was just a rebrand of Cingular, which was a crappy, small, not very small, it was maybe second tier [operator.]
Ben Thompson • 37:47
Verizon didn't want to do it. Apple did this again and again. Verizon was number one.
Horace Dediu • 37:50
Verizon was number one. Absolutely. But Verizon was in CDMA. But the thing is that it was a crappy network and they didn't have a lot of points to sale. They didn't have distribution. and everybody said this, you need 500 network operators to saturate the global market, right?
And how fast are you going to be able to obtain distribution was the question. And so they're so cantankerous. You know, Apple is known as being "my way or the highway."
Verizon said no for years. Nokia was like, this is not going to fly. These guys are, if anything, they're naive. Don't forget, by the way, there's a separate story on how BlackBerry dealt with the iPhone. There's a movie about it, by the way. Everybody should watch it. But basically, everyone had the similar responses: that this is not kosher.
This is not the way things are done in this business. It's all about relationships with operators. It's about getting shelf space. It's about getting salesmen in the store who are bribed effectively with a commission to tell you what to buy, effectively yank the phone out of your hands and give you another one. So this was a very dirty business at the street level.
Ben Thompson • 39:19
So do you know what was the first what was the first article of mine that I think you ever linked to? It was about precisely. No, no, you don't need to know. I know because it was very formative to me. That's what I'm going to tell you. It was basically about talking about this was how distribution worked.
And what Apple changed about the whole thing was that customers actually switched networks for the iPhone. And it was doing just sort of a traditional sort of business school analysis of and pointing out the power shifted to instead of distribution to the buyers. Basically, what I ended up writing about for 13 years now is demand mattering more than sort of the supply bit. But it was the exact same thing. That's why you linked to it. You are you are already on board with it.
Horace Dediu • 40:04
But it was also the thing that resonated for me personally. Not that I knew something about the phone. Mostly I knew how big it could get. I knew that there were billions of people, many more billions than used PCs, which was by far the most dominant influence in technology.
Most people oriented themselves, like even Gruber and others who were Mac first and then all these accessories. But I knew the phone would be a couple of zeros more. That was number one.
Number two, there was this problem of the incumbency, which were all the phone makers, who were so far from understanding what the software dynamics of platforms were. By the way, platform theory was developed by Microsoft. They pretty much invented the whole idea.
Asymco Bulletin is a digest of all the work we have published for the week ending Apr 12, 2026.
Much more was said of Jobs’ departure signaling the end of Apple than of Gates’ departure signaling the end of Microsoft. And much more was celebrated of Apple 50 than Microsoft 50. Why is that?
If you were to structure an experiment to determine the influence of processes and personalities on the outcomes of a company, you would be hard pressed to find a better pair to study. Apple and Microsoft were founded almost at the same time, due to the same enabling technologies (microprocessors) and led by two iconoclastic founders of the same age acting out of similar impulses.
The divergences were that one concentrated on software while the other on hardware. But rather than pairing up in a match made in heaven, both tried to outmaneuver the other in order to avoid dependency. →
Cash flow is a fact, earnings are an opinion and share price is a dream.
A company’s total worth is the number of outstanding shares multiplied by their value. This product is called the market capitalization or Market Cap.
That’s a simplification. If you want to be more accurate, you should take the Market Cap and net out cash and debt–these are not part of the future flows of cash that can benefit shareholders.
More precisely, there is another measure called the Enterprise Value (EV) which is the total price tag of a company, representing what it would cost to buy the entire business and pay off its debts. EV = Market Cap + Total Debt + Preferred Stock + Minority Interest – Cash and Cash Equivalents.
This is the precise and complete measure of the firm’s value but we use the shortcut of Market Cap since In most cases the Preferred stock and minority interest are negligible and if cash equals debt then the result is EV =~ Market Cap. it’s easier to calculate anyways as the shares outstanding and share price are easily available. Not so for EV. →
A tale of two Apples
What are the odds of it surviving another year, ten years, 50 years?
Companies don’t last long. A recent study that analyzed thousands of European firms yielded a corporate life expectancy figure of 12.5 years. The Boston Consulting Group analyzed the entry, growth, and exit dates of 35,000 publicly listed companies and determined that one in ten of all public companies fail each year, a fourfold increase since 1965.
As I illustrated many years ago in a talk titled “The Unfortunate 500” most companies die not long after adolescence. Of the Fortune 500 1955-1960 cohort, the 81 companies which joined the index in those years, only 7 remain there today. One third of the corporations on the 1970 Fortune 500 list were no longer in existence thirteen years later. Broadly speaking, as a population, large companies that make it to the Fortune 500 listing have life expectancy within that group of 17 years. →
Redundant or Post-PC?
Today marks the 16th anniversary of when Apple released the first-generation iPad.
To many, including Alan Kay, the tablet form factor makes much more sense than the PC form factor. It’s more approachable, more intuitive and certainly smaller and more portable. As the graph shows, quickly after launch, the iPad overtook sales of the Mac.
The problem arose that whereas the iPad was smaller, the iPhone what smaller still–so much so that users would take phones with them everywhere. At the same time, the “PC” shrank as well so that many notebook (laptop) computers became thin, light and had day-long battery life. The Mac at least became no bigger a burden to carry than an iPad.
So the iPad was stuck in the middle between an iPhone, that did more and more, and a Mac that was very portable. At this point many said that the iPad was a dead end form factor. →
ON September 3, 1821, 37 years after James Watt invented the concept of horsepower and started charging £5/horsepower/year for the use of his steam engine, the first demonstration of the production of a mechanical force by the interaction of an electric current and a magnetic field was given by Michael Faraday in the basement of the Royal Institution in London.
1820 is, in many chronicles, noted as beginning of the industrial revolution. It marked the end of 50 years of war, whose conclusion unleashed pent-up demand. That demand was served by relatively free trade, guaranteed by British naval power, coupled with property rights and financial instruments which allowed inventions of the previous century to finally be harnessed for commercial gain. The steam engine is the canonical invention of the era and its implementation as a source of power for factories, shipping, rail and machinery is legend.
Not usually noted as coincidental to this period is the electric motor. Yet not long after Faraday’s 1821 demonstration in London, the first DC electric motor capable of turning machinery was invented by William Sturgeon. In 1832 he built on Faraday’s electromagnet by incorporating a commutator which oscillated the direction of current to ensure continuous rotation.
The Motley Fool asks: Where Will Apple Stock Be in 5 Years? → Not reading this article is probably a wise decision. Shares could perform in line with the S&P 500’s long-term average Investors can follow a straightforward exercise to try and figure out where Apple’s stock price will be in late March 2031. It’s important to consider both the valuation and profit gains. We just released a […] →
Apple’s services continue to see increased engagement, spending → The survey of 3,500 smartphone users reveals a significant rise in average monthly spend on Apple services to $13, driven by increased adoption of premium offerings like AppleCare/One, Apple TV+, and Apple Music, with notable shifts towards AI features despite muted upgrade intent, though potential US bias may affect overall accuracy. →
KeyBanc maintains a lack of clarity of thought → The analyst's note on Apple is overly cryptic and lacks clarity, making it difficult to assess its validity or relevance. →
iPhone sales continue to surge into February – Bernstein → February saw robust iPhone sales driven by the iPhone 17 line, with global unit sales up 26% and ASP climbing 6.9%, yet January-February revenue estimates oddly lag behind projections, sparking confusion. →
Morgan Stanley has a stark message for investors in Apple → Morgan Stanley's survey indicates strong potential for Apple stock, highlighting record iPhone upgrade intentions, especially in China, improved switching rates, and significant interest in a future foldable iPhone. These factors support robust FY26 shipment forecasts and suggest a possible revenue boost from new products. Despite some concerns about declining willingness to pay for AI features, Morgan Stanley maintains an optimistic outlook with a $315 price target. The article criticizes TheStreet's editorial approach for misrepresenting the positive survey findings as negative news about Apple. →
Mac mini and Mac Studio orders booming → Apple's Mac sales are surging due to the M5 chips' enhanced AI capabilities, outpacing other platforms and driving demand despite current shipping delays. →
Gartner adds their Mac Q1 estimate to the pile → In Q1 2026, Apple's Mac sales surged impressively by 10.7% to 12.7% year-over-year, driven by the MacBook Neo's appeal, securing a 10.6% global market share and maintaining fourth place among PC vendors, amidst a 4% rise in overall PC shipments. →
Asymco Office Hours Live Q&A with Horace Dediu & Gene Munster took place on April 8, 2026 → Topic dicsussed: Apple Topics discussed:
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A lively discsussion of Apple topics such as:
Contact us at events@asysmco.com if you have any questions.
For most up-to-date information, see
On April 4, 1975, Bill Gates and Paul Allen founded Microsoft, a software company destined to become a tech behemoth (and key Apple frenemy).
Perhaps the most interesting thing about Microsoft and Apple is just how similar the companies were in several ways. Gates and Steve Jobs, the CEOs who came to represent the two companies, were both born in 1955. Both later dropped out of college.
Gates and Allen created Microsoft when they saw a gap in the market following the launch of the Altair 8800 kit computer. In Silicon Valley, the Altair inspired the creation of the Homebrew Computer Club, where Jobs and Steve Wozniak first showed off the Apple-1 computer.
Source: Cult of Mac
Much more was said of Jobs' departure signaling the end of Apple than of Gates' departure signaling the end of Microsoft. And much more was celebrated of Apple 50 than Microsoft 50. Why is that?
In the case of both Microsoft and Apple, we have seen successful transitions from founders to successor managers that not only preserved but broadly expanded the companies. Cook, Ballmer and Nadella outdid their predecessors as measured by every metric of financial performance. They both reached the pinnacle of business success as measured by market capitalization.
It's romantic to think that business are embodiment of people but in reality they are the seemingly sterile combination of resources, processes and priorities. These are heavily influenced by the people who assemble or define them but ultimately the processes must outlast biology or we are doomed to have to re-invent everything.
Put another way, if a founder builds something that does not outlast him then what has he really accomplished?
Podcast #AI #Apple 50 #Disruption Theory #Nostalgia #Origin Story · 4 comments
Ben Thompson of the Stratechery interviews Horace on the Stratechery Plus Podcast to discuss Horace's journey to become an influential tech analyst: early career in research, business school under Clayton Christensen, and his time at Nokia during the rise of the iPhone.
The conversation further explores Disruption Theory in the context of both smartphones and AI, why Christensen misjudged Apple, and whether AI could challenge today’s tech giants. It also marks the launch of Dediu’s new paid service Asymco One and reflects his continued conviction in Apple Inc. at its 50-year milestone.
Who remembers the Fire?
The latest effort, known internally as “Transformer,” is being developed within its devices and services unit, according to four people familiar with the matter. The phone is seen as a potential mobile personalization device that can sync with home voice assistant Alexa and serve as a conduit to Amazon customers throughout the day, the people said.
The initiative is the newest chapter in a years-long effort to bring to market Bezos’ long-held vision of a ubiquitous voice-driven computing assistant akin to the voice-controlled computer in science fiction series “Star Trek.”
Bezos had envisioned a smartphone that had shopping at its core and could take on Apple by offering shipping convenience and discounts through the Prime membership. Along the way, Amazon could gain a wealth of new data about users only available through mobile phones combined with purchase history and content preferences.
As envisioned, the new phone’s personalization features would make buying from Amazon.com, watching Prime Video, listening to Prime Music or ordering food from partners like Grubhub easier than ever, the people said. They asked for anonymity because they were not authorized to discuss internal matters.
A key focus of the Transformer project has been integrating artificial intelligence capabilities into the device, the people said. That could eliminate the need for traditional app stores, which require downloading and registering for applications before they can be used.
The project is being led by a year-old group within Amazon’s devices unit called ZeroOne, whose mandate is to create “breakthrough” gadgets, the people said. ZeroOne is led by J Allard, a former Microsoft executive involved in such devices as the Zune music player and Xbox gaming console.
The head of Amazon’s devices and services unit, Panos Panay, has been working to reverse years of unprofitability in the division. That includes a forthcoming tablet that will—for the first time—run Android instead of Fire OS and could sell for around $400, which Reuters was first to report.
One inspiration for the new phone has been the Light Phone, two of the people said, a $700 minimalist smartphone with a camera, map, calendar and not much else, such as an app store or web browser.
A dumbphone or feature phone could also help Amazon market it as a potential second handset to accompany iPhones and Samsung Galaxies already in customers’ pockets, the people said. Such handsets, like the Light Phone and flip phones, accounted for 15% of global handset sales in 2025, according to Counterpoint Research.
Source: Yahoo Finance
NB: The problem with any new phone, whether it's from Amazon or Google or Meta or OpenAI or Trump…
