Full Transcript for Weekend Listen: Power On Talks Siri AI's Big Step Forward and Ternus' First Earnings Call

markets. And all of that, again, the backdrop is so important. It's the fact that people don't have the discretionary income on the one hand. The global economy is not doing great. The key markets like China, China is dealing with deflation. It's struggling to spark the consumer market, right? We have all these issues and Apple is growing and hitting new records. And worth bearing in mind, John Turner said this, and we'll dive into his performance. I want to hear your feedback during the conference call. He said this, record number of upgraders in China. So you go- Yeah, they say that every quarter. But again, economic slowdown, prices are up and people are still upgrading. So you said pent up demand. Maybe we can call it built-in demand. It's just everybody has years and years of Apple loyalty. built in. And it's just, I'm three, four years into it. I need to buy whatever the iPhone is. You're not giving me a regular iPhone. I'm buying the iPhone Pro and your numbers look better. I mean, all of this performance, I would attribute to Apple's long history. It's not just this quarter or the past year. It's the history that people have with it. 00:07:03 Speaker 2: A few things. I just want to take this piece by piece. So you mentioned the iPhone margins and given the memory shortage, it being opportune that they only launched the higher margin Pro and Pro Max models. During the quarter. I'm told, though, this is a decision that was made two and a half, three years ago to move the non-pro phones out of the cycle, out of the fourth quarter holiday cycle, move it to the following year into the spring. Now, the dynamics at play there were twofold. One, Samsung had split their lineup, so they have two major launches. They've got one in the spring and one in the fall. They split the regular phones apart from the foldables. The other factor here is Apple wanting to spread revenue across the four quarters versus tucking everything into the holiday period as they have traditionally done. So as much as Apple fans want to say that this is a soundly run business, that things don't just happen as a coincidence, like their success in terms of the market response to overspending in AI and Apple not spending much in AI, this is something else they fell backwards into, right? The memory shortage wasn't something they knew. when they made the decision to postpone the lower margin devices to the following year. The other thing I'll say is that the supply chain shortages that they're having for the iPhone Duo also presents an opportunity for them to smooth revenue out throughout the year. So you're likely to see a pretty big Q1, the holiday period, and we'll get into their forecast there, but also a big Q2, Q3, Q4 because the iPhone Duo is going to be this $ 2, 000 to $ 3, 000 device that's going to be a huge revenue generator that's going to be in hot demand because of supply chain challenges probably for the next six to nine months up until the second generation iPhone Duo is ready probably at the end of 2027. So this is a big win for Apple in terms of smoothing revenue out throughout the year. Everything was all sunshine and rainbows until we got the forecast. You could watch the stock ticker begin collapsing when they got into the guidance. Now, the guidance was pretty good. So they grew 12% in the fourth quarter. But then you look at the holiday quarter, they're going to grow between 7% and 10%. So it's a deceleration sequentially. And they're trying to frame it on a year-over-year basis as, okay, last year they grew 17% in the holiday quarter year-over-year because of the iPhone 17 Pro. And then they say, on top of that, we're going to grow another 7% to 10% in the holiday quarter going into 2027. That's a deceleration. You can't make those things additive just because it makes the numbers sound bigger and sound better. So one investor is not happy about the deceleration there. The easy explanation is the supply chain shortages, right? The iPhone Duo, a lot of people are probably not going to be able to get them into Q2 because minutes into the iPhone Duo pre-order process on October 16th, new orders started getting scheduled for January 25th to January 29th. And the second quarter was begins on January 1st, right? The first quarter runs only through December. And so that's part of the reason why the Q1 is a little softer than some investors would like. But it was really the gross margin forecasts in the mid 40% when investors really want to see them north of 50%. And one key thing that Apple said a couple times was that the price increases they did in June and September were only a partial offset. And so they're saying it, and you can confirm that in the gross margin numbers. And so my belief is you're going to see more price increases tied to new hardware updates across 2027 and beyond. And they also said this memory shortage is going to continue in the December quarter and beyond throughout fiscal year 2027. And I personally think this is going to go into 2028 as well. And so it's not looking pretty. Apple does deserve credit, though, because there's other consumer electronics companies, peers and competitors of Apple. that are delaying products because of the memory shortage, canceling products because of the memory shortage, reducing the scope and feature set of products because of the memory shortage. Everything I can tell in terms of Apple, they haven't de-scoped anything. They haven't canceled anything. The only impact for them have been the price increases. So as a fan of Apple products and a consumer that wants the latest and greatest features, it has been pretty remarkable. 00:11:35 Speaker 1: It's worth saying, by the way, Bloomberg reporting, we interviewed the chief of Foxconn and he did express confidence. that they will catch up with iPhone Duo demand and production needs. So the supply chain players themselves are expressing confidence. But again, over the past week, we went through

an earning cycle over here in Asia as well, Mark. And you said it's your personal belief that 2028 will still have a memory crisis. If you listen to Samsung, SK Hynix, the providers of this memory, they're saying look to 2030 for this to be any sort of normalization between supply and demand. These guys have effectively sold out the bulk of their DRAM production through 2029. And if the AI hyperscalers and the data centers don't soak that up, companies like Apple and Lenovo are going to be ready to buy into that production capacity, but it doesn't look like it will be available. 00:12:26 Speaker 2: Let's talk about China for a minute. It was super interesting that Tim Cook, Deirdre O'Brien, Sabi Khan, other Apple executives went to China a few weeks ago for one of the multiple times a year that Cook likes to go on these tours. John Ternes was not there. And I think for the relationship between Apple and the Chinese government, so Apple could basically run unscathed. I know there's nuances there. There's human rights things there. There's the iCloud. There's all that there. But compared to the Apple peers in America, Apple pretty much operates as they want to in China. I think it was a bad look that Ternes was not there. And Tim Cook's going to go again to China probably in the spring, in the first half of next year. And if Ternus doesn't show up, it's going to be quite embarrassing, I think. And maybe China's going to start asking questions like, where is the new guy, right? Does he have a disrespect issue to us? That's just sometimes how they think in China. So it'll be interesting to see what happens there. But revenue in China, it grew, right? It was a pretty big jump there, 21% to $ 17. 5 billion. Now, from the Wall Street estimates perspective, they came in at a billion shortfall. But from a year-over-year growth perspective, they've completely turned things around in China. So I'm curious, briefly, what have you seen to lead Apple to sort of turn things around in that region? And how are they compared to the other players right now? 00:13:51 Speaker 1: Well, I did a nice chart, again, on the terminal and Bloomberg.com that people can look at. And it's Apple's quarterly year-over-year sales growth in China. And the past four quarters, basically the entire year, is more than 20% sales growth. The first thing that got us started close to 40% sales growth a year ago, iPhone 17 Pro. I feel like, and you will agree with me on this point, it was the biggest hardware upgrade, like meaningful, substantial upgrade that people have had for years, and it unlocked a lot of demand. And you do have this built-in Apple audience and loyal Apple users. I keep talking about my Apple colleagues with their lightning cables and how many years they've stuck by their old iPhones. That ecosystem lock-in is unprecedented. Nobody else has it. Samsung wishes they had it. Everybody in China. Maybe Huawei comes closest, but still only within China. But you said it yourself, Mark, and I think we shouldn't underestimate how much it matters how your brand is perceived within China. Like China itself is such a huge population. It's not a monolith, but you do need to do a lot of brand management. And the good example to me over the past few weeks is Kylian Mbappé. the French superstar footballer, and what happened with his brand in China. So if I can just have a little digression here, the man has been called a dictator because of his conduct around his team, at least since the World Cup, but I think it predates the World Cup by a long time. So I became aware of it during that time. And there's memes all over the internet where they superimpose his face on a bunch of dictators' uniforms across history. And somebody asked him, what is your favorite meme about your face on the internet? And he said, oh, you know, the one with the Chinese dictator. Because of that innocuous random comment, I think it was like live streamed or at least a short video. I mean, everyone in China, they disavowed him. Every brand that was associated with him, they discontinued business with him. There was outrage and so on and so on because they were making implications about China. a celebrated figure, a Chinese leader. The fact that Apple, and you know just as well as I do, Apple has had some run-ins with China and it has had to kind of patch up its relationship years ago, right? The fact that Apple has maintained its brand over the years is credit to Tim Cook. It's probably why he's still the first face that shows up anytime Apple executives visit the country. And it is very important. You cannot have success in the country if you don't have that strong relationship with the government. 00:16:23 Speaker 2: Okay, big last question for you on China. Do they love burgundy over there as much as they loved orange? 00:16:28 Speaker 1: It's a good question. 00:16:30 Speaker 3: I don't know. 00:16:31 Speaker 1: I'll tell you. I'm here in China, so I can give you an N of one. I'm not in love with it in the same way. The burgundy was horrible. Okay, there we go. So we agree. I'm more of a fan of the brighter colors. When you and I were actually doing pilot episodes for this podcast a year ago, it was that far back, we loved the orange. Like, it's nice to have this highly saturated, strong color. The burgundy just feels like I'm not that old. It doesn't quite fit my aesthetic. 00:16:57 Speaker 2: I don't know what they were thinking. 00:16:58 Speaker 1: I'm all in on night sky these days. 00:17:00 Speaker 2: Okay, the call itself. 00:17:02 Speaker 3: All righty. 00:17:04 Speaker 2: John Ternus's performance in his first call. It's so funny. Some of the immediate media reaction and articles and opinion pieces I saw written about this basically slammed Ternus, said he came across as unprepared, said he came across as scripted. What do you expect from an SEC-governed procedure? Would you like the new CEO of Apple to go off script and like him to

say something that's getting him or the company in trouble? If you are an investor, I mean, give me a break. Tim Cook did earnings calls for 25 years. Don't forget, he did the earnings calls during the Steve Jobs era as well. He did over 100 earnings calls, four quarters a year. This guy was a master, and he was still reading off scripts until his very last earnings call just a few months ago. Maybe John Ternes comes across more obviously that he's reading off a script. Maybe because when John Ternes is doing things on stage, he seems a little bit more free-flowing and interviews more free-flowing than Tim Cook. Maybe Tim Cook is completely monotone at all times, so you can't really tell when he's reading a script or not reading a script. I don't know, but I thought Ternus, he didn't sound scripted to me. It didn't sound like he did a bad job. Just after listening to Tim Cook for 15, 20 years, he just came across as a little bit more junior, right? And how is he going to come across in any other way on his first call? I think it's a little too early to judge his earnings call performances. I don't think that that should have a bearing on whether people are investing in the company or not investing in the company or how much they're investing. I think the proof is in the pudding and the pudding is the products and how the products are selling. And I think he did give some insightful answers. I think that his manifesto, as I'm calling it, the Ternus manifesto in terms of the importance of products, in terms of what Apple's North Star is, which is focusing on the customer, whether that's true or not, I think I can easily poke holes in his argument. But he did seem like an honest broker here. And I thought it was a perfectly normal, perfectly suitable first earnings call. I would say that Kevin Parekh, the CFO, he started doing the earnings calls a couple of years ago when he replaced Luca Maestri. He sounded pretty junior, pretty new, pretty green. But now he seemed like the most polished man in the room by a long shot. Sabi Khan, the COO, was on the call. Because he has more expertise for many of the issues at Apple in terms of running the business. Ternus doesn't have much business or finance or supply chain or operational expertise. So it's important for Sabi Khan to be on there. He came across as completely unpolished and completely scripted. I think of the three of them, Sabi Khan's performance was just the worst. 00:19:57 Speaker 1: Of all of them. 00:19:58 Speaker 2: But again, he's never done anything like that before. He's very much behind the scenes. And so I think Ternus and Sabi will improve over time. But to say this was anything short of a marvelous call for Apple with solid results and a new generation of leaders carrying the torch beyond Tim Cook and everyone knowing that this is going to get better next quarter and the quarter after and the quarter after in terms of performance, I think would be an understatement. The last thing I'll say is, though, I do wonder if Tim Cook was in the room ready to grab the mic at any time if necessary. 00:20:31 Speaker 1: Okay, if he was, that would be terrible. Like, nobody can perform like that. It's like somebody looking over our shoulder right now and just being like, nope, not good enough. 00:20:39 Speaker 2: I think the only reason why he wouldn't have been in the room was because of that. And I think if that wasn't a real concern or a real thing, he would have for sure been in there. We're still in the transition. You know, we're still transitioning, right? Tim Cook is still involved in Apple. He is still making decisions. He is still there. Of course. And at some point, the rubber is going to meet the road here for when this transition is complete and when John Ternus is firmly in charge solo. But we are not there yet, but we're getting there. And I will take a step back and say, if Tim Cook wasn't doing some hand-holding, wasn't providing some training wheels early on in this new CEO's tenure, it would be irresponsible given how important Apple is to the world and how many pensions and such rely on the company's stock. 00:21:27 Speaker 1: But honestly, Mark, this is a luxury problem for a company to have, for anybody to sit down and be like, how is your performance on an earnings score? Because ultimately, a whole bunch of people, myself included, we read the transcript. We're not sitting around dissecting the particular delivery. This is the... I mean, yeah, it is a part of the marketing of the products, but it isn't... Like, if I'm an investor, if I'm deciding, is this a viable company or not, I'm not thinking about the exact delivery or tone. 00:21:56 Speaker 3: So. 00:21:57 Speaker 1: It's the MacBook Neo. It's the great upgrade with the iPhone 17 Pro. And it's the future of the iPhone deal. These are going to be the consequential things. 00:22:05 Speaker 2: I will say a couple of things on this. Did you know that Steve Jobs only hopped on the earnings call once in a blue moon? I mean, I remember when we were covering earnings calls back in the day, he came on some call in like the 2010 era when he was just getting his win back coming from, you know, his second medical leave before his third medical leave. And he just went on there and just started destroying the competition when it came to tablets. Just, you know, pooping on the idea of an iPad mini, destroying competitors to the iPad, just talking the most smack he could at the time about the competitors. And, you know, then we handed it back to Tim Cook and the CFO at the time, Peter Oppenheimer, to talk the business and the financials. But Jobs never went on there. Cook was doing that as COO. And so the fact that Ternus, who's not a business guy— who's not a sales guy, not an operations or supply chain guy. He's an engineer coming on the calls, representing Apple, being the face of these things, even though it's not his wheelhouse. I think he deserves respect for that.

And we'll see if this is a long-term thing across Ternus's tenure, if he's the guy who's going to be leading these calls moving forward. A couple of additional things I want to say on the earnings call. Apple still is continuing to make excuses. When you see revenue declines, a couple I want to point out. The iPad declined. They just came out and said, the iPad declined because we had a tough compare to the launch of the A16 iPad a couple years ago. They constantly use these types of excuses. These ones weren't terrible this time around, but you did have a lot of great tablets on sale, things that were updated. The iPad Air is a good product. The iPad Pro M5 is a good product. So giving these types of explanations, it seems like there's more and more of these explanations lately. which tells you what you need to know about the overall growth story for this business. The other one was the wearables, home, and accessories. That was about a $ 700 million shortfall compared to Wall Street estimates. And so what Apple did was they said that this was because they launched the AirPods Pro 3, as well as a more extensive Apple Watch lineup that included a new SE in the year-ago period. Both true. The AirPods 5, much weaker product than the AirPods Pro 3, much less demand for that product. And the Apple Watch SE in the year-ago quarter, that was a really amazing product. At that price point, it's somewhere between $ 200 and $ 300, has a bunch of the health features, better screen. But at the same time, Apple could have done a bigger AirPods update this year, but they had to delay it because of AI issues. These are the camera AirPods and supply chain problems. Could have done a better Apple Watch this year, but it was a pretty minor update, just the improved heart rate sensing. So I just find it so interesting when they point out these excuses, as I like to call them, for why this happened. But overall, Good quarter, right? 150 billion quarter happening in the holiday period despite everything going on. The margins could technically be worse. We didn't get gigantic price increases yet again before the end of the year. Maybe that'll still happen, but until now it's all clean. So I think not super interesting in a good way. 00:25:10 Speaker 1: Don't forget, Mark, the all-important thing, Apple also sold five Vision Pros during the quarter. 00:25:15 Speaker 2: Okay, thank you for reminding me. How many times did the Vision Pro get mentioned? I did not check this. So this is just based on my recollection of the earnings call. But they gave multiple shout outs, the watches, iPads. They couldn't stop talking about the Mac, which I think was a Ternus thing, by the way, because he's just, you know, he's the Mac guy. And obviously the iPhone is the, you know, big, big, big topic of conversation for the duo and every other reason. The iPhone be the center of the conversation. Vision Pro got mentioned one time that I could remember. And it was in the context of it being used for surgeries at the Duke University Hospital. Come on. 00:25:52 Speaker 3: Come on now. 00:25:53 Speaker 2: Right? I mean, we know the Vision Pro is sort of dwindling. It's on life support. We've talked about it millions of times. They don't have much to say other than it's usage in surgeries or as an enterprise item. This is not a consumer product. So the other big news this week is a fairly major set of updates to Apple's platforms, their operating systems. So traditionally, Apple does the big fall release and then they do a big spring release. So that's traditionally, you know, the 0.0 and then you got the 0.4 comes out March, April timeframe. But this year, your 0.3 release is actually pretty sizable. So some of the high levels, one, Vlad, you'll like this. Apple Intelligence is now available in China. This does not include Siri AI, which we're going to get into. This is the first set of the Apple Intelligence features that launched in the U.S. at the end of 2024 and early 2025. Things like the original version of Genmoji. Things like prioritization and summarization for notification. Things like basic writing tools. But this is nothing to write home about. These are the worst of the worst Apple AI features. This is basically meaningless. This doesn't include any of the WWDC improvements. Do you think this is going to do anything for Apple in China? Because I don't. 00:27:19 Speaker 1: Well, no, but it gets you on the table stakes kind of setup, right? It makes sure that you're not too far behind everybody else. And I am curious, by the way, on this topic point, because Siri AI is underpinned at this point as it's being rebuilt by Google Gemini models, right? In the US and internationally. It's going to be Alibaba and Baidu who are underpinning it in China. So do you see there being much of a divergence between them because of different bases? Let me jump in there. 00:27:46 Speaker 2: So the models that actually run on the phone for Apple intelligence in China, it's the same models that power Apple intelligence 1.0 in the U.S. So it's Apple foundation models. We're not at the 2.0 version with the Google Gemini. And they haven't replaced the underlying Apple models with Alibaba or Baidu models. What they've done is there's an additional layer. I call it the censorship engine, where Alibaba is sort of a layer in there. And as the Apple models get updated in the background, Alibaba processes that, sends it to the Chinese government, so they're, you know, division specific to these AI model regulations for approval over a number of hours, and they go back and forth on that. And then the Chinese government can also send down to Alibaba that they have to make adjustments to the on-device Apple models. And then Alibaba also can plug in for things like writing tools, more Chinese localization types of things. So it's really the same experience that you get in the U.S., but localized to China to meet their censorship needs in order for

Apple to be able to operate that there. Now, because the 2.0 version and Siri AI are built on top of Gemini models and Google is obviously banned in China, Apple's going to need to figure out some solution there. And we'll see what they end up doing to get these features to market. But my belief is that they're going to get the 2.0 Apple intelligence features, things like better photo editing, Better Genmoji into China at some point in 2027. But getting Siri AI there is going to be a little bit more difficult to figure out. That's a bit more longer term as it is in the European Union. 00:29:27 Speaker 1: Just to clarify, China will say they haven't banned Google. Google itself has pulled out its consumer facing services. It still does business with people within China to sell Google ads and such things. So presumably they'll figure out a way to do it. But it does add that extra layer. I'm starting to worry about things like battery life, actually, if you're going to run AI models on top of AI models. But like you say, Mark, we're still waiting for 2.0. What else is in the upgrade with this major iOS update for the rest of the world? 00:29:58 Speaker 2: So for me, I installed 27.3 just a little bit ago. This just came out a couple hours ago here in the U.S. on my iPhone Duo. And the iPhone Duo, in my view, the hardware is absolutely fantastic, save for that crack issue. Which, by the way, I'm still getting people sliding into my email and DMs saying they're getting cracks, even a couple weeks later. Who knows if this is still from the first batch, people using phones sold on the 23rd or whatnot. But that's for another time. Anyways, the software has been horrific. buggy, inconsistent. 27.3, even the first beta, is a lot smoother. Things are looking a lot better. The keys on the keyboard seem a little bit narrower and harder to read. They haven't fixed all the issues, such as FaceTime picture-in-picture. But again, it's still the first beta. But even as a beta 1 of 27.3, launching to public in a month and a half, this is a big improvement over 27.2. I can't come out here and recommend that you install a beta I don't want to be held liable for something happening to your phone or you losing all of your information. But for me personally, this has been a nice speed boost improvement just in a few short hours of usage. We'll see how it holds up over time, and I'll report back as there's additional betas during this cycle. The other thing is they've added reachability for the iPhone Duo. If you remember when the iPhone 6 Plus launched because of the taller display, they had a feature where you can swipe your thumb down on the Touch ID home button. and it will bring the display downwards so you can hit it vertically, like things in the top, the status bar and what have you. Now, on the outside screen, it's wider. You can swipe in the left or right to bring the content closer to your thumb in either direction. I have not found a need for that feature, but obviously some people with smaller hands are going to want that. I tried it out. It's a little finicky, but I assume by the end of the beta cycle it'll work as advertised. There's also the new standby mode, better widgets, better customization. That's coming from the iPhone Duo over to several other iPhone models. So that's a nice to have. Safari has added a few extras. There's now vertical tabs. So instead of having the tabs under your menu bar, you can have them on the left side of your display. This is coming to all of Apple's platforms that have the Safari web browser. I tried it on the Duo. I don't like it. I have not installed it on the Mac yet. We'll see what I think of it there. There's adaptive dark mode, which means if you go to a website while in dark mode on your Mac or your iPad or your iPhone and they don't support dark mode natively, Apple will adjust their website using their own protocols to make the website background dark. It is advertised as a preview, so we'll see if this is something that sticks. The other big one is the health app. The health app has been completely revamped. They have a new longevity tab. They have a biological age button. And it takes a little bit of time to set it up. You have to do some motions and movements and workouts for the camera to understand you and implement your data into the health app. If you're a dev or on the public beta of 27.2, it was there, removed, and this is coming in. 3 now. Haven't used it that extensively, but visually it looks like a big improvement already from the health app. which has been pretty crappy for years and basically gives you a bunch of data and tells you nothing. 00:33:11 Speaker 1: You got to do a little workout, a little bit of shimmying and running in front of the camera, and then it judges your age? 00:33:17 Speaker 2: Not a workout, like, you know, some muscle adjustments, moving your arms and legs for it to get a better sense of, you know, you and your ability to move and whatnot. And this would be in sync with the Apple Watch, presumably, right? Well, this is using the camera on the health app. I don't know if it pairs to the Apple Watch, but there's A new Fitness Plus thing called Gym Strength, which is new strength training plans that you can customize in the fitness app. And that obviously works with the Apple Watch. But the biggest thing when it comes to this iOS 27.3 release actually comes down to Siri. And I've been using Siri AI since the first beta release back in June. I know being where you are in the world, you have not been able to use it extensively. But what I can tell you is the best way to explain Siri AI is that 15 years after the first Siri was introduced, Siri can finally do the things that it has been advertised to do. You can ask it questions. You can ask it to send a text message. You can ask it to open a website, a timer, and what have you. And it will be able to do it. That overhaul, the AI overhaul, of course, was announced in

2024. 00:34:28 Speaker 1: It was delayed. 00:34:31 Speaker 2: There were some other new features such as on-screen awareness. That was delayed. That launched as part of iOS 27. But there was one feature that Apple didn't really like to talk about over the past several months because when they announced iOS 27 and Siri AI in June, they presented it as finally making good on the new Siri that was announced two years ago. But they didn't really make good on the full scope of the new Siri. Because one of the three major tentpole features of the new Siri announced at WWDC24 were app intents, meaning precise control, voice-based actions over applications, first party and third party, and features within those applications, right? Those are in-app actions, whatever you want to call them. So for instance, you could be looking at your phone. You can be reading an email. You can say, Siri, move this message to my work folder. Siri, archive this message. Siri sent a message to Vlad Zavov and scheduled it to be sent to him at 2.30 p.m. And that is finally coming across Apple applications in these beta releases of 27.3. So they're finally making good on what I thought and what most people at Apple think were the most interesting use cases for this new Siri. 00:35:49 Speaker 1: Absolutely. 00:35:49 Speaker 2: So that is a game changer. It's still request-based. It's not an agent. It's not doing things on your behalf. but it's allowing you to use your voice to control all parts of your iPhone scrolling. You can ask different applications what it can do. And then there's a developer element to it as well, where developers are going to have the ability to program their apps to be as part of Siri AI. So right now, Siri integrations with third-party apps are extremely basic. Tell a to-do list app to do this. Tell a third-party messaging app to do that. Ask Spotify or Pandora. or another third-party music service to play this playlist. Now you're going to get very precise app actions. Make me a reservation for the sushi restaurant for two people at 7.30 p.m. on OpenTable. Now it could do that for you using Siri AI. It can do multiple actions in one query across applications. It can move things between different applications to other applications. It's pretty advanced voice-based control using Siri of first-party and third-party apps. And this is Apple finally fulfilling the vision they introduced two years ago at WWDC in 2024. So my question for you, Vlad, what do you think of this functionality as I explain it, as Apple's explaining it? And what does this mean for their overall AI strategy and big picture? 00:37:14 Speaker 1: Well, what you described, Mark, is the holy grail of any one of these voice-based AI assistants. And I'll give you a really good example. It's in Apple's favor because it shows Google failing as something really basic. So most people will be aware of Google Lens. It's something that you can take a photo of, say like the Blue Book terminal keyboard, which is in front of me, and it will explain to you, this is what this is. I did that with a bottle of wine at a restaurant recently. It gave me the information. It said it's Argentine wine. It told me it's a dessert wine. This is how you pair it, et cetera, et cetera. Google Lens, Google Gemini, they work in sync. They inform me. That's great. All I wanted to do then was say to it, all right, save that to my Google Keep notes. It's all first party. It's all within your ecosystem. It should be, again, table stakes, guys. You know what I'm going to do. I learned about a bottle of wine. I want to remember it. Save it to your own software. It couldn't do it. It said, I can't do that for you, but I don't know. Go and do it yourself manually. I feel like those moments of friction with a user interface That's such a key thing to discourage people about AI in general, because what you understand is this is not reliable. This is a very dumb service. Compare that with say you complete that entire user experience, right? I'm happy with it. I feel like, oh, I can do more with this. I can experiment, learn more with it. Building confidence with the user is such a key thing. And then ultimately that's how you get people like me excited because when you were going through the Siri updates and through the fact that it's been 15 years and Apple is finally delivering. My level of excitement was flat. It's like, okay, guys, great. You promised us something, you delivered. What else is new? I feel like this is where AI can actually ramp up on the consumer side because as much money as is being invested in AI and as much as people will tell you they're finding real efficiencies in the workplace and in enterprise with AI, people are making PowerPoints and so on, nobody's genuinely saying, I'm buying this new iPhone or this any other device Because of AI. 00:39:20 Speaker 2: Well, this is the big next step for Apple. This is the stuff that's going to allow Apple to create advertising and billboards around AI. This is the real world stuff. This is talking to your phone. and doing things that you would expect it to be able to do in the year 2026. So I think it's a big deal for Apple. You can dive into any app and you can ask Siri now in 27.3 in the beta I've been using, what can you do for me? And it'll give you a list of everything you can do there. And In some applications, the options are limitless. Like imagine saying to your phone, pull up all pictures of my daughter wearing a red sweater, enhance them, crop them, rotate them a certain number of degrees, and then put them in my group chat and also email it to this person and save it here or there and we'll upload it to the social networking app. That orchestration, that cross-application work, that ability to understand what you're saying and getting it right and doing it quickly is It's pretty innovative and, dare I say, revolutionary technology. And so as a consumer, by the time this all comes together

next spring, it seems like they're staggering at first-party apps now, preview of third-party apps for developer support in this build, but a release in the spring, probably the 0.4, 0.5, 0.6 releases next year. This is hopefully all going to come together before WWDC 2027 comes. when they're going to take the next big step, which I'm not going to get into today. But what I'll say is that they've got some really exciting plans for Siri. And the fact that they got 1.0 out in September, it's worked well. No comparison to what you're getting from ChatGPT. Then they're going to have this 2.0 where they're taking this pretty sizable step. And then I think they're going to start being able to actually be kind of compelling maybe by the end of 2027, 2028. So we'll see what happens. 00:41:18 Speaker 1: This version 2.0, I actually don't care what comes down the line at WWDC. I can wait for the next thing. Just deliver what we've been talking about right here. That functionality, that building of confidence, because you and I, when we talked about Meta and its new products, the reason why anybody should care about Meta's products is Muse, its personal AI agent. 00:41:40 Speaker 2: It's amazing. 00:41:40 Speaker 1: And Every demo that Meta gave, they gave with full-on confidence. They knew that thing was robust. They knew, I'm going to ask this of the model. They did live demos. There was no inkling of doubt that it was going to fail. I think that is the key thing. I always think about a family member who's not very tech savvy. That's my threshold. That's my benchmark for, is this AI, I think, going to have impact and utility to people? My not tech savvy family members, they're doing a bunch of image generation. They're doing patriotic Bulgarian images and whatever, celebrating things and festivals with image generation. Okay, great. You've got that part of the user experience down. The thing is Meta's Muse and what Apple is promising with its Siri AI upgrades, they seem like they're going to cross that threshold. with consumers earlier than anybody else. And that's the thing I think we should be watching for the next few months. Have you used Dots, the ChatGPT feature? I haven't. ChatGPT is not around here in Hong Kong. Okay, well, there you go. 00:42:45 Speaker 2: I've been deep in Dots over the last several days. This thing is like having a real-world assistant that you can call up and ask it to do anything for you on your behalf as an agent in the background. And that is the pinnacle, I think, And these new features that you're seeing from Apple, they're cool, but they're delivering on the 2024 concepts. And I think they're still quite a ways away from what we're seeing from DOT and OpenAI and ChatGPT. And that's really where Apple needs to go. And there's a reason why they're pushing this privacy narrative, because to really get consumers to adopt these things, you're going to need to really sell them on the privacy stance of your company. Dots is super cool, but it requires giving up a lot of control of your devices, giving up control of your information. Can you trust? What are they doing with your data? If you even have the button disabled that allows OpenAI to use your data to train the model, do you believe them? Is it still going to train it? Is it not going to train them? Are you going to really give them your health data? Are you going to give them your financial data? And so the Apple privacy stuff they started pushing a decade ago, I think they didn't know why they were doing it, but I think they figured that at some point, It's going to come in handy. And I think it's certainly going to come in handy in the future once they push in that direction. So what do you think? 00:43:58 Speaker 1: I think it's a fair point. But if DOTS is so consequential, if I'm over at OpenAI and I've got Johnny Ive on my team, why am I not trying to push out my own smartphone? 00:44:08 Speaker 2: Well, they are coming out with a device next year, which is a smart device with no screen. It has a speaker and a microphone. It's a donut-shaped? Have you seen what a dot looks like? Have you seen the dot logo? It kind of looks like a donut. And so I would try to think of the OpenAI device as a physical manifestation of the dot. So sort of this little assistant you carry with you everywhere about the shape of a hockey puck that can fit in the palm of your hand. And I think Apple knows that's what's coming, and that's why they're so scared of them and suing them and trying to take them down. So I'll leave it at that. Last thing, watchOS 27.3. This includes the always listening AI features where you can rewind the last 15 seconds of a conversation. And it has features like Otter or Granola where you can leave it on the background and you can get a summary of everything that was talked about by you or around you over, you know, a certain set period of time. What do you think of these features? Because I know we talked about them before, but that has serious privacy implications. It's no longer about you. It's about the people around you. And it's about people living in a society where they don't know if they're being always listened to. 00:45:25 Speaker 1: That's exactly it. When you mentioned Apple and privacy, people have to invest a ton of trust in the company. If you remember when Microsoft announced Microsoft Recall, which was going to record everything you do on your Windows screen, And it's going to rewind for you and tell you what you're doing. And everyone's like, no, you won't. Thank you, Microsoft. I do not want you in particular recording my activities. 00:45:46 Speaker 2: You know, ChatGPT has that now on the Mac. And I was playing around with it a couple nights ago. And it starts presenting, you know, how this feature works and the risks and all that. I'm like, that's not happening. That is not being turned on on my machine. And so I didn't enable it. And I can see why people flipped out. Yes.

00:46:02 Speaker 1: I mean, I think Apple, out of any consumer electronics, consumer software company, has the highest level of trust. We can agree on that very easily. It's still, you made a really important point. It's not just you, it's the people around you, right? So many of these products have to navigate this issue of how I'm going to be out in the world. In order for my device to be aware of the world, I'm going to basically soak up information about people who haven't given consent for that, right? But like, look at it. Like, is this the world we want to live in where everyone is just chatting to the AI doing this and the AI is snooping on the entire world around them? Why not? I mean, I don't know. It's another podcast episode. Why not? The full answer to this. I think we should spend more time actually talking to people instead of technology. So it's a tricky one. If they do something very brief, I mean, you and I previously, when we talked about Apple visual intelligence with the AirPods, how they're not really recording video. They're just gathering visual information and trying to inform you. That's right. I think that there's a good technical way to go about it. And if they're just doing 15 second clips of the most recent thing happening around you, that should be reasonably okay. And let's not forget, if you have voice activated Google Gemini or Siri on your phone, which I know you don't because you've said Siri 50 times on this podcast and it didn't trigger your phone. But if you do any of that. 00:47:26 Speaker 2: It's in the other room. 00:47:28 Speaker 1: Your smartphone is always listening anyway, right? So we've already kind of compromised on at least audio privacy. So if we're going to do that with the watch and they do it with little snippets of. 00:47:39 Speaker 2: Audio, I think that should be okay. Well, I think there's more to it. I think there's going to need to be a lot of consumer education here. I wonder if the watch can play a super loud sound to let people know that things are being recorded. I'm surprised. be honest with you that this thing is launching in the exact form they announced it. And they seem to really believe in this and believe that it's going to be foundational to other things they're doing in the future. And so they needed to just push through. But once this is in the hands of more people, once Apple starts running ads for this, and I guess it'll be interesting to see if they do run ads for this. Uh, we'll see what, what, what happens. All right, Alexis, you stumped me on the gold iPod mini a few weeks ago. Uh, What do you got this week? 00:48:24 Speaker 3: Vlad, did you see that when I stumped Mark and Andrew? 00:48:27 Speaker 1: Well, I mean, usually I'm the one who fails at these, so congratulations. 00:48:31 Speaker 3: I've been on, honestly, I've been on a quest. I've been chasing that feeling ever since. We need to keep a scorecard. I know we do, actually. That's actually a good point. I'm actually going to keep score right now. So I tried to make these trivia questions thematic for our episode this week. So my first one is, what is the origin... of the name Siri. And I'm going to give some multiple choice because when I say origin, I mean like origin in terms of language. 00:49:01 Speaker 2: Oh, Norwegian. 00:49:03 Speaker 3: Oh, Mark, I was going to give the multiple choice. 00:49:09 Speaker 1: Okay. 00:49:09 Speaker 3: Well, I'm not going to confirm if that's correct or not. Vlad, would you like to hear the multiple choice? 00:49:14 Speaker 1: Absolutely. 00:49:15 Speaker 3: Okay, great. Okay. So is it A, Greek mythology? B, Norwegian Old Norse, C, Old English, or D, C + +? 00:49:25 Speaker 1: Okay, it was never going to be one. It wasn't going to be Greek. It wasn't going to be technical. It wasn't going to be English. So by process of elimination, I might have gotten there. I will say to my credit, when I had hair, I knew this. And then I forgot it. 00:49:43 Speaker 3: Is the hair connected to your knowledge of this? Or is it just a time span? 00:49:48 Speaker 1: I haven't studied this, but it may be. We'll have to find out. Let's do the next question and see. 00:49:54 Speaker 2: I believe the origin there is Dag, Kitlis, who was the creator of Ciri. He may be Norwegian. You know what? We're going to get him on the podcast. He's going to be a guest. And he's going to walk us through the whole Ciri story. 00:50:09 Speaker 1: And so. 00:50:10 Speaker 2: I'll let him tell the story. 00:50:12 Speaker 3: Well, the answer is yes, Norwegian, Old Norse. And I did have a follow-up question because I'm going to bring follow-up questions because I figured you're going to get them right. But do you know what Ciri means in Old Norse language? 00:50:25 Speaker 1: I don't know. 00:50:25 Speaker 3: Okay. Well, I'm going to tell you. It means beautiful woman who leads you to victory. 00:50:31 Speaker 2: There you go. 00:50:32 Speaker 3: There you go. We'll get daggone. Oh, here's a second bonus. Do you know who was the original voice of Ciri? 00:50:38 Speaker 2: The original voice of Siri, it was a woman. I remember the story about her, but I don't remember who she is or who she was. 00:50:46 Speaker 3: Vlad, any thoughts? 00:50:48 Speaker 1: Gone with my hair. I'm sorry. 00:50:50 Speaker 3: Her name was Susan Bennett. She's a voice actor. 00:50:53 Speaker 2: Ah, Susan Bennett. I remember that. Yes. She's got an incredible voice. 00:50:58 Speaker 3: Yeah, she does. And she didn't know, actually. She said when she was originally being recorded that that was what it was used for. 00:51:04 Speaker 2: And now it's an AI voice. It's a fake voice. 00:51:07 Speaker 3: Maybe we can get Susan on the podcast, too. 00:51:08 Speaker 1: We can try. 00:51:10 Speaker 3: We can try. Okay, second one, we're going to talk sales, because it's also thematically related to our episode. How many units did the original iPhone sell before it was succeeded by the

iPhone 3G? The multiple choice, I'm going to give the options before you answer, Mark. Is it A, 10 million? B, 2 million? C, 4 million? Or D, 6 million? 00:51:38 Speaker 1: For context, Apple sells about 90 million iPhones each holiday quarter now. Okay, so for the past few years, 90 million per quarter. And our options were 2 million, 10 million. And what were the other ones? 4? 2, 4, 6, or 10. Okay, Alexis, credit to you. These are really good. I'm not sure. These are good. These are good. 00:51:59 Speaker 2: All right, Vlad, you first. 00:52:01 Speaker 1: I'm going to go with 6 million. 00:52:04 Speaker 3: Okay, Mark? 00:52:05 Speaker 2: Okay. So let's break this down. They sold 1 million in, I believe, 73 days. 00:52:11 Speaker 1: Okay. 00:52:13 Speaker 2: So it's not 1 million because the second generation iPhone came out July 11th, 2008. So about 13 months or 12 and a half months after the first one. It wasn't 10 million because 10 million was their goal for sales after. Through 2008. And so it's either $ 4 million or $ 6 million. And so I would take a 50-50 if this was who wants to be a millionaire. I'm going to guess $ 6 million, go Vlad. 00:52:43 Speaker 3: You're both correct. Ding, ding, ding. And I will say, Mark, my bonus question was going to be how many days did it take them to sell $ 1 million? 00:52:51 Speaker 2: Was it 73? 00:52:52 Speaker 3: You're very close. 00:52:54 Speaker 2: Oh, what is it? 00:52:56 Speaker 3: Do you want to do one more guess? 74. 00:52:57 Speaker 2: 74. 74. 00:52:58 Speaker 3: Wow. Close enough. Do you know what that date was? 00:53:03 Speaker 2: June 29th plus 74. I don't know. So that would take you into September. 00:53:09 Speaker 1: About the day we're recording this? Yes. No. 00:53:12 Speaker 3: Exactly. March or November. It's September 10th, 2007. September 10th, 2007. Which is right around the. 00:53:19 Speaker 2: Time they held the Apple event to introduce... The iPhone price cut, they went from $ 599 to $ 399 on the 8GB model. That upset a lot of people. They introduced the new iPod Touch, the new Nanos, all those that day. So that was a big milestone for them. I remember they really wanted to showcase that 1 million number at that launch event. Another great episode. If you guys have any other questions for a future episode, shout out us at poweron at bloomberg.net. That whole Siri section, came about because we got so many questions about Siri AI and the future of Siri. So I hope we were able to answer a lot of those questions you guys had. And just as an FYI, if you're looking for our YouTube videos of this podcast, you'll be able to see them on Fridays. And we're also working hard to get the videos within the Apple Podcasts app. So stay tuned for that as well. 00:54:23 Speaker 3: For more from Mark, subscribe to the Power On newsletter at Bloomberg.com forward slash Power On and follow at Mark Gurman on all social platforms. Power On is a production of Bloomberg Podcasts. Our show is produced by Alexis Hott and Keshav Pandya. Our supervising producer is Magnus Henriksen. Audio engineering by Blake Maples. Original music is by Taka Yasuzawa and Alex Segura. Our video editor is Bobby Kraus. Our executive producer is Amy Keene. And Cheryl Brumley is our head of podcasts. Special thanks to Nick Turner and Tom Giles. Thank you for listening.