Stalking the Component Makers for the iPhone X

Stalking the Component Makers for the iPhone X

0
Stalking the Component Makers for the iPhone X

The culture of secrecy long cultivated by Steve Jobs, Apple’s co-founder and former CEO, has Wall Street jumping through hoops to figure out the next significant feature of the iPhone.

2017 is shaping up as a banner year for such speculation—with good reason. The iPhone produces the vast majority of the company’s revenue and profit. With the 10th anniversary of the iPhone’s debut just around the corner, Apple fans have even dubbed the next model iPhone X.

Apple (ticker: AAPL) posted strong results for the December quarter; iPhone sales, at 78.3 million, were several million above expectations. And though the forecast for the current quarter was merely humdrum, Apple’s shares moved to within striking distance of their all-time high of $134.54. That’s because all eyes are focused on the next big thing.

Normally circumspect vendors to Apple seem to practically gush at what they imply will be “yuge” contracts from the company and from competitors.

Lumentum Holdings (LITE), which sells lasers, last week held a chat with Wall Street analysts in which management described the brilliant outlook for something that is generally referred to as 3-D sensing. Lumentum’s chief executive, Alan Lowe, remarked that the company is working with multiple customers who are developing mobile phones, and that he “could imagine $100-million quarters” of revenue, and a market worth over a billion dollars, from the sensing products. He did not specify a time frame for these predictions.

Most analysts took that as confirmation that 3-D sensing will be the big new thing for iPhone, and that Lumentum will be one of the parties that will have a hand in that. Its shares rose 24% on the week.

IT IS POSSIBLE to get your hands on 3-D sensing today, so it’s also possible to guess a bit not just about the iPhone, but also the landscape of all the other mobile devices that will surely seek to match the iPhone. The first phone with 3-D sensing does not come from Apple but rather from PC giant Lenovo Group (0992.Hong Kong), which last fall started selling something with the ungainly name Phab 2 Pro. It is a gigantic and rather clunky phone, with a screen 6.4 inches on the diagonal. That’s big enough to make the already huge iPhone 7 Plus look positively dainty.

The Lenovo device draws from a rich history of 3-D sensing. It carries on the back of its metal frame a mark that reads Tango, the name of a series of innovations developed byAlphabet (GOOGL) and incorporated in the device in software through a partnership between Lenovo and Google.

Yes, Google has beaten Apple to the 3-D sensing market, as did Microsoft (MSFT) several years ago with its Kinect videogame controller. And Intel (INTC) has publicly demonstrated the technology for PCs. But only Apple owns the cellphone business, the device of our times.

THE LENOVO PHONE, using Tango technology, is able to perceive distance. It can tell how far the phone is from any number of objects around it—chairs, people, walls, your shoes. It does so by shooting a beam of infrared light from a laser, counting how long it takes for the light to return to the phone, and then calculating distance based on the speed of light. It’s analogous to bat sonar for your phone.

The examples of Tango in the Phab are prosaic and also somewhat poorly executed, but they give the flavor of what’s possible. With a piece of software available from the online home-furnishings retailer Wayfair (W), you can look at your living room through the phone’s camera and see pieces of furniture overlaid on the existing decor. By knowing the dimension of your room, the phone can place virtual couches in precise alignment, with scale and perspective that’s accurate.

That may sound dull, but the phone’s ability to sense spatial depth offers the opportunity for significant new capabilities. It means the phone can track your movement inside a building, unlike the traditional GPS satellite technology, which can’t find precise locations within structures.

It can also construct a three-dimensional floor plan of your home and everything in it, which can then be used by a contractor to plan your home renovation. And it can see faces in three dimensions, not just a flat picture of a face.

That could conceivably allow you to unlock your phone by looking at it. And the phone can perceive gestures, opening a world for you to command your phone without touching it, simply by having it read your hand movements.

Basically, the phone gains a much greater awareness of the world around it.

LASERS WILL BE A KEY PART, thanks to Lumentum, though analyst Mark Li of Bernstein Research says two other vendors have a hand in it— Finisar (FNSR) and II-VI (IIVI), a Pennsylvania-based optics outfit. And to receive the pulses of laser light coming back, a photodetector has to be built into the phone. That’s a role for Viavi Solutions (VIAV), which used to be part of the same company as Lumentum—JDS Uniphase—but was split off in 2015.

In addition, there is continual refinement of the required optics, and analysts have pointed to AMS (AMS.Switzerland), a German maker of parts. There also needs to be some special computing taking place to do the calculations of the infrared light’s “time of flight.” Infineon Technologies (IFX.Germany) has publicly said it is supplying the chip to Lenovo that does that.

Lenovo notwithstanding, Apple appears to have a major lead on the competition in 3-D sensing phones, according to Stifel Nicolaus analyst Patrick Newton, having bought a supplier of 3-D sensing technology, PrimeSense, in 2013.

Newton thinks Apple may use 3-D on the front of the iPhone to recognize users’ faces, for example. Whatever it does, Apple has to improve on the experience in a big way. The apps on the Lenovo Phab are primitive and flaky, and the phone burns through battery quickly when it uses 3-D. If Apple ships anything like this, it would be a disaster for the new iPhone.

The obsession with gauging the next big thing is what Wall Street does when it’s not wringing its hands about the sales trend for the iPhone. Without a doubt, it will be back to business as usual once the X phone is out there. But in the meantime, speculation is good for Apple shares, and reality could be very good for the suppliers mentioned.