Weekly Issue: Key Developments at Apple (AAPL) and AT&T (T)

Weekly Issue: Key Developments at Apple (AAPL) and AT&T (T)

Key points inside this issue:

  •  Apple’s 2019 iPhone event – more meh than wow
  •  GameStop – It’s only going to get worse
  •  Elliot Management gets active in AT&T, but its prefers Verizon?
  •  California approves a bill that changes how contract workers are treated
  • Volkswagen set to disrupt the electric vehicle market

I’m going to deviate from the usual format we’ve been using here at Tematica Investing this week to focus on some of what’s happening with Select List residents Apple (AAPL) and AT&T (T) this week as well as one or two other things. The reason is the developments at both companies have a few layers to them, and I wanted to take the space to discuss them in greater detail. Don’t worry, we’ll be back to our standard format next week and I should be sharing some thoughts on Farfetch (FTCH), which sits at the crossroads of our Living the Life, Middle Class Squeeze and Digital Lifestyle investing themes, and another company I’ve been scrutinizing with our thematic lens. 

 

Apple’s 2019 iPhone event – more meh than wow

Yesterday, Apple (AAPL) held its now annual iPhone-centric event, at which it unveiled its newest smartphone model as well as other “new”, or more to the point, upgraded hardware. In that regard, Apple did not disappoint, but the bottom line is the company delivered on expectations serving up new models of the iPhone, Apple Watch and iPad, but with only incremental technical advancements. 

Was there anything that is likely to make the average users, not the early adopter, upgrade today because they simply have to “have it”? 

Not in my view. 

What Apple did do with these latest devices and price cuts on older models that it will keep in play was round out price points in its active device portfolio. To me, that says CEO Tim Cook and his team got the message following the introduction of the iPhone XS and iPhone XS Max last year, each of which sported price tags of over $1,000. This year, a consumer can scoop up an iPhone 8 for as low as $499 or pay more than $1,000 for the new iPhone 11 Pro that sports a new camera system and some other incremental whizbangs. The same goes with Apple Watch – while Apple debuted a new Series 5 model yesterday, it is keeping the Series 3 in the lineup and dropped its price point to $199. That has the potential to wreak havoc on fitness trackers and other smartwatch businesses at companies like Garmin (GRMN) and Fitbit (FIT)

Before moving on, I will point out the expanded product price points could make judging Apple’s product mix revenue from quarter to quarter more of a challenge, especially since Apple is now sharing information on these devices in a more limited fashion. This could mean Apple has a greater chance of surprising on revenue, both to the upside as well as the downside. Despite Apple’s progress in growing its Services business, as well its other non-iPhone businesses, iPhone still accounted for 48% of June 2019 quarterly revenue. 

Those weren’t the only two companies to feel the pinch of the Apple event. Another was Netflix (NFLX) as Apple joined Select List resident Walt Disney (DIS) in undercutting Netflix’s monthly subscription rate. In case you missed it, Disney’s starter package for its video streaming service came in at $6.99 per month. Apple undercut that with a $4.99 a month price point for its forthcoming AppleTV+ service, plus one year free with a new device purchase. To be fair, out of the gate Apple’s content library will be rather thin in comparison to Disney and Netflix, but it does have the balance sheet to grow its library in the coming quarters. 

Apple also announced that its game subscription service, Apple Arcade, will launch on September 19 with a $4.99 per month price point. Others, such as Microsoft (MSFT) and Alphabet (GOOGL) are targeting game subscription services as well, but with Apple’s install base of devices and the adoption of mobile gaming, Apple Arcade could surprise to the upside. 

To me, the combination of Apple Arcade and these other game services are another nail in the coffin for GameStop (GME)

 

GameStop – It’s only going to get worse

I’ve been bearish on GameStop (GME) for some time, but even I didn’t think it could get this ugly, this fast. After the close last night, GameStop reported its latest quarter results that saw EPS miss expectations by $0.10 per share, a miss on revenues, guidance on its outlook below consensus, and a cut to its same-store comps guidance. The company also shared the core tenets of a new strategic plan. 

Nearly all of its speaks for itself except for the strategic plan. Those key tenets are:

  • Optimize the core business by improving efficiency and effectiveness across the organization, including cost restructuring, inventory management optimization, adding and growing high margin product categories, and rationalizing the global store base. 
  • Create the social and cultural hub of gaming across the GameStop platform by testing and improving existing core assets including the store experience, knowledgeable associates and the PowerUp Rewards loyalty program. 
  • Build digital capabilities, including the recent relaunch of GameStop.com.
  •  Transform vendor and partner relationships to unlock additional high-margin revenue streams and optimize the lifetime value of every customer.

Granted, this is a cursory review, but based on what I’ve seen I am utterly unconvinced that GameStop can turn this boat around. The company faces headwinds associated with our Digital Lifestyle investing theme that are only going to grow stronger as gaming services from Apple, Microsoft and Alphabet come to market and offer the ability to game anywhere, anytime. To me, it’s very much like the slow sinking ship that was Barnes & Noble (BKS) that tried several different strategies to bail water out. 

Did GameStop have its time in the sun? Sure it did, but so did Blockbuster Video and we all know how that ended. Odds are it will be Game Over for GameStop before too long.

Getting back to Apple, now we wait for September 20 when all the new iPhone models begin shipping. Wall Street get your spreadsheets ready!

 

Elliot Management gets active in AT&T, but its prefers Verizon?

Earlier this week, we learned that activist investor Elliot Management Corp. took a position in AT&T (T). At $3.2 billion, we can safely say it is a large position. Following that investment, Elliot sent a 24-page letter telling AT&T that it needed to change to bolster its share price. Elliot’s price target for T shares? $60. I’ll come back to that in a bit. 

Soon thereafter, many media outlets from The New York Times to The Wall Street Journal ran articles covering that 24-page letter, which at one point suggested AT&T be more like Verizon (VZ) and focus on building out its 5G network and cut costs. While I agree with Elliot that those should be focus points for AT&T, and that AT&T should benefit from its spectrum holdings as well as being the provider of the federally backed FirstNet communications system for emergency responders, I disagree with its criticism of the company’s media play. 

Plain and simple, people vote with their feet for quality content. We’ve seen this at the movie box office, TV ratings, and at streaming services like Netflix (NFLX) when it debuted House of Cards or Stranger Things, and Hulu with the Handmaiden’s Tale. I’ve long since argued that AT&T has taken a page out of others’ playbook and sought to surround its mobile business with content, and yes that mobile business is increasingly the platform of choice for consuming streaming video content. By effectively forming a proprietary content moat around its business, the company can shore up its competitive position and expand its business offering rather than having its mobile service compete largely on price. And this isn’t a new strategy – we saw Comcast (CMCSA) do it rather well when it swallowed NBC Universal to take on Walt Disney and others. 

Let’s also remember that following the acquisiton of Time Warner, AT&T is poised to follow Walt Disney, Apple and others into the streaming video service market next year. Unlike Apple, AT&T’s Warner Media brings a rich and growing content library but similar to Apple, AT&T has an existing service to which it can bundle its streaming service. AT&T may be arriving later to the party than Apple and Disney, but its effort should not be underestimated, nor should the impact of that business on how investors will come to think about valuing T shares. The recent valuation shift in Disney thanks to Disney+ is a great example and odds are we will see something similar at Apple before too long with Apple Arcade and AppleTV+. These changes will help inform us as to how that AT&T re-think could play out as it comes to straddle the line between being a Digital Infrastructure and Digital Lifestyle company.

Yes Verizon may have a leg up on AT&T when it comes to the current state of its 5G network, but as we heard from specialty contractor Dycom Industries (DY), it is seeing a significant uptick in 5G related construction and its top two customers are AT& T (23% of first half 2019 revenue) followed by Verizon (22%). But when these two companies along with Sprint (S), T-Mobile USA (TMUS) and other players have their 5G network buildout competed, how will Verizon ward off subscriber poachers that are offering compelling monthly rates? 

And for what it’s worth, I’m sure Elliot Management is loving the current dividend yield had with T shares. Granted its $60 price target implies a yield more like 3.4%, but I’d be happy to get that yield if it means a 60% pop in T shares. 

 

California approves a bill that changes how contract workers are treated

California has long been a trend setter, but if you’re an investor in Uber (UBER) or Lyft (LYFT) — two companies riding our Disruptive Innovators theme — that latest bout of trend setting could become a problem. Yesterday, California lawmakers have approved Assembly Bill 5, a bill that requires companies like Uber, Lyft and DoorDash to treat contract workers as employees. 

This is one of those times that our thematic lens is being tilted a tad to focus on a regulatory change that will entitle gig workers to protections like a minimum wage and unemployment benefits, which will drive costs at the companies higher. It’s being estimated that on-demand companies like Uber and the delivery service DoorDash will see their costs rise 20%-30% when they rely on employees rather than contractors. For Uber and Lyft, that likely means pushing out their respective timetables to profitability.

We’ll have to see if other states follow California’s lead and adopt a similar change. A coalition of labor groups is pushing similar legislation in New York, and bills in Washington State and Oregon could see renewed momentum. The more states that do, the larger the profit revisions to the downside to be had. 

 

Volkswagen set to disrupt the electric vehicle market

It was recently reported that Volkswagen (VWAGY) has hit a new milestone in reducing battery costs for its electric vehicles, as it now pays less than $100 per KWh for its batteries. Given the battery pack is the most expensive part of an electric vehicle, this has been thought to be a tipping point for mass adoption of electric vehicles. 

Soon after that report, Volkswagen rolled out the final version of its first affordable long-range electric car, the ID.3, at the 2019 Frankfurt Motor Show and is expected to be available in mid-2020.  By affordable, Volkswagen means “under €30,000” (about $33,180, currently) and the ID.3 will come in three variants that offer between roughly 205 and 340 miles of range. 

By all accounts, the ID.3 will be a vehicle to watch as it is the first one being built on the company’s new modular all-electric platform that is expected to be the basis for dozens more cars and SUVs in the coming years as Volkswagen Group’s pushed hard into electric vehicles. 

Many, including myself, have been waiting for the competitive landscape in the electric vehicle market to heat up considerably – it’s no secret that all the major auto OEMs are targeting the market. Between this fall in battery cost and the price point for Volkswagen’s ID.3, it appears that the change in the landscape is finally approaching and it’s likely to bring more competitive pressures for Clean Living company and Cleaner  Living Index constituent Tesla (TSLA)

 

One more step to leaving the physical wallet behind with iOS 13 

One more step to leaving the physical wallet behind with iOS 13 

It’s long been thought that you leave home with four things – keys, money, wallet and your phone. Over time that thought process has shifted due to digital locks and payment systems to just your wallet and phone. We here at Tematica have been wondering for some time when personal identification, be it an identity card, drivers license, or passport, would become digitized and stored on our smartphone.

It would seem that day is finally approaching, but as with other forays into our Digital Lifestyle investing theme, we will likely see an added identify management tailwind for our Safety & Security theme as well

The Federal Ministry of the Interior has announced that it will be possible to scan German ID cards with an iPhone running iOS 13.

This follows earlier news that iPhones will be able to scan the NFC chips in Japanese ID cards and British passports

Apple originally locked the NFC reader in iPhones so that it only supported the data format for contactless payment cards, limiting use to Apple Pay. With iOS 13, Apple is removing that restriction, so that iPhones fitted with the chip will have the technical ability to read any NFC chip.

Apple still needs to approve apps on a case-by-case basis, but the existing precedents mean we can expect it to approve all official government apps for passports and ID cards. Any country that wants to be able to offer this capability to its citizens will be able to do so.

Macerkopf reported the news from Germany, noting that this will make it easier for German citizens to verify their identity online, as well as using the virtual card at airports.

Source: You can scan German ID cards in iOS 13; more countries likely 9to5Mac

Verizon’s 5G in 30 US cities by end of 2019

Verizon’s 5G in 30 US cities by end of 2019

As we enter Mobile World Congress 2019, arguably the mobile event of the year, 5G network and device launch details are coming into greater focus. Verizon is taking the early lead in the US staking out 5G to 30 cities in the US by the end of 2019. Of course, 30 cities is hardly national coverage, which means a continued deployment for this aspect of our Digital Infrastructure investing theme well into 2020 at least for the US if not into 2021. Factor in the competitive response from AT&T and the soon to be combined T-Mobile USA and Sprint, and it means the likely tipping point for 5G is looking increasingly like the second half of 2020. From an iPhone perspective, even though Samsung and Motorola have announced they will have devices ready by mid-2019,  this 5G network timetable means we should not be expecting any 5G news from Apple this year, but rather its annual iPhone event in September-October of 2020.

Verizon on Thursday said it’s working on deploying 5G to some extent in 30 U.S. cities by the end of 2019, another hint that the technology won’t appear in iPhones until 2020.

The first parts of Verizon’s 5G network should be up by mid-2019 though, since the carrier is the exclusive launch partner for the Samsung Galaxy S10 5G.

AT&T and T-Mobile are also working on 5G deployments. Neither carrier is expected to get very far by the end of 2019 however, owing to partly to lags in equipment. There are also relatively few 5G-ready devices on the market, offering little incentive to speed up.

Multiple reports have pointed to Apple waiting until 2020 to ship 5G-capable iPhones. The company’s preferred modem maker, Intel, is unlikely to have a 5G chip ready until that timeframe.

Source: Verizon says 5G coming to 30 US cities by end of 2019

New touch-integrated OLED screens could make 2019 iPhones thinner, lighter and cheaper

New touch-integrated OLED screens could make 2019 iPhones thinner, lighter and cheaper

We’ve long said that pain points tend to give way to solutions and that is potentially proving out in the smartphone market that has been grappling with the transition to organic light emitting diode displays, which has popped smartphone average selling prices. Given price-demand concerns for new iPhones and other smartphone models utilizing OLED displays, we’re hearing about another innovation being developed that should reduce the cost burden as well as enable thinner and lighter models in the coming quarters. Disrupting the disruptor as it were.

For Apple, this could be a very welcome solution that jumpstarts its iPhone business either ahead of or in tandem with the debut of 5G iPhone models. The question we’re pondering is how Apple, Samsung, and others will balance ASPs for smartphones using this potentially cheaper solution vs. margins on those devices?

 

A supply-chain report says that Apple will be using a new form of screen technology to make at least one of its 2019 iPhone models thinner and lighter — a trend Apple has bucked with recent flagship versions.

The report says that Apple has decided to use touch-integrated flexible OLED panels, which have a different construction to current iPhone screens …

Current screens use a separate touch-sensitive layer sitting on top of the display itself. By integrating touch-sensitivity into the OLED screen, it will allow devices to be somewhat thinner and lighter.

The report claims that the technology should be ready for use next year, but says that initial supplies will be constrained, suggesting that the new screens might be used only in next year’s highest-end model. However, as the tech is expected to be cheaper than a separate touch-sensitive layer, it is likely to be rolled out into all models as capacity increases in future years.

Source: Apple reported to use new touch-integrated OLED screens to make 2019 iPhone thinner and lighter – 9to5Mac

The Tematica take on Apple’s September quarter results

The Tematica take on Apple’s September quarter results

Key points inside this issue:

  • Our price target on Apple (AAPL) shares remains $250.

Our shares of Apple (AAPL), which sit on Tematica’s Select List as part of our Digital Lifestyle investing theme, traded off today following last night’s September quarter earnings report and Wall Street’s reception. While Apple surprised on the upside for both September quarter revenue and EPS, the company not only issued its characteristically conservative guidance but also revealed that as of this quarter it will no longer no longer be providing unit sales data for iPhone, iPad, and Mac. In the September quarter, the all-important iPhone business saw units flat year over year, but revenue climb 29% due entirely to the improved average selling price associated with newer models.

Despite double-digit growth at Apple’s Services business to roughly $10 billion (16% of sales) and more than 30% year over year growth at its Other Products (7% of sales), that reporting decision raised questions and reignited bearish concerns over the health of the smartphone market, particularly for newer, higher priced models as well as the iPad, which saw its units fall 6% year over year. Going forward Apple will also report gross profit and margins for its products and services business as well as rename its Other category to Wearables, Home and Accessories.

What we suspect is Apple is attempting to do is get investors to focus on the combined business model of its devise and services, which to us reflects increasingly how consumers are using them. Much like the razor and razor blade business, people buy the iPhone, iPad or Mac and chew through content delivered through Apple’s digital content offerings that range from iTunes to Apple Music as well as recently acquired Texture. We see this move in line with the expected launch of Appel’s proprietary streaming video content that in our view will only help makes those devices even stickier with users.

Clearly, the combination of soft guidance paired with this reporting change is what is spooking the shares as it paints the picture that Apple has something to hide. That led several Wall Street firms, including Bank of America Merrill Lynch to downgrade Apple shares to Neutral from Buy and cut its price target to $220.

Understandable, but in my view, it misses the notion that Apple is increasingly becoming a device and services company. This fits with Apple opting to break out the gross profit and gross margin performance of the two businesses going forward. From my perspective, Apple has just completed updating its product line, including the more affordable iPhone XR, which bodes well for the replacement demand among the faithful Apple install base. On net, higher ASPs will drive revenue and profits while Apple continues to flex its balance sheet, repurchasing shares and paying dividends.

The bottom line is I continue to see Apple as a key player in the increasingly digital lifestyle, and while we wait for the upcoming 5G upgrade cycle. Given our $165-ish cost basis, odds are we won’t have a chance to scale into the position at better prices; hopefully, that will be the case but if we do, I’ll be opportunistic.

  • Our price target on Apple (AAPL) shares remains $250.

 

 

Building on the Thematic Leaders with a call position in this Disruptive Innovator company

Building on the Thematic Leaders with a call position in this Disruptive Innovator company

Key points inside this issue:

In yesterday’s Tematica Investing, after recasting our investment themes over the last several weeks I unveiled the 11 Thematic Leaders, which are the best positioned thematic companies offering favorable risk-vs.-reward when it comes to their stock prices. To quickly recap, that’s one for each of our 10 investment themes with the 11thbeing Amazon (AMNZ), which has the greatest number of investment themes pushing on its businesses.

We’ve taken advantage of that building out process with our recent win with Costco Wholesale (COST) calls that garnered us a 56% return on the first slug we sold and more than 200% when we closed out the rest of the position. Unfortunately, the recent back and forth in the market following the news that President Trump would levy another round of tariffs on China led to our being stopped out of the second Costco Wholesale position that was the COST January 2019 250 calls as well as the Chipotle Mexican Grill (CMG) January 2019 500 calls. While we lost roughly 32% on that second Costco position, we eked out a very modest gain on the Chipotle ones.

We still have our new addition from last week, the Altria (MO) January 2019 65.00 (MO190118C00065000) calls which closed last night at 1.46, down from our 1.55 buy-in price last week. Over the coming weeks, we’ll primarily be cherry picking the Thematic Leaders for call option positions when appropriate. In the case that a potential call option position lacks sufficient trading volume, I’ll make a related thematic recommendation.

 

Adding a new call position in Universal Display

Just over a week ago, Apple (AAPL) held its Fall 2018 introduction of three new iPhones – the iPhone XS, iPhone XSMax and iPhone XR – and the latest Apple Watch. Two of those new iPhone models – the iPhone XS and iPhone XSMax – are employing organic light emitting diode displays as is the Apple Watch 4.  If we think back to last year, one of the reasons for Apple only incorporating organic light emitting diode display technology into the iPhone X was the industry shortage, which has been alleviated over the last few quarters as companies like Samsung and LG Display ramped their manufacturing capacity, something that helped boost the display manufacturing equipment at Applied Materials (AMAT).

Both Samsung and LG Display have been named as display suppliers for these new Apple products, and both Samsung and LG Display are customers as well as IP licensees with Universal Display (OLED). Early reviews for all three of these products have been favorable and initial orders for certain models are being reported at stock outs. Hardly a surprise when it comes to Apple, but in the coming weeks, it will boost production as it brings these devices to various geographic markets around the world.

Here’s the thing, there is more to the organic light emitting diode display story in the near-term that just Apple. In just a few weeks, on Oct. 9th, Google (GOOGL) will unveil its latest Pixel 3 smartphone, which is also expected to have that technology. In addition to smartphone models, the ZTE Axon 9 Pro, and Sony Xperia XZ23 will soon hit the market joining recent ones from Huawei, Samsung, Asus and Xiaomi – and they all will have some form of organic light emitting diode display.

We are also seeing more introductions of the technology into the TV market, with products from LG, Sony, Toshiba and Philips either having already launched in some markets or poised to be launched in the coming months. We are also starting to see the technology crack the automotive market, granted at the very high end. In early September, Bugatti announced that it will include the technology in its tail lights for its new Divo “hypercar.” A nice win for sure, but it will take some time for the technology to filter downstream the way technology tends to do in the automotive market.

The bottom line is we are starting to see the uptake in organic light emitting technology that was talked about earlier this year. It’s very positive for our Universal Display (OLED) shares, and that sets the company up for what is likely to be a very positive September quarter earnings report. We will leverage that likelihood by adding the Universal Display (OLED) January 2019 130.00 calls (OLED190118C00130000)that closed last night at 8.60 to our holdings. That time horizon allows for a full quarter’s impact of the new iPhone models as well as others, which happens to include the holiday shopping season. Given the time frame, we will set a wider than usual berth for our stop loss, which we will set at 4.00. As the underlying OLED shares move higher, propelling the OLED calls upward, I’ll look to prudently boost that stop loss.

Mobile gaming poised to eclipse desktop gaming

Mobile gaming poised to eclipse desktop gaming

It’s rather easy to recognize the growing influence that gaming (and by that we mean video games) is having on our culture from entertainment, sports, and a few other vantage points. With networked and multi-player gaming, we are seeing gaming chip away at more traditional forms of content consumption, with certain titles giving way to films, and the rise of competitive gaming teams.

Here at Tematica, we are always looking at inflection points, and it appears that mobile is poised to hit a tipping point when it comes to gaming as it surpasses desktop play in the coming years. Given the capabilities of the just-announced iPhone XS and XSMax, and the A12 Bionic chip they have, as well as several aspects of our Disruptive Innovators theme, like Augmented Reality, we could very well see this tipping point emerge sooner than forecasted.

 

The global mobile gaming market could grow from $56 billion in revenue in 2017 to $106.4 billion in 2021, according to a recent report by Newzoo and Arm. That would represent 59 percent of the entire video game market by 2021, compared with 46 percent last year.

With 577.9 million mobile gamers, China is the largest mobile gaming market in the world. But the growth of China’s gaming market could be throttled by tighter regulations over game approvals and play time limits for minors

Source: Mobile gaming revenue could top $100 billion globally by 2021

Apple Pay now at Costco 

Apple Pay now at Costco 

The chicken or the egg problem that has been facing mobile payment adoption in the US continues to ease with Costco Wholesale joining the ranks of 7-11 and CVS Health to accept Apple Pay. It’s all about reducing transaction friction but I’d also add it’s a relief for someone like me that sometimes forgets his wallet, but not his iPhone. With Consumer Reports recently crowning Apple Pay the winner in a head to head showdown of mobile peer-to-peer payment platforms, beating out the likes of Venmo and Square, and greater retail acceptance we are likely to see greater usage in the coming quarters- a positive for Apple’s growing Services business.

 

Costco has announced that it now accepts Apple Pay at all of its US warehouse stores, and says that the payment method will be coming soon to its gas stations …

The company told CNET that contactless terminals have been installed at both store checkouts and gas stations, but the latter are not yet in use.

Costco was a notable Apple Pay holdout after 7-11 and CVS finally announced their own rollouts last month.

.A recent analyst report suggested that Apple Pay now has more than 250M users worldwide, led by international adoption. Use of the service for online payments is lagging significantly behind offline use, though a recent survey suggested that demand is there.

Source: Apple Pay now accepted at all US Costco warehouses, coming soon to gas stations | 9to5Mac

iPhone to be proof of identity and replace passports?

iPhone to be proof of identity and replace passports?

We’ve all heard about and even longed or the day when we would no longer have to carry one’s money, credit cards, keys, and identification. Mobile payments like Apple Pay and aspects of the Connected Home have helped ease the burden on our pockets and bags, but identification has been the more elusive category. It seems, however, that Apple is looking to address that using the iPhone as a form of identification. Odds are Apple would first test such authentification on its own campus, but the possibility of replacing drivers licenses, passports and other forms of identification with the iPhone, even if mixed with another form of biometric security, is an intriguing idea. It’s also one more way Apple would make its already sticky products and services even more so with its growing user base. For investors and Apple shares, it would move them even deeper into our Safety & Security investing theme.

 

In future identification challenges, the device will be asked for the credentials by the authority, triggering the device to perform an authentication check with the user. While this could be as simple as entering a password, there is also a version that uses biometric security for the device-based authentication.

In either case, successful authentication on the device would hand over data to the requesting party. The patent application also cites the growing use of e-Passports, which includes a chip that stores an assortment of data about a user, including their name and date of birth, which can be used by customs officials to determine the user is who they say they are. Apple suggests the described system could potentially hand over a passport number or other similar data, to perform the same check.

While in most cases the patent application suggests the use of not-yet-produced hardware, in this case the components are already in place, in the form of the iPhone. It already has radio-based communications with NFC, an encrypted secure enclave that holds fingerprint and facial map data for Touch ID and Face ID respectively, and biometric-based authentication systems.

Such a system could be used by private companies, for example in authenticating employees entering a facility, but while the suggestion for the passport number is plausible, legislation becomes the stumbling block.

Source: Apple wants iPhone to be proof of identity and replace passports

A new digital key standard could finally put your car key inside your iPhone

A new digital key standard could finally put your car key inside your iPhone

We as a people have been carrying many things in our pockets when we leave the house – first keys and wallet then keys, wallet and phone. As part of our Cashless Consumption investment theme we have seen mobile wallets begin to proliferate as well as apps like Apple Pay and PayPal that likely mean at some point we won’t have to carry our physical wallets – if only someone can figure out a digital driver’s license.

Before too long it seems we may be able to ditch the car keys as well, which will naturally be incorporated into our smartphones. We’ve already seen smartphone apps that unlock and lock doors as well as garage doors, which to us means car doors are inevitable. Of course, as this happens it also means another avenue of potential theft that will be a part of our Safety & Security investing theme.

The Car Connectivity Consortium, which counts Apple among its charter members, on Wednesday announced the publication of new “digital key” standard that allows drivers to actuate vehicle systems like door locks and the engine via an NFC-enabled smartphone.

With its technology, aptly dubbed the Digital Key Release 1.0 specification, the CCC aims to bringautomotive manufacturers and mobile device makers together to create an interoperable digital key standard.

The system operates in much the same way as first-party digital keys currently available from a handful of vehicle OEMs. Users with authenticated smart devices are able to lock, unlock, start the engine of and share access to a specific car. Unlike some remote control solutions that leverage Wi-Fi or Bluetooth communications, however, Release 1.0 appears intrinsically tied to short-range technology like NFC.

Relying on existing Trusted Service Manager (TSM) infrastructure, Release 1.0 allows carmakers to securely transfer digital key information to a smart device like a smartphone, perfect for car-sharing or fleet deployments. Specialized hardware like near-field communications chips and internal secure elements provide a high level of user protection.

According to a white paper outlining the technology’s architecture, Release 1.0 looks to create standardized interfaces between a car, a smart device’s NFC and Bluetooth Low Energy stack, secure element, first-party app, TSM, OEM backend and SE provider. OEMs are responsible for proprietary interfaces between their respective backends and the car.

As noted by the group, which focuses on developing mobile device-to-vehicle connectivity solutions, a number of carmakers already field proprietary digital key solutions, though the market is fragmented. A single unifying standard would not only enhance the customer experience, but provide manufacturers access to the latest security protocols and technological advancements, the CCC argues.

CCC charter member Audi is already using digital key technology in its vehicles, while Volkswagen, another charter member, said it plans to integrate the technology soon. Alongside Audi and Volkswagen, Apple, BMW, General Motors, Hyundai, LG Electronics, Panasonic and Samsung are listed charter members of the organization, while core members include ALPS, Continental Automotive, DENSO, Gemalto, NXP and Qualcomm.

The CCC says it is already working on a Digital Key Release 2.0 that should be completed by the first quarter of 2019. The second-generation technology will provide a standardized authentication protocol between the vehicle and a paired smart device, and will be fully with interoperability between difference smartphones and cars.

Source: Apple wants to replace your car keys with an iPhone