Apple’s (AAPL) Next Invention Could Be in this Burgeoning Market

Steve Case weighs in on Apple’s innovation slow down ; pointing out key areas of the business the Cupertino tech company should focus on.

Apple Iphone

American entrepreneur and AOL co-founder Steve Case guested on CNBC’s “Squawk on the Street” to weigh in on Apple Inc‘s (NASDAQ:AAPL) innovation slow down, suggesting what booming industry the iPhone maker should focus next.

According to Case, Apple should shift its focus on the “next big category” of consumer technology as it struggles to keep up with other market leaders in the smartphone segment. He says that Apple should develop a health devices category, noting that health is “ripe for innovation.” Case pointed out that Apple’s shift to other categories makes sense because the smartphone industry has gone a long way.

“The innovation that happens in the early phase of things, whether it be the phone or the personal computer, even half a century ago, things like the car  the first few years there’s a lot of innovation, ” Case said. “After a while, the pace of innovation slows a little bit.”

As for the uncharacteristically quiet launching of the iPhone 7, Case noted that the lack of enthusiasm for Apple’s newest flagship smartphone is primarily due to people taking smartphone tech for granted.

“It’s an event but less of an event than it was five years ago and that’s a natural iteration and evolution of these markets,” he explained. “Technology starts as something that people are fascinated by. Over time, it’s something people take for granted.”

After retiring as the CEO of AOL Time Warner in 2003, Case built his own venture capital firm, Revolution, and started investing in startups. He said Apple and other conglomerates should adopt a “strategy of vertical integration” as technology becomes ubiquitous in other industries.

“They kind of need to reboot their own strategies and drive more partnerships between the startups, tech companies, and these large companies and also drive more acquisitions as well,” Case said. “It was a several billion dollar acquisitions of something because [Apple] believed that it wasn’t just about the software, in that case, it was about the hardware – the new generation of headphones”

Case was referring to Apple’s $3 billion acquisition of headphone maker and music-streaming service provider Beats in 2014.

Meanwhile, iPhone sales are expected to decline compared to previous years. Apple’s newest iPhone also got a tepid response from analysts mostly due to the iPhone 7’s modest design changes.

Apple’s flagship smartphone has been unveiled, along with a new Apple Watch and Airpods, from its San Francisco event. Some of its major upgrades include dust and water resistance, A10 Fusion chip with a 64-bit four core CPU, dual-system camera lens, and a redesigned pressure-sensitive home button.

At $649, the iPhone 7 is surprisingly more expensive than its predecessor, the iPhone 6S, at least in the UK. Even more surprising, Apple’s stock ended Thursday’s trading session nearly 3 points lower at $105.52 a share despite the arrival of the new flagship device. In fact, the iPhone maker even picked up a downgrade from Wells Fargo’s Maynard Um, who downgraded the name to ‘Market perform’ from ‘Outperform’, saying he cut his rating because the iPhone 7 launch is already priced into the stock. Um, who is in the top 5 percent of all Wall Street analysts covering any industry, also lowered AAPL’s valuation range estimate from $115 – $125 to $105 – $120, noting the equity will remain range-bound in the near term.

Apple shares closed lower by $2.39, or 2.26%, to $103.13 in Friday trading.

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