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Apple Seen Seeding Future Wearable Products in IPhone

Sept. 16 (Bloomberg) -- Bloomberg Editor-At-Large Cory Johnson examines the changing landscape of the smartphone market as wireless carriers reveal their prices and deals for the new iPhones. He speaks on Bloomberg Television's "Bloomberg Surveillance."

Apple Inc. (AAPL)’s new high-end iPhone gives a glimpse of future products that may be in store from the world’s most-valuable company.

A new motion-sensor chip inside the iPhone 5s lays the groundwork for wearable-computing products, while a fingerprint sensor opens more opportunities to make the smartphone a tool for making purchases at stores, according to technology analysts who study Apple. Another new processor chip in the device may give the company the chance to switch its Mac computers away from Intel Corp. (INTC) chips.

“These are important first steps that Apple is taking,” Tim Bajarin, an analyst with research firm Creative Strategies Inc., said in an interview.

Since Apple unveiled two iPhones on Sept. 10, investors and analysts have been looking for clues about future gadgets and services from the Cupertino, California-based company. The scrutiny is amplified because Apple hasn’t entered a new product category since the iPad’s 2010 debut, and the release of a watch-like wearable computer or fresh payments platform would clear the way to added revenue streams.

Of the two handsets that Apple introduced last week, the iPhone 5s is the higher-end one, starting at $199 with a wireless contract. The less-expensive iPhone 5c, which starts at $99 with a contract and was available for preorder on Sept. 13, doesn’t include the motion chip, fingerprint reader or 64-bit processor that are found in the 5s.

Photographer: David Paul Morris/Bloomberg

The new Apple Inc. iPhone 5S sit on display during a product announcement in Cupertino, California. Close

The new Apple Inc. iPhone 5S sit on display during a product announcement in Cupertino, California.

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Photographer: David Paul Morris/Bloomberg

The new Apple Inc. iPhone 5S sit on display during a product announcement in Cupertino, California.

Earlier Steps

Even before the new iPhones were unveiled, Apple has taken steps toward wearable devices. The company has been seeking trademarks for the name iWatch in countries including Japan. Apple also has a team of about 100 product designers and engineers working on a wristwatch-like device, two people familiar with the company’s plans have said.

Tom Neumayr, a spokesman for Apple, declined to comment.

Apple’s entry into new markets may upend the nascent mobile-payments and wearable-computing businesses. Nike Inc. (NKE), Fitbit Inc. and Jawbone have introduced wristband health-tracking devices, while Square Inc. and EBay Inc. (EBAY)’s PayPal have been developing payment networks for phones.

At the event introducing the iPhone 5s, Apple highlighted the new M7 chip for health and fitness applications. The chip, which is less battery-hungry than the handset’s other main processors, tracks movement through an accelerometer, gyroscope and compass, said Apple’s marketing chief Phil Schiller. It works in parallel to the other processors that power graphics and other core functions of the handset.

Photographer: David Paul Morris/Bloomberg

Philip Schiller, senior vice president of worldwide marketing at Apple Inc., introduces a new iPhone 5S during a product announcement in Cupertino, California on Sept. 10, 2013. Close

Philip Schiller, senior vice president of worldwide marketing at Apple Inc., introduces... Read More

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Photographer: David Paul Morris/Bloomberg

Philip Schiller, senior vice president of worldwide marketing at Apple Inc., introduces a new iPhone 5S during a product announcement in Cupertino, California on Sept. 10, 2013.

Health Uses

While the technology is initially intended to improve iPhone fitness applications, the chip will probably be incorporated into a new iWatch-like device from Apple, said Sarah Rotman Epps, an analyst with Forrest Research who has studied trends in wearable computing. It can crunch data being generated by the wearable device, she said.

“Whether Apple launches an iWatch or another type of wearable device, the new chip will make that device much more powerful and make the experience of using it more seamless,” she said.

Apple is also allowing developers to build on top of the motion-focused chip. Nike’s Move application uses the technology to measure a person’s daily activity. Other fitness applications will be forthcoming.

“The challenging thing for doing all-day activity apps on phones is the battery life,” said Sampo Karjalainen, the maker of Moves, a pedometer iPhone app. The new chip “is optimized to listen to data and use as little battery as possible,” he said.

Secure Payments

In payments, the iPhone 5s’s fingerprint sensor is ideal for the security needed when making a purchase, said Greg Sterling, an analyst at market-research firm Opus Research. Apple has more than 435 million credit-card numbers on file through iTunes, which could be leveraged for a system in which an iPhone could be used as a new digital credit card, he said.

“There’s a wide range of possibilities for Apple around payments,” Sterling said. “Because they have so many credit cards on file, that’s a ripe fruit waiting to be picked.”

The fingerprint technology is initially being used to confirm the purchase of a song or movie through iTunes, or an application from Apple’s App Store.

The technology isn’t currently available to outside developers. If Apple were to unlock it, a slew of new business-focused applications will be built, said Carl Howe, an analyst at the Yankee Group. Businesses anxious about security will see the technology as a way to protect their data because employees would need to enter their fingerprint to access company files, he said.

“With one move, Apple may become the favorite phone of IT departments because of the fingerprint authentication,” he said.

Mac Chips

Another new chip that Apple announced last week, the A7, has a capability that up until now has been used in more powerful personal computers. By putting a 64-bit processor in a smartphone, Apple could be paving the way for a merging of its phone and computer operating systems, said Bajarin. That could spell bad news for Intel, which currently provides chips for Apple’s Mac line, Bajarin said.

“Even though it is only in the iPhone now, it clearly has potential to go into their tablets and even their PCs,” said Bajarin, who studies the semiconductor business. He added that the A7 chip can go into a future Apple television product for more powerful applications like video games.

Chuck Mulloy, a spokesman for Intel, declined to comment.

Apple has a history of seeding features in existing gadgets that grow into bigger products or services over time, said Sterling.

“Apple certainly recognizes that there is a broad range of possibilities with these technologies,” he said.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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