Of power lunch. Im tyler mathisen. And welcome back, tyler. Im melissa lee. Shares of apple moving lower right now as a big apple event gets underway. Its been a pretty lackluster year for the stock. As you know apple far underperforming the broader markets up by just about 2 in 2016. And apple shares are up just 8 since the company last introduced a new phone back in september of 2014. And im Brian Sullivan along with jon fortt, who will be here with us for the next two hours. We deliver all the breaking news, dig into everything apple and talk about where to put your money in tech right now. Weve also got a very special guest joining us in a bit, legendary z. Z. Top front man Billy Gibbons here. Very cool. But we begin, Kayla Tausche, she is live at the apple event in san fran where tim cook is expected to stage. Kayla, i think amazon may have jumped the gun a little bit here. Reporter oh, they did. And gizmoto was very quick to pick up on that fact. Amazon having a landing page for iphone 7 accessories from spec and many others and hasnt taken it down after many tech outlets including cnbc have reported on it. But that being said its probably as good as guaranteed at this point that what we will get at todays event will in fact be the iphone 7. Normally when you have the round number models, you have a generational shift in the things that the device can do. Thats not going to be the case this year. Apple will reportedly be shelving some of those really noticeable changes until next year when the iphone turns ten. But theres still going to be a lot of new bells and whistles to watch for. Heres whats been telegraphed so far about what the iphone 7 will carry. First, youre going to really have a noticeable difference in the fact that the headphone jack is expected to be missing. That is expected to make the phone thinner, perhaps you have a flat screen, a new home button. And perhaps even the device becomes waterproof. Then youre going to have a new dual lens camera, perhaps new colors for the devices. Remember last year they rolled out rose gold to much fanfare. This year its expected to be black and blue. Elsewhere in apples product lineup you could get a new apple watch. That has been widely expected. Earlier said dont expect an upgrade to the mac book or the ipad, that might be for later events. But well see. And well also see what the company says about its services offering, apple pay, siri and apple music. We know at least one of the apple music executives expected to take the stage today. Of course thats just about to get underway here at the auditorium in San Francisco. Well bring you all those updates, brian, when we get them. Back to you. All right. Thanks very much, kayla. Jon fortt, welcome. Good to have you with us. Good to be here. Saw you yesterday at school dropoff. Yeah. Great day for the little guys. Whats at stake for apple here . Well, i think whats really at stake is probably margins, tyler. Because the question is whats going to happen to all of these people who havent upgraded their phones in a couple of years. They might just as well go with an iphone 6s as a 7 if they dont see what they want in this model. Apples laid out lots of options that are cheaper. The 6s, the se, do they refresh the se . So margins are at stake. Theres also the question i think of wireless, bluetooth. If youre not going to have the headphone socket as you have in the past, the question is well how are people going to interact with sound, with music on this device . So how will they . If its bluetooth, you want to see apple improve bluetooth, theyre in a unique position to do that because they own beats, which is a big Headphone Company a way to get me to buy beats . I feel manipulated, jon. They havent updated the beats headphone line in two years. Its due. Two years is like dog years. Its like 14 years in real people lives. There could be a physical attachment through the lightning charger. The charger port. Some are saying there will be and possibly take your 3. 5 inch millimeter cable for your headphone jack and buy an adapter, little tiny little adapter you can lose a thousand of and then connect that to the lightning. Who wants to do that . Who wants to rely on that . If your kid takes it out . Buy 400 set of beats with bluetooth swallow it. Im losing it wherever. Thats a stopgap, but its not a great solution. You got to love apple to love this, from what we know . Well, we dont know enough yet. There are a lot of assumptions, oh, next years the big year, i think thats a lot of speculation. Apples going to go up there, no, this is a big update. Watch what they do with the chip, wireless, theyre going to make their case. Compare this update to the last update, which is where they went after years of resisting to a larger screen. The iphone 6 was a huge update for them. It did so well. It pulled in lots of upgraders. The 6s was not as big an update for them. Apple was caught by surprise by how many people did not move to the 6s. The question here is apple going to be caught by surprise again, or are the people saying ho hum this isnt a big deal . Do they have it right . Jon, stick around. Lets bring in our apple power panel. Ian, nancy tang ler ceo of Heartland Financial capital is her holding. Nancy, ill go to you. Kaylas making the argument that the big advances happen every other cycle or so. Is this perhaps more comparable to what happened with the iphone 5, in your view . What did happen with the iphone 5 . Was that enough to move the stock then . Yeah, well, lets define terms real quickly. I mean, in terms of timing, the iphone 5, if you look at the performance subsequently next to three years it was a good time to own the stock. Same i think the underestimation of apple is a Side Business for many of us in the business. And the thought that we arent going to get enough, as jon had said, i disagree with that respectfully. I think there are going to be enough bits and pieces, and the upgrade cycle is in apples favor in this particular environment, margins have been pretty stable. And services have been growing dramatically. So i actually think that well see the stock 12 months from now up about 15 to 20 . The dividend continues to grow. And Free Cash Flow continues to pile on. Why should i believe that the upgrade cycle is going to be intact . Ian, whats your take on this . If im told that i have to buy new headphones and new this and that and i have an iphone 6 already, why not just wait if the iphone 8 allegedly is going to be the greatest thing since sliced bread . Because thats also the tenth anniversary of the iphone. I believe, and this is just me, that tim cook will push forward big advances, but holding it back for the iphone 8. I think youre absolutely right. I mean, the big question coming out of this is going to be, is there enough here to get people to upgrade and either come off of android . And ultimately from what weve heard it doesnt sound like that to me. Remember, the overall market is pretty saturated. Youve got 25 of the worlds population has smartphones. And the reason they dropped all the subsidies across all the carriers was for this upgrade cycle. So you really have to incentivize people to come off their older phones and to still pay a premium for this product. So ultimately i think, you know, the iphone 8 may be a much bigger thing for the company than iphone 7. You know, nancy, let me go through just a couple quick numbers from a stock perspective because apples 12month forward p e is 12, pricetosale 2. 6, google trades at 20 times forward earnings, microsoft 18, facebook 26, googles price to sale, 7, microsoft 5, in other words, apple trading at a significant discount on a number of sort of basic valuation metrics. Why doesnt apple get more respect from the investing community . Well, because its just a hardware company. Dont let them hear you say that. Theyll get mad. No, but if thats why, i mean, its trading at a discount to electric utilities for crying out loud. They did take share, more share in the last six months from android than theyve taken in a sixmonth period. The market share that apple is playing with is 15 of Global Market share. And then dont forget their margins are double samsung. So while i understand that this isnt necessarily a trade against those other names that you mentioned earlier, brian, or against samsung, i do think we have to look at this in the total context of valuation, management and the growth of the Services Business. All the other elements, i mean, melissa, you are right that upgrade needs a push, but there are a ton of people that just dont have a choice. People like me who threw my phone inadd vert evertently ove weekend, there are people that do need and cant wait for the 8. Lets not forget samsung has had problems of its own with a note 7 recall because of some concerns about fires and heat. Jon makes the point that wasnt their top selling device. No, but its bad for the name samsung, isnt it . Yeah. But remember, youre talking about buying a Technology Company thats supposed to be the most Innovative Company in the world on valuation. On dividend yield. Its still the same story. And ultimately if you look at what the numbers are, theyre only supposed to grow revenues mid Single Digits at best over the next couple years and earnings in the high Single Digits. So im not sure that 12 times or 13 times is that cheap. And, you know, if youre sitting here comparing them to utilities then ultimately its like what are we doing here . Are we looking at apple as a Technology Company or maybe theyll focus more on software. Sit tight, weve got breaking news from the apple event with Kayla Tausche. Kayla. Brian, there appears to be a promoted tweet coming from apples twitter account that says new cameras, water resistant, stereospeakers, longer battery life, this is 7, learn more. The link that it posts actually leads you back to the live stream of the event. But embedded in the tweet is a video that purportedly shows a device that is sleek, it is black, which is a color apple hasnt included in its new iphones for at least a couple of years now. And it does show that duo camera that had been widely expected. It isnt necessarily flush with the back of the device as some had expected, but it is that dual camera protruding just slightly from the device. And well of course learn more about this device. Its not appearing in apples twitter feed itself, that feed that it refreshed just last week after not really using it at all for the last five years ahead of this event. So we still have a lot of questions about this device. Tim cook is on the stage right now talking about apple music and then the app store about the growth in both of those, apple music with 17 million subscribers now. The App Store Growth still 100 year over year. So well bring more to you when we have it. But a video that appears to be a promoted tweet from apple showing the iphone 7. What twitter account did that come from, kayla . Well, our social media team, brian, pulled it as soon as it was posted as a promoted tweet, but perhaps it has been deleted or stored separately within twitter. When you use the original link to the tweet, you can see it. But if you just pull up apples twitter feed, twitter. Com apple, it is not posted there. So thats why were scratching our heads a little bit on this one. Perhaps they jumped the gun and put this up a little bit too early. But we are still looking at this tweet as you are showing on the screen right now. Its all going to be okay. Its all going to be okay whether also the link is apple. Co, not dot com, something to note. It could be a tweet posted to apples twitter account. It does go to the link when you click on it. Right. Something that was promoted that went up too soon. Hard to know. Theyre not exactly breaking a lot of news with whats in the content of this tweet. Either way it is things that we had expected. Water resistant is not interesting . That seems like a its interesting. But the 6s and 6s plus were already water resistant, apple just didnt advertise it. But viewers dunked it in water said, hey, its still working. Im not sure thats shocking. But there is more news to come about what processors and the capabilities that come with dual cameras. Weve seen whats a dual camera . Literally two lenses. Two lens. And also image processors inside, those are the sorts of things we dont yet know. All right. Jon, sit tight. Coming up, new chargers, new wires, maybe i got to buy new headphones, how far can apple push customers before they defect . Will they . Does apple have you no matter what . Well debate that next. Its scary when the lights go out. People get anxious and my office gets flooded with calls. So many things can go wrong. Its my worst nightmare. Every second that power is out, my citys at risk. Siemens digital grid manages and reroutes power, so service can be restored within seconds. Priority number one is keeping those lights on. It takes ingenuity to defeat the monsters that live in the dark. All right. Welcome back to this special apple edition of power lunch. Their big launch event just Getting Started in San Francisco. Couple headlines about music apple saying they got 17 million apple music customers. However, moments ago well, they didnt tweet out, they had a promoted tweet which we now learned would not apparently appear on your twitter feed because apples official twitter feed has never tweeted, but yet the promoted tweet went out and had this link to this video, which apparently is the iphone 7. Basically the link just takes you back to the live event. So apple, i guess you could say, guys, is using twitter to advertise maybe for the first time ever. Thats a good thing for twitter, isnt it . Jon and i were noting they just started this account recently. Thats why theyve never tweeted before. This is perhaps the downside to using your twitter account for the first time on your biggest event of the year, if in fact, if in fact this is kind of a social media screw up where they put apple video how would you have found this if you didnt know where you were looking . I dont know. Have to look at the content of the tweet. Timeline. Could be if youre a follower no, i think a promoted tweet is going to everybody. You pay twitter and then oh, hits whether i want it or not. Yeah. Zebra on society and its in there. An apple tweet. An apple promoted tweet. So apple is one of the most loved companies in the world with a massively Loyal Customer base. However, they keep making changes to their hardware to force you to keep spending new money could even apple be at risk of losing some of their fans ask that money . Lets bring in branding expert dean crutchfield. Here you go, dean, from the museum of apple defunct products ive brought some things from home. Thats a big one, man. Heres the first ipod, for my old imac, the round with the blue and green back. This has a connector that no longer works. I think they called it iaee or Something Like this. The first ipad ever, which is now really expensive paperweight, which we remember these connectors here, right . I got about a thousand of those. And to prove its not just apple, i brought in the palm one tongueston. Im not a horder, i just like technology. You get the point, dean, which is if the rumors of this headphone jack change are true and many of us who have kids spent a lot of money on headphones for ourselves and for them, is apple impervious to any kind of negative publicity at this point . Or do they even risk losing people . They risk losing people. I think its a good thing to get rid of the ear plug jack. Its been around for too many years. I think its a small step change that actually says a lot for apple because no one else seems to have the problem. I hear you, but my name isnt jack. This works well as a bracelet. This little thing. Go to a rave, tyler. Nice. Hasnt brian intentionally or not made the argument that in fact we do stick with apple . I mean, hes brought out the first ipod, they sold a lot after that. Look at that, theyre all sexier. Thats about apple, its not justin novation but sexy design. Theyve always been good at that. As long as they keep doing that, theyre going to keep the following. These days you hold up a Samsung Phone and hold next to an apple, there arent marked differences between the sexiness of the two different devices now. Seems like everything is sort of converging to one form factor, a flat phone thats thin. No big deal. No big deal, but nonetheless it all comes down to brands. Thats where apple is, you know, powerful. People love that brand. They associate that brand. Its not a hardware company. Its not a Technology Company, its more like a Lifestyle Company and consumer brand. And all the other players are not. I have to say i was skeptical with apple at various points in the past. Most especially when i recall when the ipad came out. And i thought that was an occasion where apple was trying to sell me something i really didnt think i needed. In other words i could have done fine with my little flat laptop, which was slim and so forth. But i found that the ipad really did serve a function. I wonder if were being quick to criticize this phone on that same thing. Where theyre selling me something i really didnt think i need, which is a wireless headphone jackless phone. Well, its the beauty about apple they may be smarter than i am. Theyre pretty smart people, but theyre great at spotting gaps in a market and making them a market. Thats what theyve done their entire history. I think hooer were just seeing a design evolution of a phone. But i think its going to be the most memorable thing that comes from the event is the fact theyve taken out the earphone jack. Evolution, not revolution. Evolution only, this is not revolution by far. Is that where theyre missing now . Because they have built their life on revolution in products. Yes. Yes, i agree. They need a big step change to kind of gee up the brand. What could it be . I think in some ways you miss a leader like steve jobs, he was a genius, he was a marketing man, a brand man. Tim cook is more of an operations man, leading a business, whats his vision to take it forward. So i think thats whats required here. Apples already had a very strong vision in terms of its direction. I think at the moment its a little bit unclear. Are we too tough on apple because of their previous success . I think we sho