What to Expect From Apple at WWDC

Updated from 7:33 a.m. to include thoughts from Capital Advisors.

NEW YORK (TheStreet) -- Apple (AAPL) is hosting its Worldwide Developer Conference (WWDC) next week/this week, and while the event has segued to some bombshells in the past, including the iPhone in 2007, it's largely been run of the mill in recent years. That may be about to change, though.

"My take is that with the dearth of hardware announced this spring, a publicly streamed keynote and the 7-1 stock split happening soon thereafter, we're in for some BIG announcements," said John Martellaro of The Mac Observer website, and a former Apple executive.

This year's WWDC, held in the Moscone Center West in San Francisco, as it is most every year, will largely focus on updates to iOS 8, as well as Mac OS X. Given all the talk of a drastic redesign in user interface to match that of iOS 7, OS X, for which there is not a code name yet, may get the majority of the attention this year. It's expected that iOS 8 as well as Mac OS X will be shown in beta to developers, than released later to the public in the early fall, ahead of product launches, including a new iPhone and new Macs, as it has been in previous years.


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Last year, iOS 7 received a major redesign, giving a more flat look, as opposed to the skeuomorphism (looking like real world objects) design of previous versions of iOS, something former CEO Steven P. Jobs was in favor of.

Goldman Sachs analyst Bill Shope, who raised his price target on Apple to $720, also believes the event will center around software, with few actual hardware announcements. "As for the WWDC event itself, we believe the event will be centered on Mac and iOS software refreshes, iOS platform enhancements, with some minor Mac refreshes being the
only hardware-centered announcements," Shope wrote in a research note. "More specifically, we believe it is likely that we will see (1) iOS 8 preview and beta release; (2) the next version of OS X for the Mac, with a beta release; (3) Internet of Things sub-platforms (likely related to personal health and the connected home); (4) standard Mac refreshes; and (5) a more detailed discussion of the recent Beats acquisition."

Though Apple still sells millions of Macs each quarter, having sold 4.1 million Macs, generating $5.5 billion in revenue, the larger draw for developers, investors and the media is iOS, given the larger install base for both iPhones and iPads, as well as future devices which may use iOS.

Recent speculation has surrounded Apple moving into wearable technology, with a device known as the iWatch, being one area where Apple does not currently participate. The rumored device is not set until at least the third quarter (most likely a Sept. release), so wearable technology market and its players have some time to figure it out before Apple comes in and dominates, just as it did with the iPod, iPhone and iPads.

While iOS 8 and Mac OS X may be the big software initiatives talked about, there's likely to be a slew of other major announcements, including some potential hardware announcements and refreshes.

Capital Advisors Managing Director Channing Smith is expecting big things from WWDC. "Investor expectations are riding high going into WWDC as Apple executives (Eddy Cue & Tim Cook) recently hinted that the company was on the cusp of the best product pipeline in years," Smith said via email. "The expectations from Apple followers range from more details on the strategy surrounding Beats, introductions of wearable technology (fitness tracking, iWatch), home automation initiatives, further inroads into the mobile payment arena and improvements on existing products with a larger screen iPhone."

The keynote address will stream on June 2 at 1 PM ET, something Apple generally reserves for special events, including new product announcements. "Watch streaming video from this special event and learn more about our exciting announcements," the company said on its Web site earlier this week.

Here's what to expect from WWDC, which kicks off on Monday.

Mac OS X

Mac OS X 10.10 is likely to get a drastic overhaul, and look much like iOS 7, with a much more flatter look to it than previous version. That doesn't mean it's going to become the same as iOS, just that it will continue to take on similar features, such as bringing Messages, Notes, Maps and other features, as Apple has done over the years.

Nomura research analyst Stuart Jeffrey, who rates Apple "neutral," is expecting to see continued convergence between the two platforms. "We expect OS X changes to drive greater convergence with iOS, from a user experience perspective rather than a Windows 8 style integration," Jeffrey wrote in a research note. "With Mac sales accounting for less than 13% of revenue (less of gross margin), this is a positive step but likely not that EPS sensitive."

Aside from these slight changes, there are likely to be bigger announcements as it relates to Mac OS X, which Apple made free for updates at its iPad Air event in Oct. 2013.

The last version of OS X was codenamed Mavericks, for the surfing location in Northern California. It's unclear what the name of this version of OS X will be known as, now that Apple has abandoned using cats for the name, with previous versions being known as Mountain Lion, Lion, Snow Leopard, Leopard, Tiger and others.

iOS 8

Last year, Apple gave iOS 7 a major overhaul, changing the way it looks, and updating it for 2013. Now that the major design overhaul is over, Apple may wind up announcing several new parts to iOS 8, particularly as it thinks about moving into the health and fitness market, with the rumored iWatch.

Optionsinfocus developer Scott Jenkins expects there to be some features cleaned up in iOS 8 that were left "borderline incomplete" in the previous OS. "On [the] software side, last year the cleaned up some major features that were borderline incomplete in iOS 7 (auto layout, core data, iCloud, and core text api's)," Jenkins said via email. "Working with those were risky without your own customization. I expect those to be cleaned up even more."

Healthbook, an app similar to Passbook, that will store all of your health and fitness related data in one place, is expected to be announced on the software side.

Of the more notable features included in Healthbook, it tracks steps taken and calories, as well as monitoring things like blood pressure, oxygen levels, sleep activity and even monitors your breathing. There are several other features included in the app, but these are some of the most important. In a note previewing WWDC, Piper Jaffray analyst Gene Munster wrote a fitness app could be a precursor of things to come. "We believe an Apple fitness application would be a significant sign pointing to an Apple watch/band in 2H 2014," Munster penned in the note.

Outside of Healthbook, there's the potential for Apple to get into the mobile payments industry, something that has been seeking leadership and a standard for a few years. Companies like eBay (EBAY) with its PayPal unit, Square, BrainTree (also owned by eBay), Google (GOOG) Wallet and a host of others have competed in the mobile payments space, but there appears to be no industry standard, as of yet.

While this remains a long shot, it's clear Apple is working on something related to payments.

On a recent earnings call, Cook noted the opportunity for Apple, using TouchID, a feature on the iPhone 5s. "The mobile payments area in general is one that we've been intrigued with, and that was one of the thoughts behind Touch ID," Cook said on Apple's fiscal first-quarter earnings call. "But we're not limiting ourselves just to that. So I don't have anything specific to announce today, but you can tell by looking at the demographics of our customers and the amount of commerce that goes through iOS devices versus the competition that it's a big opportunity on the platform."

There's also been speculation that Apple would announce a standalone iTunes Radio app to be part of iOS 8 and boost usage. Given the recent Beats acquisition announcement for $3 billion, which includes both the headphone business and Beats Music streaming service, this seems less likely.

Apple confirmed Beats Music service has 250,000 subscriptions following the deal, though that number pales in comparison to services like Spotify, Pandora (P) and others.

There may be other features to iOS 8 announced that are likely to capture the attention and imagination of both developers and investors alike, though these are less certain.

"Meanwhile, we believe it is possible, though less likely, we will see (1) enhanced third-party app support for Siri and (2) third-party support for TouchID commerce APIs," Goldman Sachs Shope wrote in a note. There's also been increased speculation in recent weeks that Apple is working with Shazam in conjunction with Siri to identify songs based on their sounds, and then be able to download the song from iTunes if they want.

Other potential features include VoLTE support, and apps to edit and preview text.

>>Read More: Apple Acquires Beats for $3B

Smart Home

While the "Internet of Things," a phrase first coined by Cisco (CSCO), may not have a lot of meaning to everyone, Apple's potential move into the smart home may just show how important connected devices are about to come, as the iPhone maker looks to squeeze more revenue out of its iconic device, and the arms race with Google heats up.

The Financial Times recently reported that Apple may announce a plans for its smart home initiative at WWDC. The smart home initiative would use the iPhone as its base remote, with the smartphone controlling everything in your house -- lights, appliances, security systems and other connected devices, as technology companies turn their wares to the next "big thing."

Piper Jaffray's Munster expects Apple to eventually get into automated home software, given the opportunity surrounding it. "We have expected Apple to eventually get into the automated home theme and note that they are already a significant indirect player given that many automated home users utilize iOS devices to control the home. We note that the most likely update at WWDC could be a software preview that shows Apple offering a single app to manage an entire home," Munster wrote in a note.

The company has been busy filing patents over the years, particularly as it relates to the connected or smart home, with the iPhone being seen as the key, given its status and market share in developed and emerging market countries.

One such patent reads:

An electronic device operative to monitor and control processes and operations based on the power cost of those processes and operations are provided. The electronic device can identify processes or networked devices requiring power, determine the expected amount of power required for the process or networked device, and calculate the cost of the power requirement. For example, the electronic device can receive data or algorithms defining the manner in which a power supplier computes the cost of consumed power, and predict the expected cost of the particular power requirement. Based on the importance of the process or device, and the expected power cost, the electronic device can perform a process or provide power to a networked device, or alternatively delay or cancel a process to ensure that the power cost of the device remains within preset boundaries (e.g., the power cost of the device or of a home network of devices does not exceed a maximum cap).

While these types of patents show that Apple is indeed working on network or connected devices, this patent, credited to Timothy Pryor, shows how deep and expansive Apple's ambitions are as it relates to the home:

The disclosed invention is generally in the field of control of appliances in the home, and in their networking and connectivity also with audio systems and internet sources and the integration of these elements in a connected manner. Preferred apparatus generally employs a video projection system and one or more TV cameras. Embodiments of the invention may be used to enhance the social interaction and enjoyment of persons in the kitchen and reduce the work of food preparation. The invention may be used in many rooms of the house, and contribute to the well being of seniors and others living therein.

>>Read More: How Apple Will Use the iPhone to Crush Google, Samsung

Apple TV

Apple has worked hard to turn Apple TV from a hobby into a real business. At Apple's recent shareholder meeting, CEO Timothy D. Cook said Apple TV generated over $1 billion in revenue last year, as competition from companies like Google, Amazon (AMZN) and others heats up.

Jordan Edelson, CEO and founder of app software developing company Appetizer Mobile, is expecting Apple will update Apple TV at WWDC. "I think there is also a good chance they may announce a voice automated Apple TV," Edelson said via email. There's been a lot of speculation that Apple will incorporate Siri to control and search for content on Apple TV, similar to what Amazon has done with the Fire TV.

There's also a lot of speculation that the next version of Apple TV will get its own App Store, as Apple has worked hard to increase the amount of content available on the $99 set-top box. Apple TV does not currently use iOS as its operating system, but it's possible the next version of Apple TV could run on iOS.

Macs

Though Apple isn't expected to make any Earth-shattering product announcements like it did in 2007 with the iPhone, WWDC may see some other hardware announced, aside from an Apple TV. Apple has in the past, used the event to update its Macbook lineup, announcing a MacBook Pro with Retina Display last year. Munster believes there's a 50% chance of a MacBook update, "most likely an Air with Retina display or spec bumps to the Macbook Pro line." He notes that Apple recently updated its MacBook Air line, while cutting the starting price to $899.

Cantor Fitzgerald analyst Brian White, who rates Apple"buy" with a $777 price target, notes that Apple has typically updated the Mac lineup at WWDC, "thus we would not be surprised if a refresh of either the iMac or the MacBook Air/Pro occurs."

There's been speculation that Apple will announce a MacBook Air with Retina Display, something Edelson believes is possible, given the positivity surrounding the MacBook Pro with Retina from last year. Edelson also notes the potential for Apple to announce a touch screen for MacBook Airs, though he cautions "this is less likely."

Then there are other potential products, including the long-awaited Apple branded television, an iPad-MacBook hybrid, and the potential for the iWatch, but those seem much more suited for their own events, and less for WWDC.

--Written by Chris Ciaccia in New York

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