Today it’s a pitch from Lou Basenese that graces our pages here at Stock Gumshoe… he’s talking up an “iPhone Killer” idea, a notion we’ve certainly heard teased many times. This is how he gets the idea into our heads;

“Kill the iPhone, you say?

“Few companies have the guts to kill an iconic… admired… refined… brilliantly conceived… historically significant… multibillion-dollar business… ON PURPOSE….

“See, by strategically killing, say… an aging business model… a declining product… an outdated design… a tired brand… a fading trend… Sears, Dell, Blockbuster, America Online, Kodak, MySpace, and Yahoo could’ve stayed perched atop their kingdoms.

“It’s called ‘creative destruction.’

“If you’re an investor, I urge you to pay close attention.

“Because in the weeks ahead, Apple could do what Sears, Dell, Blockbuster and the others failed to do — if all goes as expected…

“Apple will commit the single greatest act of creative destruction ever…

“I believe Apple is planning to kill its iPhone, ON PURPOSE.”

This is an ad for what Basenese calls his flaghip publication, Lou Basenese’s Digital Fortunes (currently being sold at $99/yr, 30-day refund period), and it’s essentially a pitch about Apple’s long-rumored augmented reality glasses or goggles. Most rumors indicate that this is not going to be a big business for Apple anytime soon, but there are lots of people working on glasses and goggles and AR/VR projects at Apple, they have had some events to discuss those projects, and it’s possible that tests and prototypes will lead to products over the next few years.

I’d say that a product announcement about Apple Glasses (or whatever they’re called) in a week is extremely unlikely. It easy to read the bread crumbs and daydream about possible products from Apple, but Apple is not an innovator — they’re focused on perfection, not being first.

Still, augmented reality for the iPhone is also proceeding, and is enabled to a large degree by technology that’s already in the iPhone and that gets improved with each iteration, like better laser sensing and better cameras and displays, so we’re heaving toward AR/VR even if there isn’t necessarily a big event next month when that world will change dramatically.

So… what’s the stock that Basenese likes for this? Here’s more form the ad:

“I’ll reveal the best stock to own as Apple prepares to kill its iPhone. I expect a single share to go a long… long… long way… because it accomplishes something truly powerful…

“It grants you ownership in a company, but not just any company…

“I’m talking about ownership in a thriving company… a company radically expanding its customer base… a company hiring the best talent… a company on the leading edge of a revolution… a company growing profits every quarter… a company with 10-bagger potential… like I just said, a company exactly like Apple in 1980!”

OK, that’s a nice passel o’ hype, but not many clues… does he drop any hints for the Thinkolator?

“It’s a tiny company making an indispensable part for the iPhone Killer.”

Mmmkay, what else?

We get a bit about that secret meeting Apple had about “killing” the iPhone…

“Apple called a ‘secret’ meeting at its Cupertino headquarters.

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“A meeting that filled its on-campus, 1,000-seat, Steve Jobs Theatre to capacity…..

“Code-named ‘N421,’ credible sources believe the device’s highest purpose is…

“To kill the iPhone.”

That was an internal meeting back in 2019, reported by The Information and then re-reported by lots of others as the rumors spread, and all indications are that it was the first big internal meeting about their planned VR headset, which has been expected to come as early as 2022 if they can get it right, and the more important AR Glasses, which most people don’t think will be ready for launch until 2023 at the very earliest. Odds are pretty good, sez Bloomberg, that anything introduced in the next year or so will be a high-end virtual reality device that’s mostly a placeholder to allow software developers to create products and some early adopters to build interest (and, of course, since this is Apple the timeline could easily shift, and the product could be scrapped if it’s not good enough or not ready to wear the Apple logo). But almost all of the reporting is based on rumors and decisions not yet made, so who knows.

Back to Basenese:

“I expect Apple to be wildly successful in its creative destruction of the iPhone…

“And I also believe that ‘N421’ will replace it…

“Owning a few shares of Apple is both worthwhile and prudent.

“Yet Apple is only the tip of the spear.

“See, whenever a creatively destructive act is occurring — like Amazon replacing malls… Priceline replacing travel agencies… Wal-Mart replacing mom-and-pop shops… Home Depot replacing lumber yards… Uber replacing taxis… drones replacing tanks… or GPS replacing maps…

“The destruction has so much raw power….

“It tends to push every company in the industry to new highs… especially the smallest firms.”

So that’s what we’re being pitched here, some smaller company that has something to do with providing components or technology to Apple (and others) for AR/VR projects.

And yes, the immediate marketing push from Basenese is that “Apple will reveal its plan to launch the iPhone Killer… during its product event on September 8.” And that may or may not be true. Personally, I suspect there will be no such “reveal” during the next Apple iPhone 13 release event, which typically happens in September and could come as early as September 8, but has not been announced (and, like last year’s belated release, will probably be a virtual-only event given the resurgence of COVID and the fact that Apple has pushed back their original back-to-the-office timeline). Lots of folks expect Apple to improve its sensing technology with this latest iPhone, perhaps including improved LiDAR for 3D scanning, and it could well be that enhanced AR capabilities of the phone will be part of that product release… we’ll see. There are plenty of rumor summaries available online, including this one from Cnet yesterday. Those folks know and care a lot more than I do, but some of those rumors will be wrong, too.

What other hints do we get? Here’s more from the ad:

“… the iPhone Killer’s paradigm-smashing feature… the feature Apple thinks you want… you need… you’ll soon become dependent upon… and you’ll use for the rest of your life…

“I call it ‘spatial awareness’ — simply put, it’s N421’s ability to recognize and interface with everything happening around you… thus allowing for a fully immersive, visually-enhanced feedback loop.”

Basenese said that the augmented reality demonstrations Apple gave to employees in 2019, and the improved chips and better batteries they’ve developed since then, make it possible to take the next step to those “N421” augmented reality glasses, so this tease is most likely something to do with laser sensing or LiDAR or something similar.

More from the ad:

“I call it ‘Holo-Core’ technology… because it a) gives users a fully immersive, 3-D, hologram-like experience, and b) Tim Cook referred to the technology as ‘core’ to Apple’s future back in 2016.

“To be clear, Holo-Core isn’t a standalone device.

“It’s one of iPhone Killer’s seven main parts… yet it’s also iPhone’s Killer’s only irreplaceable part… and thereby it’s iPhone Killer’s most important part.”

And then we get some hints about the company itself, and, of course, a reminder that even if Apple isn’t first the technology is likely to keep moving foward:

“… even if Samsung… or LG… or Huawei… or whoever else… releases their own versions of an iPhone Killer,

“THEY’LL ALL require a ‘Holo-Core’ component to function properly….

“… the global leader in ‘Holo-Core’ technology — an absolutely essential component to every iPhone Killer — is a small company based in upstate New York.

“How small?

“Well, the company currently trades on the Nasdaq for 0.10% the size of Apple!… small enough that a single share of stock could change your life.”

What else? Basenese says that he thinks “this little company’s technology is roughly three years ahead of Samsung’s… and two years ahead of Apple’s… and it’s protected by over 180 patents.”

And that’s about it.

OK, so the hints we get are that it’s a sub-$2.5 billion company, based somewhere in New York, with “over 180” patents, and having something to do with some of the components that will be required to make Apple’s “smart glasses” or whatever their next augmented reality device might be.

And one more clue, confirming that the share price is well under $100…

“I believe Apple is prepared to make an offer to buy this little company, thus eliminating it as a potential competitor… and gaining all of its ‘Holo-Core’ intellectual property in the process. In my buyout scenario, Apple could offer over $100 per share.”

Who is it? I can’t be 100% certain of this one, but the Thinkolator’s best answer is… Veeco Instruments (VECO).

8/31 Update: This is the Thinkolator’s “miss” for the year, keeping our accuracy rate above 99% but offering a reminder that 99% and 100% are very different. The initial guess was Veeco (VECO), a semiconductor equipment company that does have exposure to optics and laser sensing work but is not a component maker… but Vuzix (VUZI), which makes smart glasses and is sometimes rumored to be selling components for larger “smart glasses” projects, like Apple or Google, is a better match, and readers were kind enough to point out the mistake.

I like VECO much more than VUZI, though the two aren’t directly comparable in any other way. I just don’t think VUZI will make progress as a small hardware company, but it’s certainly possible that Google or Apple could buy more control of the category by purchasing VUZI. The fact that they haven’t, and that VUZI has been selling smart glasses mostly for industrial applications for years, is an indicator for me that they don’t see VUZI as a threat or an innovator or an owner of patents that will slow the development of either tech giant’s progress. I am pleased to own neither, but I do also know a lot of folks are VUZI fans, and it certainly might work out.

And yes, if you’re interested in VECO for other reasons, here’s the rest of what I noted about them:

How is it a match? Veeco is very much exposed to the VCSEL business (vertical-cavity surface-emitting lasers), which are used for facial recognition (on the current iPhone) and LiDAR and other sensing and scanning purposes, and they do also have offerings in optoelectronics, (though they’re really an equipment maker and not directly a component maker).

They have a market cap near $1 billion, so they’re near that “0.10% of Apple” size.

And they are based in New York, with offices around the world, but that’s not exactly a match because it’s not “upstate” New York, their headquarters is in Plainview, on Long Island. Maybe that’s just a little slipup by Basenese or his copywriter, some folks separate New York in their mind into just “New York City” and “upstate,” even if that sticks in the craw of this “upstate” boy a little bit.

Here’s how Veeco describes its business:

“Our vision: To enable a future where technology improves the human experience

“Our Mission: We collaborate with the world’s leading technology companies to unlock the value of challenging material applications

“Making a Material Difference is at the core of Veeco’s DNA. For over 30 years, we have developed differentiated technologies and built expertise and know-how that has helped world-changing devices such as LED lighting, data storage, advanced computing and mobile devices reach industrial scale. At Veeco, we pride ourselves on close collaboration with our customers to help them overcome technical and cost barriers that make it possible to convert novel materials into high-yielding device performance at production volumes.

“As we enter the next decade of technology development, there is a magnitude of growing applications that combine electronics into game-changing artificial intelligence systems (AI), virtual and augmented reality (VR/AR) and advanced driver-assisted systems (ADAS). This new ‘Experience Age’ will make it possible for humans to interact with the world as never before. Veeco’s technologies are already making a material difference in these emerging megatrends and we see amazing potential to grow in new areas where our unique core competencies in deposition, etch and laser processing systems will make the Experience Age possible.”

Veeco is not really a component maker, though, which means any exposure to a high-volume product like the iPhone (or the “iPhone killer”) would be indirect. They’re more of a secondary play on the continuing growth and complexity of semiconductor production — they sell the equipment and services that let semiconductor fabricators make better, faster compound semiconductors, better RF Filters or photonics chipsets (including those VCSEL products), better optics and LEDs, etc.

So they’re best described as a semiconductor capital equipment company, which ought to be a big growth business these days, with more fabs being built and with a strong focus on expanding US semiconductor production… but so far, it isn’t, Veeco has been through a few restructurings and strategic shifts over the years and a lot of acquisitions, most recently with the purchase of Ultratech a few years ago, but despite being a pioneer in the business, and a publicly traded company for 25 years, it has never been able to really turn itself into a sustained growth company — revenue over the past five years is more or less flat.

So if you want to buy Veeco, you’ll have to get yourself interested in their future, not their past. Their products and their latest restructuring seem to me to put them in a good place, though I can’t say that I’m enough of an expert on the semiconductor business to be at all certain of that, and it’s made tougher by the fact that they have dozens of much, much larger competitors competing to sell equipment and services to chip fabricators.

Which means, absent any expertise, that I’ll rely on the analysts for a guess about the near future — and that actually makes VECO look pretty decent. Analysts expect revenue to pick up nicely this year, with growth close to 30% and with roughly 50% earnings growth, from 86 cents per share to $1.29, and then to grow further with another 5% bump up in revenue and roughly 25% in earnings, to $1.58 in EPS in 2022. If that comes to pass, then VECO is growing earnings at a solid 20%+ rate but is valued at about 18X current year earnings and about 15X forward earnings estimates. Not bad. Analysts will have a tough time being right about this, since selling high-end semiconductor equipment means that making or losing one big sale in a year can meaningfully impact your bottom line, but that’s probably a reasonable valuation for a small player in a high-growth market. Whether it has any connection, even indirect, to the next wave of new product from Apple, well, that’s another question entirely.

Personally, I’d probably be a little bit more comfortable with larger players in lasers and sensing like II-VI (IIVI) or Lumentum (LITE), and I’ve owned IIVI in the past and have been looking at it again as the shares have finally come off their inflated highs, but that’s probably mostly because I’m more familiar with those businesses after writing about them many times — VECO is new to me, so maybe I’m missing out on something exciting.

Care to try to talk me into it? Just use the happy little comment box below.

And as I noted above, the clues were soft enough and the match weak enough that I can’t be 100% sure of this match [ed note: good thing, since I was wrong this time!] — so that same comment box awaits a solution to Basenese’s teaser that might be better than the Thinkolator could conjure up this time around… don’t be shy, please feel free to share if you think we’re off the mark and you’ve got a better match.

Thanks for reading! And thanks to those of you who quickly chimed in with a better solution.

P.S. Basenese’s tease also included a few “special reports” that readers ask about pretty regularly — so I can also tell you that “The Secret $15 Company Behind Elon Musk’s Race to Own the Internet” is almost certainly still Gilat, a stock he has pitched several times over the past year.