Source: US Stock Research Company Author: Trading Places Research

01. Overview

in$Apple (AAPL.US)$In the first two-thirds of the keynote address at the Global Developers Conference, the only thing I could think of was “slow down!” . All iOS, their most important software, takes less than 18 minutes. watchOS is the only part that seems to be getting close to normal speed.

A lot of stuff was overshadowed by Vision Pro, and a lot of the really interesting stuff was left for later this week. Remember, WWDC's purpose is for developers to test new software that comes out in the fall and spend time helping them prepare for these releases.

While this isn't a live show anymore, some people will be invited to Apple Park for a live screening, and the rest can have one-on-one conversations with Apple engineers online, paying a $99 developer fee per year. It was a very important event in Apple's calendar and set the tone for the whole year on the technical side to ensure the September product launch went smoothly.

One thing that's completely lost in the reshuffle is probably very important to Macs, since Apple's Silicon ARM Mac is already getting a lot of momentum.

This could be a huge boost to Mac sales.

02. Windows DirectX 12 on Mac

Missed past WWDC live events. The developer paid to go there and it was a business trip. There's no unprovoked applause, and you can hear their real reaction to everything in real time.

DirectX is a programming interface for accessing graphics card features on Windows. This is especially important in games, as GPUs enable these games to run at high resolution and frame rates. Apple has its own GPU for the Apple Silicon GPU interface, called Metal.

DirectX 12 is Microsoft's newest product, and the latest and greatest AAA games are built around it. The open source community has tools to simulate DirectX 11 and below on the Mac, 12 is coming soon, but it's a pretty bad experience compared to the same game on Windows. When it recently announced support for Windows virtual machines on Apple Silicon Macs, Microsoft supported up to DirectX 11.

So what's in the game porting kit?

• The DirectX-to-Metal emulator built into the next-gen macOS developer tools will soon be in beta. Judging from the demo they provided (The Medium), it runs at about half the frame rate of the ported application (Medium is about 30), but there are some frame drops (HD resolution on the M2 Max). Considering that it runs 2 layers of simulation in real time, the X86-to-ARM other than DirectX 12 is pretty amazing.

• Automatic shader conversion. It remains to be seen how effective it is, but if it were, it would be huge. Programmable shaders are one of Nvidia's (NVDA) major innovations, and behind the scenes are a major reason why its gaming GPUs are so popular. Much of what you see in DirectX's AAA games happens in these shaders.

So it's a 1-2 blow that removes two major hurdles to porting Windows AAA games to the Mac. The first one is probably more important. During the migration process, you won't even be able to see your game running on your Mac until the final stage of the process. So it required the game studio to walk in a dead end for a few months and hoped it would lead somewhere. That way, they can see it run on the Mac using a single command line.

This is the graphic Apple used to show the transplant process. You've always seen “First Launch” always on the right, but now it's always the beginning of the process, not close to the end. Inside the yellow box is the shader, and that work has been eliminated (supposedly). In many AAA games, graphics and audio are handled by cross-platform middleware such as Unity (U) and the Unreal game engine, so the workload is reduced.

This is left to studios that use middleware:

The game engine is processing the grey frame, so all that's left is a green source port and a blue polish. That took most of the work out of porting AAA-grade games to the Mac.

03. Why is Mac a bad AAA gaming platform?

The iPhone is one of the most successful mobile gaming platforms, and Apple is keen to bring success to the Mac and Apple TV. Most iPhone or iPad games can be played on a Mac or Apple TV, but expectations for these big screens are different. People want big 3D worlds with lots of gameplay. They want AAA-level games, but there aren't that many on Macs, and they're probably released years later than the Windows version.

How did that happen? AAA games look and run great even on the cheapest Apple Silicon Mac. After years of neglect, Apple's game controller software is now very good, with very low latency.

There are many reasons, but the three biggest ones are the high fixed costs of each version of the game, the relatively small user base of Mac users, and Apple's bizarrely insistence on purchasing all the GPUs for Intel Macs from AMD (AMD) instead of Nvidia, AAA gamers, and video professionals. AAA studios first developed for consoles and PCs, and then once they recouped those huge investments, they would consider the Mac version.

So Apple is trying to change every part of it:

• The new toolkit reduces the fixed cost of Mac ports.

• The Mac user base is growing and getting younger, especially in the US. Apple has tremendous momentum among Gen Z in developed countries.

• Macs still don't have Nvidia GPUs, but they're trying to make it unrelated to shader converters. Mac GPUs have their own advantages. For example, on Nvidia's best gaming cards, the maximum video RAM is 24 GB, while the new Mac Studio has 192 GB of unified memory.

But it's not that simple. Gamers and game studios think Steve Jobs doesn't respect them; they're probably right. At some point, this became “Apple hates gamers.” It's a tough meme to break. It also causes game studios to think their customers are on PCs, which is correct.

Hard-core PC gamers who spend half a day on message boards are likely to stick with their PCs. A lot of them love to build their own rigs, and Apple isn't.

04. What does this mean for Macs

If this toolkit were successful, Apple would have eliminated a lot of the fixed costs associated with gaming ports. But the bigger question remains market share. There are plenty of reasons that date back to the 1980s, but in 2023, why did people choose Windows over Mac?

• Upfront costs — Although Macs have a lower total cost of ownership, there are always cheaper PC options, even though they aren't the same. Apple's low end started with the mid-PC end, and there is currently no product that can match Apple Silicon.

• The IT manager they work for chose Windows. IT managers are Microsoft's most important Windows customers.

• They don't like Macs, or think there's no reason to switch from Windows. There's probably a lot of overlap with 1 and 2.

That covers most of the content. The cost difference will never change, but Apple is trying to mitigate it with the Apple Card, which offers 12 months of 0% interest payments and 3% cashback in the US. Outside of the US, they have various 6-12 month interest-free payment plans. Marketing to the groups in #3 only gets you this far. That's why Apple targets so much of its marketing to young people, many of whom only know the iPhone or iPad and have little PC experience.

Apple is getting better at working with IT managers, especially after the iPad became popular among businesses. But this is another place where they must overcome long-standing negative perceptions. IT managers think Steve Jobs hates them; they're probably right. He has publicly called them “holes” many times, and he meant exactly what you think. This evolved into “Apple hates business,” and while Jobs was alive, they were probably right.

But I also think there's a smaller but still large group that wants to switch to Macs, except for one thing. Even if they aren't avid gamers, they play an AAA game or two on a regular basis, but they don't work for Macs, which is a deal breaker.

This is the group Apple wants to dissociate in this way. As far as the basic market share of Mac installations is concerned, it is currently around 17% globally, higher than the lowest point of 4%. I think this may be an important group. This is why Apple only spent so much money to make this toolkit. Even though it only accounts for 19% of the market, this is important to the Mac division, which is roughly one-tenth of Apple's revenue.

Is it going to happen? Tim Cook has been trying to reverse these unforced Jobs' mistakes for years, with little success. This time might not be the same, probably because of the DirectX 12 emulator. I'm just assuming that some of them pay $99 for their developer license and they'll use it to play new AAA games like Starfield on the M2 Max or Ultra so they can get internet credits on Twitch or Reddit. We've seen Cyberpunk 2077, Diablo IV, Hogwarts Legacy, and more. There are more and more AAA games on the Mac gaming wiki and how they are played under simulation. It's possible that they've piqued some interest in this way.

The M2 Max and M1 Ultra seem to play DirectX 12 games well under two layers of emulation. Here are some frame rates from one tester on different Macs:

“MBP” = MacBook Pro. “MBA” = MacBook Air. “GPT” = Game Reminder Toolkit, not another GPT. (YouTube screenshot)

The M2 Ultra might see a big improvement over all of these, but it just released. This is all so impressive for two layers of simulation, and these game makers have to think, “If it worked this way under two layers of simulation, what would a native game look like?” People are beginning to notice that maybe Apple can finally get a little bit of momentum here.

Another thing that caught my attention during the keynote was that the 15" MacBook Air starts at $1,300 and the education pricing is $1200. The MacBook Air is very popular among students mainly because it is the cheapest Mac laptop. They previously only produced 13", which is $200 less. This filled what I thought was a huge gap in their lineup and made the 14-inch MacBook Pro superfluous. I'm guessing we've seen the last one of this model.

Apple recently began unveiling the MacBook Air at WWDC. They got a boost from this market in the fourth quarter, which began in July.

edit/lambor