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Apple CFO talks Apple TV, iPhone, Leopard and retail [transcript]

Q: We'll get to iPhone in a minute. But talking about Apple TV and iPhone, can you help us understand the go-to-market strategy of Apple as you introduce an entirely new product segment? Is it a situation where you roll it out broadly across distribution investments you've made? Or is it a targeted roll out over time?
A: Well, beginning with Apple TV —we plan on shipping it this month to all resellers who want to carry it. I personally believe that Apple TV is the kind of product where the features really need to be seen to be appreciated, and we certainly will do that in our stores and I think our channel partners will as well. In terms of the iPhone, Apple and Cingular will sell the iPhone online and in our retail stores. So we think they'll be many places for customers to come and see it. We chose to partner with Cingular for a number of reasons. First of all, we think Cingular is the best quality carrier. They're the largest with over 61 million subscribers here in the U.S. We were able to form a relationship with Cingular that will allow Apple to be Apple and do it what it does best, and Cingular to be Cingular to do what it does best. And finally, we think that GSM is the best global standard for customers, and Cingular's network is based on this standard.

Q: So that's the go-to-market strategy. But as you evolve the product portfolios, how do you think about rolling out accessories, potentially introducing more mainstream price-points, taking those products international over time. How do you evolve the new product portfolios.
A: Seems to be the question of the day. As you know we don't talk about future products, so I can't give you a specific answer to that. But you can look at what we've done in the past with Mac and iPod to get some idea. As an innovator, we are focused on delivering value by providing solutions that are meaningful to customers. With our Macs, this has meant bundling our iLife suit and adding such things as iSights cameras, AirPort cards and other technologies. With iPods, we have included photo viewing and video, and frequent updates to the iTunes Music Store. And today I think our products are as competitive as they have ever been since I've been with Apple in the last 10 years, and we're providing great value to customers. Regarding accessories, we work with thousands of developers to provide a great array of hardware and software accessories to our customers. With iPod, there are over 3000 accessories that you can buy, and with the Mac there are over 23,000 developer products that you can buy. We have been focusing on international markets. For example, we are very happy with the results we saw in December with the iPod. What Tim Cook and his team have done to focus on the point-of-sale —and our marketing teams have done for our marketing program —have caused our share to double in most western, european and asian countries this past December over last December; other than the UK, Japan and Australia, which it eclipsed 50 percent. So I think those programs are really working and you'll see us continue to work on the point-of-sale and open stores internationally.

Q: So lets shift focus to the iPhone. Morgan Stanley published or survey results last week, and that pointed to very high level of demand. But from Apple's perspective, what are the barriers to adoption for the iPhone?
A: We believe the iPhone is a breakthrough product with outstanding features that years ahead of anything in the market today. We don't think there is another product like the iPhone and we think the iPhone will redefine the cell phone market. The iPhone combines three products into one —a beautiful, light, handheld device. We think it's a revolutionary phone with visual voicemail. It's the best iPod that we've ever done. And we think it's breakthrough internet device with desktop class email, searching and web browsing. As an innovator, we don't look at traditional market methodologies to think about how to develop products. Before we introduced the first iPod in 2001, we didn't really ask ourselves what was the potential for the MP3 player market by looking at products that were over $399. We believe that people really love music and would appreciate a product like the iPod to listen to music while on the go. Though we're new to the mobile phone market, we believe the addressable market will grow quickly for a product that delivers so much value and uncompromising functionality to customers.

Q: What we found is half the demand is coming from your traditional high-end handset market, half the demand is coming from Apple's customer base. Can you help us understand how you do... you don't really have to size the market, but you have to test for elasticity and customer preferences and which functionality to put into the phone. Can you talk about what type of market testing you do do, and then how you take that and evolve it into the product portfolio over time?
A: I think this is what Apple really does so well. We get feedback from customers and others sources, and we have very talented people at the company who really think through how to deliver great solutions to customers, in some cases they never thought they would want. Again, the iPod was a great example of that. Back when we shipped the first iPod in 2001, did anyone really think you could have your whole music library in your pocket with such a wonderful and seamless experience? I think not. But that's just a great example of how Apple brings hardware and software and other capabilities together to create great solutions for customers.