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Piper Jaffray addresses 15 more 'unanswered Apple questions'


iPhone Related Questions:

What is the iPhone's hardware roadmap?
We continue to expect Apple to offer a family of iPhones (2-3 separate models) in the first half of 2009, including lower priced ($200-$300) models. Just as the company slowly diversified the iPod lineup and entered lower price points with every new version of the iPod, we expect Apple to launch new models of the iPhone at lower price points in CY09. This expectation, along with the expectation for lower price points, and world wide availability of the phone, is critical to our CY09 iPhone estimate of 45m units.

How is the price a carrier charges for the iPhone set?
Although Apple is able to garner a premium price for its devices, we believe its carrier partners are free to price the device at their discretion. In fact, when Apple's carrier partner in the UK, O2, lowered the price of the 8GB iPhone by £100, the price of the same device on Apple's UK Web-based store remained at the original, higher price. We believe one reason why wireless carriers were eager to sell the iPhone is that Apple can maintain a higher ASP; however Apple has made it clear that they are not hesitant to explore alternate pricing schemes. For example, the company is currently exploring a subsidized model in Germany with an 8GB phone going for as low as €99. Furthermore, we believe Apple is not hesitant to try business models other than the exclusive models the company has chosen during the iPhone's first year. It has enabled Apple to maintain tight control on the user experience of the iPhone, but expanded availability will likely become a higher priority, and we believe it will eventually drive Apple to offer the iPhone on multiple carriers in each country.

What was the driver for the App Store on the iPhone for 3rd party applications?
The thriving iPhone hacking community adequately showed that there was significant demand for features the iPhone is capable of, but Apple is not offering. Games, instant messaging, and industry-specific applications are several examples of features that the iPhone does not currently offer in a native application setting. We believe Apple recognized that its user base was dissatisfied with the simplified Web 2.0 apps available on the iPhone's web browser; as a result, the company announced the availability of 3rd party applications in March along with the iPhone operating system 2.0, which is on track to arrive in late June.

iPod Related Questions:

Is the iPhone cannibalizing iPod sales?
We believe that there is some degree of iPod cannibalization due to the iPhone, but the impact is difficult to measure. In general, it is clear that iPod growth is slowing, but we believe that Apple will counteract the maturity in the iPod market with innovative new touchscreen iPods at lower price points. Additionally, Apple is well positioned to upsell its users from lower priced iPods to more expensive iPhones, in which case the cannibalization of iPod sales is a net positive to the company.

What did Apple management mean when it referred to the iPod as a "Wi-Fi mobile platform"?
History has shown that iPod growth is largely tied to: 1) the holiday shopping season and 2) innovative iPods. During the Dec-07 conference call, management referred to the iPod touch as the beginning of a "mainstream Wi-Fi mobile platform." We believe that the iPod touch is the first of several Internet-connected iPods that Apple is currently developing. Internet connectivity enables applications like email and a web browser to add significant value to the iPod lineup, which will drive incremental growth and spur the replacement cycle for current iPod owners. With 70% market share, we believe Apple is positioned to transform the MP3 market into a portable computing market. And with the addition of the iPhone and iPod touch SDK, along with a robust and growing developer community working with the beta, Apple is well positioned to expand its iPod user base into the mobile computing category.

Questions On Apple's Retail Stores:

How are the Apple stores performing as a business segment?
Simply put, we believe its retail stores are one of Apple's most underappreciated business segments. Despite talk of a retail recession, revenue from all retail stores rose to $1.45b in March, up 75% y/y in total. Additionally, the average store revenue (not comparable stores, but an average of all stores) grew 48% to 7.1m in the quarter. Finally, Mac sales grew to 458k units in the March quarter, or 20% of all Macs sold, despite the fact that the 200+ retail stores account for just 2% of the ~10,000 Mac points of sale.

What are Apple's plans for international expansion?
The concentration of Apple retail stores reflect Apple's strongest markets. Clearly, the US is Apple's strongest market, and it also has the most Apple retail stores. The UK is second, with 15 stores, and it is Apple's second largest market. We expect Apple to capitalize on this market with more stores in the UK. According to the relationship between Apple's business in a country and the amount of retail stores, Canada is slightly behind on the retail front, and we expect the company to add stores in Canada in the near future. We also expect the company to launch a store in Beijing, China before the Olympic games (around the July '08 timeframe). In other words, we expect Apple to lead with its retail stores into the Chinese market, which represents a large opportunity for the company. This would not only provide a significant point of sale for Macs in the country, but it would also establish a center for iPhone sales and marketing for an iPhone launch in the country (which we expect some time in 2009).