Customers prefer high end
While Apple introduced its cheapest ever iPhone offering this summer, Chief Operations Officer Tim Cook also noted, in response to a question about how the $99 iPhone 3G impacted sales of the new iPhone 3GS, that "the demand for the [iPhone] 3GS did exceed expectation; we quickly changed our orders for components." Cook added, "I think it shows there's an intense appetite for Apple's latest technology and we were very pleased with the result."
Peter Oppenheimer, Apple's Chief Financial Officer, also said that the Average Selling Price of iPhones in the quarter "was just over $600. This reflects both high mix of 3GS sellthrough and benefits of rebalancing the ending channel inventory toward the 3GS."
Supply, demand, and component problems
Cook also noted that "iPhone 3GS demand outstripped supply. That's the first category of a good old-fashioned demand issue which is a nice problem to have. Because it was outstripping supply, it creates component shortages.
"Generally speaking the ones [components] hardest to get is silicon, it takes a little longer. We were really happy we solved the bulk of them in September or October; feels good where we are now."
Cook acknowledged that "until we got to September, the 3GS was short virtually everywhere. What I don't know is how many people waited until it did become available. There's not a good way to sell that. We already shipped the 3G in over 80 countries today; we shipped the 3GS in 64 countries by the end of last quarter. We will forecast over 80 by the end of the calendar year 2009.
There's an app for that
Executives credited sales of the iPhone and particularly the iPod touch upon the "incredible popularity of the App Store." Unlike offerings from other major vendors, such as Nokia and Microsoft, Apple's iPod touch Internet device and media player and its iPhone smartphones both share identical development platforms and a cohesive mobile software marketplace.
This has enabled the company to cast a very large net in fishing for both customers and developers for its mobile software platform, resulting in an App Store that has been an "unparalleled success."
Apple also revealed other insights into its mobile platform after executives repeated the official metrics first presented on September 28: 85,000 available apps and 2 billion downloads to date, "including more than half a billion apps this quarter alone. The App Store has reinvented what you can do with a mobile handheld device, and our users are clearly loving it," Chief Executive Steve Jobs stated in the original press release.
iPhone in China
Device and software sales are only just getting started however, the company noted, revealing that the record number of iPhones sold in the previous quarter do not yet include sales to China outside of unofficial grey market imports into the country from other markets.
When asked about sales prospects for China, Cook answered, "We're thrilled to be launching there on Oct 30" with partner China Unicom.
"We're going to start with 1000 points of sale and expand further over the next several months," Cook said. "They've announced the plans and pricing for the device and the service, a very wide range from $18/month to $85/month. At the higher price point an individual gets the device for free and it goes up as you go down, like in most countries.
"As you know, we've shipped the [iPhone] 3G and [original] 2G phone prior to that, and we discovered there were quite a few phones going into China. Seems to indicate a good opportunity. We're excited. No projections on the volume, but it's a huge market, the largest in the world in terms of total phones. It's very important we get started and make it as large as possible on smartphones."
In the countries Apple is already reaching with its official iPhone partnerships, Apple revealed that inventory problems impacting the iPhone 3GS initially resulted in the company's failure to meet demand throughout much of the quarter. Analysts aware of the problems initially feared that supply constraints might result in disappointing iPhone sales.
"For much of the quarter, most of the countries where we're selling were very low in inventory as demand outstripped supply," Cook reported. "We did improve supply markedly in September and supply and demand converged either in September or October in most countries.
"We now have 2.4 million units in the channel, and that's an additional 585,000 from the previous quarter in. I would've liked to have more because we were still short in some countries, as indicated, early October before we balanced supply and demand in some countries."
iPhone carrier exclusivity and price
New iPhone supplies reaching carriers are priced without regard to carrier exclusivity, Cook also evealed. When asked about the company prices iPhones in countries with multiple carriers, Cook said, "our pricing is confidential. It's not something I can comment on in detail."
However, Cook went on to say, "generally speaking for markets where we're already selling, there would not be, I would not expect a wholesale price difference. However, the end-user price is set by carriers themselves, so you may or may not see a street price difference."
When asked more pointedly, "So when you go from exclusive to multiple, you don't change the charge to the carrier?" Cook answered, "Correct."
Cook also answered a question about what advantage there was in setting up exclusive agreements with carriers by saying, "In an exclusive relationship you can test some level of innovation that would be more difficult to do with several carriers. Visual Voicemail was an example of that in the initial iPhone."
Asked about seasonal demand for the iPhone, Cook answered, "When we look at September to December quarter we have very few September to December [periods] to look at in the iPhone business. In fact in the vast majority of countries we've only been selling in one, and some of those just a partial.
"We're new in the business still. For me to make any kind of seasonality forecasts would not be a good idea. In terms of looking at our forecasts, the popularity of the 3GS is phenomenal. Very surprised by demand.
"We were selling in 64 countries by the end of the quarter. China, already mentioned; we hope to roll out in Korea as well. As Gene mentioned previously we will be adding some carriers in countries where we only had one carrier before such as the UK and Canada."
Oppenheimer added that the company's "tax rate was below our guidance of 30% due to higher mix of foreign earnings. For the year, 29% the last two years, pretty much right on 30%. At this point for financial year 2010, I'd say about 30% for our tax rate. In line with what we've seen the last few years."
iPhone in the Enterprise
Asked by Shaw Wu of Kaufman Brothers about Apple's sales to businesses, Cook answered, "Employee demand for iPhone in the corporate environment is very strong. Since the launch of the 3GS, the iPhone is either being deployed or being piloted in well over 50% of the Fortune 100.
"And from an international point of view, if you look at Europe, this is true in about 50% of the Financial Times 100. We feel good about the performance.
"Another key market for us that some call enterprise is over 350 higher education institutions have approved iPhones for faculty and students. We continue to be happy with our sales in the government arena."
iPhone competitors still "trying to catch up with the first iPhone"
When asked by Mike Abramsky, an analyst with RBC, about holiday sales and how Apple views competition in the smartphone market, and specifically Google's Android, Cook said, "We feel great how we ended the financial year with 7.4 million [in iPhone sales] as Peter [Oppenheimer] talked about.
"That put us over 20 million, almost 21 million for the financial year, up 78% from before. We have significant momentum. Also when you look at the ecosystem we've got, with the iTunes store and app Store, we have a country mile more apps than anyone else. The very strong product pipeline we have, we feel very good about competing against anyone.
"Frankly," Cook said, "I think people are trying to catch up with the first iPhone two years ago. Â We've long since moved beyond that."