Yesterday, after the market closed, Apple held its First Quarter Fiscal Year 2009 Earnings Release Conference Call. The purpose of the call was to announce Apple's fiscal results for the last quarter and answer questions from analysts. Apple announced that it had its best quarter ever, with revenue surpassing $10 billion for the first time in Apple history and record iPod sales. I was especially interested to hear what Apple would say about the iPhone, and they said quite a bit.
Apple sold almost 4.4 million iPhones last quarter, which means that it has sold about 17,379,000 iPhones since they were first introduced. Over 11 million of those are the current iPhone 3G model. Tim Cook, the COO of Apple and the person currently running the show while Steve Jobs is on medical leave, said that numerous surveys report that the iPhone has the highest overall customer satisfaction. Cook believes that the reasons for this are that the software on the iPhone is "still years ahead" of its competitors and that Apple has so many great third party apps available in the iTunes store.
Cook noted that the iPhone market is "clearly elastic" meaning that as the price has dropped, demand has increased. Nevertheless, he suggested that $199 is currently the sweet spot, saying that Apple has no desire to play in the low end smart phone business and will let others do so. "Our objective is not to be the unit share leader in the cell phone industry. It's to build the world's best phones." So I take that to mean that we won't see an iPhone for cheaper than $199 for the foreseeable future.
Cook also mentioned that as the economy slows down, sales in the smartphone market could decrease -- especially since smartphones usually come with higher monthly fees. Nevertheless, he said that Apple feels "very good about our competitive position as I said before and extremely good about our product pipeline." So you heard it here first, folks -- Apple is planning to at some point release an updated version of the iPhone.
Cook was also asked to talk about the fact that iPhones are now for sale in Wal-Mart. Cook responded: "We just started working with Wal-Mart on iPhone at the very end of December, and so we have not enough data to draw any conclusion about performance. From a reach point of view, what Wal-Mart does is reach a tremendous amount more people than we could reach in our stores. Obviously, they have over 4,000 or so storefronts and they are in areas of the country that we have no Apple stores and so they provide a level of reach beyond of what we would provide ourselves or beyond what AT&T stores would provide. And so that's the reason we're there."
Cook was also asked about the upcoming competitors to the iPhone, such as smartphones running Google's Android operating system and the recently announced Palm Pre. Cook said that one advantage for Apple is that the iPhone comes in just one model. It is much harder for developers to create apps when there are "multiple variations of displays, multiple variations of resolutions and input methods, and many different forms of hardware." This indicates to me that Apple has a reason to keep future models of the iPhone similar to the current model, much like the original iPhone and the current iPhone 3G have similar screens with the same resolution and multi-touch features.
When I recently discussed the upcoming Palm Pre, I noted that the Pre software appears to copy a lot from the iPhone and I wondered whether Apple would assert infringement on its intellectual property, especially in the area of multi-touch. Cook indicated that the answer is yes. He first made the general statement that Apple likes competition, but only "as long as they don't rip off our IP, and if they do we're going to go after anybody that does." An analyst then followed up and asked if Cook was referring to the multi-touch interface on the Palm Pre. Cook responded:
I don't want to talk about any specific company. I'm just making a general statement that we think competition is good. It makes us all better. And we are ready to suit up and go against anyone. However, we will not stand for having our IP ripped off, and we'll use whatever weapons that we have at our disposal. I don't know that I can be clearer than that.
I predict a lot of billable hours this year for IP attorneys representing Apple and Palm!
A few days ago, I noted Apple's recent announcement that the iPhone now contains over 15,000 apps and that there have been over 500 million apps downloaded. One analyst asked what percentage of those are paid apps and what percentage are free. Peter Oppenheimer, Apple's CFO, responded that Apple is "thrilled" with the app store but wasn't going to disclose that breakdown.
Those are the iPhone-related highlights from the call. If you want to hear or read the entire earnings call yourself, you can do so. First, you can click here to download the earnings call from iTunes. (Apple usually only leaves them posted for about two weeks.) Second, you can visit the Seeking Alpha website, which is where I got the above quotes. Last year, Seeking Alpha started posting transcripts of Apple earnings calls about 5 hours or so after each call ends. They create the transcripts using sophisticated text-to-speech software that is surprisingly accurate, but beware that the automatically-created transcripts do contain some errors.
My take on all of this? Apple is doing incredibly well right now, and the iPhone is a major reason for that. The iPhone will continue to sell very well this year, although current economic woes will limit that somewhat. We will see another iPhone released this year, I predict this summer, and I expect that the cost and the basic iPhone shape and design will remain the same. I expect that the next version of the iPhone will contain a few new hardware features and many new software features. Hopefully for the 11 million iPhone 3G users, most of the software improvements announced later this year will also work on the current 3G model. And when Palm is ready to release the Pre, Apple will be ready to sue Palm for IP infringement.
2009 will be an interesting year for the iPhone!