On October 25, Apple released the results for its 2012 fiscal fourth
quarter (which ran from July 1, 2012 to September 29, 2012) and held a
call with analysts to discuss the results. This is typically a transitional quarter for Apple considering that so many sales take place in the October to December quarter that contains holiday sales. Even so, this was Apple's best fiscal fourth quarter ever, with revenue of $36 billion and net profit of $8.2 billion. If you want to get all of the nitty gritty
details, you can download the audio from the announcement conference
call from iTunes, or you can read a rough transcript of the call prepared by Seeking Alpha. Apple's official press release is here. As always, however, I'm not as concerned about the financial details as I
am the statements of Apple executivies during the call that are of interest to iPhone and iPad users. Here are the items that stood out to me:
- Apple sold 26.9 million iPhones last quarter, the most that Apple has ever sold in a fiscal fourth quarter. By my count, that means that as of September 29, 2012, Apple had sold over 267 million iPhones.
- Apple sold 14 million iPads last quarter, the most that Apple has ever sold in a fiscal fourth quarter. By my count, that means that as of September 29, 2012, Apple had sold just over 98 million iPads. Apple CEO Tim Cook announced on October 23, 2012 (the event at which the iPad mini was announced) that as of that date Apple had sold over 100 million iPads.
- Almost all of the Fortune 500 companies are using or testing the iPad. Over 80% of the Global 500 are using the iPhone and iPad.
- There are over 700,000 apps in the App Store, and 275,000 of them are designed for the iPad.
- Apple continues to think that there is a potential to sell many more iPads. Tim Cook stated: "We continue to be very confident that the tablet market will surpass the PC market. There is incredible development in both ecosystems and product going on in the tablet space. It is already extremely compelling for many, many customers to choose the tablet, in particular an iPad, over PC. And when you look at the size of the PC market, there is an enormous opportunity for Apple there. Pretty much each quarter you see 80 to 90 million PCs being sold. And so, we do think that the iPad and the iPad Mini and the iPad 2 will all be extremely attractive offerings for people in lieu of PCs, and we are going to continue to be very much focused on the future of iPad, and we are very, very confident with what we have in the pipeline. And we are extremely pleased to have launched iPad mini and can’t wait until next Friday, when we begin selling the very first unit."
- Microsoft launched its own tablet computer this week, the Surface. When asked to comment on it, Tom Cook said: "I haven’t personally played with the Surface yet, but what we are reading about it is that it’s a fairly compromised, confusing product. And so I think one of the toughest things you do with deciding which products is to make hard trade offs and decide what a product should be, and we've really done that with the iPad and so, the user experience is absolutely incredible. I suppose you could design a car that flies and floats, but I don’t think it would do all of those things very well, and so I think people, when they look at the iPad versus competitive offerings, are going to conclude they really want an iPad and I think people have done that to-date and I think they will continue to do that."
- When asked about the $329 introduction price of the iPad mini and why it wasn't even cheaper, Apple's CFO Peter Oppenheimer stated: "When we set out to build the iPad Mini, we didn’t set out to build a small cheap tablet. We set out to build a smaller iPad that offers the full iPad experience as our customers would expect. As a result, the difference between the iPad Mini and the competition is profound. Our iPad Mini begins with a 7.9 inch display, which is 35% larger than 7 inch tablets, providing a much better experience. We are shipping two great cameras, FaceTime HD front, and a 5 megapixel 1080p iSight rear camera, versus typically one from our competition. We are shipping our fastest communications with dual-band Wi-Fi and it included the A5 chip, which has higher performance than our competitors. And finally, the fit and finish of our precision, unibody aluminum closure is breathtaking when held in your hands. And so that’s what we've done. The iPad mini has higher costs, and the gross margin is significantly below our corperate average. We are beginning at the height of the cost curve, but in addition to wanting to make a large number, we are going to work to try and get down the cost curves and be more efficient in manufacturing as we have been in the past with our other products." Tim Cook then stated: "One of the things we try to do is to create a product that people will love for months, years after they purchase it and continue using it in a robust way. So that’s what iPad Mini has been designed to do. And you can really see that more broadly on iPad by looking at the usage statistics. As I had mentioned earlier this week, over 90% of the web traffic from tablets are from iPad. And so Apple will not make a product that somebody may feel good about it for the moment that they’re paying for it and then when they get it home they are really never using again. That’s not what we’re about. It’s not a kind of experience we want our customers to have. And I think when you – I would encourage you to use an iPad Mini and I don’t think you’ll be using anything other than maybe another iPad or something after you do that."
- One of the first things I thought about when the iPad mini was announced was a comment that Steve Jobs made two years ago when Apple announced the results for the 2012 fiscal fourth quarter. He talked about a 7-inch tablet extensively, and said that it was a bad idea because the screen is too small. He joked that someone would have to use sandpaper to make their fingers smaller to use a 7-inch display, and that 10-inch was the "minimum" size for a great tablet. I still have a recording of that conference call, and here is what Steve Jobs said two years ago:
"I'd like to comment on the avalanche of tablets poised to enter the market in the coming months. First, it appears to be just a handful of credible entrants, not exactly an avalanche. Second, almost all of them use 7-inch screens as compared to iPad's near 10-inch screen. Let's start there. One naturally thinks that a 7-inch screen would offer 70% of the benefits of a 10-inch screen. Unfortunately, this is far from the truth. The screen measurements are diagonal, so that a 7-inch screen is only 45% as large as iPad's 10-inch screen. You heard me right. Just 45% as large If you take an iPad and hold it upright in portrait view and draw an imaginary horizontal line halfway down the screen, the screens on the 7-inch tablets are a bit smaller than the bottom half of the iPad display. This size isn't sufficient to create great tablet apps in our opinion. While one could increase the resolution of the display to make up for some of the difference, it is meaningless unless your tablet also includes sandpaper, so that the user can sand down their fingers to around one quarter of their present size. Apple's done extensive user-testing on touch interfaces over many years, and we really understand this stuff. There are clear limits of how close you can physically place elements on a touch screen before users cannot reliably tap, flick or pinch them. This is one of the key reasons, we think, the 10-inch screen size is the minimum size required to create great tablet apps.
* * *
The reason we wouldn't make a 7-inch tablet isn't because we don't want to hit a price point, it's because we don't think you can make a great tablet with a 7-inch screen. We think it's too small to express the software that people want to put on these things. And we think, as a software driven company, we think about the software strategies first. And we know that software developers, they're not going to deal real well with all these different size products when they have to redo their software every time a screen size changes. And they're not going to deal well with products where they can't put enough elements on the screen to build the kind of apps they want to build. So when we make decisions on 7-inch tablets, it's not about cost, it's about the value of the product when you factor in the software. You see what I'm getting at? So we're all about making the best products at aggressive prices. And that's what we will do, and that's what we've done with the iPod, and that's what we will do with the iPad as well."
- During last week's conference, Tim Cook was asked about that prior statement. How can Apple now sell the Apple mini in light of Steve Jobs' comments two years ago. Here is how Tim Cook responded to what a litigator might try to characterize as a prior inconsistent statement:
"On your question about iPad mini, the comments that I think you are referencing are comments that Steve had made before about 7-inch tablets. And let me be clear: we would not make one of the 7-inch tablets. We don't think they're good products, and we would never make one. Not just because it is 7 inches, but for many reasons. One of the reasons, however, is size, and so I'm not sure if you saw our Keynote, but the difference in just the real estate size between 7.9, almost 8, versus 7 is 35%. And when you look at the usable area, it's much greater than that, it is from 50% to 67%. And also the iPad mini has the same number of pixels as iPad 2 does. So you have access to all 275,000 apps that are in our App Store that have been custom-designed to take advantage of the full canvas. And so iPad mini is a fantastic product. It's not a compromised product like the 7-inch tablet. It's in a whole different league."
Did Tim Cook have a legitimate response to the prior statement of Steve Jobs? Is there really that much difference between 7.9 inches and 7.0 inches? Is that really the difference between a screen that is large enough to be useful versus a screen that should come with sandpaper? And how much of Steve Jobs' statement can be attributed to the lack of good software for a 7-inch Android tablet, something that doesn't apply to the iPad mini that will run apps that already exist for the the full-size iPad? We'll find out this Friday when people start to receive the first shipments of the iPad mini.
