Apple's "Anywhere" iPhone Has Far From Peaked

Feb.29.08 | About: Apple Inc. (AAPL)

By Carl Howe

Apple's invitations to an event on March 6 to discuss the Apple Software Development Kit for the iPhone generated several Apple inquiries around here, and Apple COO Tim Cook's talk yesterday at the Goldman Sachs event added more fuel to the story. I thought I'd take a break from my usual "Anywhere all the time" writing, and just pass on some of the data and answers I've been providing to reporters:

  • Has the iPhone wave peaked? No; in fact, I would argue that the iPhone phenomenon has just gotten started. The Apple iPhone is truly an Anywhere phone, putting communication, media, and Internet content in the palm of nearly anyone's hand anywhere in the world and on (mostly) any GSM network. Despite the iPhone only being available for sale in four countries, it's being used today in more than 100. This adoption is amazing because no official native third-party apps have been released and the device is a version 1.0 device, Apple's first effort in a market most pundits said it could never succeed in. Imagine what sales will look like when there are official distribution channels in more than four countries, when third party developers can create new iPhone applications, and when Apple has version 2.0 and 3.0 devices in the market.
  • Are iPhone unlockers hurting Apple? I think this idea is way overblown. Apple receives full retail price and full retail profits for every phone it sells, locked or unlocked. The device is profitable by itself, regardless of whether it gets carrier revenue sharing or not. Further, the fact that Apple is doing carrier exclusive deals now doesn't mean it is wedded to that model, a point Tim Cook made in his presentation. So everyone who is claiming Apple is "losing" $1 billion due to unlocked phones is simply noting problems with their own models of Apple's business, not Apple's. Apple of course doesn't acknowledge or report any revenues from carriers associated with the iPhones, so any numbers or losses you hear about those are inferred speculation, not facts.
  • Does Apple need to cut prices on its iPhone? Not in the least. Apple has no intent of chasing Motorola to see who can lose more money on phones in a futile attempt to gain market share. Market share isn't the name of Apple's game; consistent and growing profits are. Apple's brand says to nearly everyone in the world that its products are fashionable, easy-to-use, and a bit exclusive. Apple competing only on price would be like BMW cutting prices on its cars so they can be distributed through Wal-Mart; it would be marketing suicide.

    In my opinion, Apple's game plan on its Anywhere phone will likely mirror that of iPods. iPods started with one model and then gradually branched out to three or four of them (depending on whether you consider the iPod touch to be an iPod or a low-end iPhone). Even today, the 16 GByte iPod touch sells for the same price as the original iPod introduced in 2001. People should expect there to be both cheaper and more expensive iPhones over time, but that the target price points for the iPhone with touch screens and Internet capabilities will remain what they are today.
  • Is Apple going to make its iPhone goal of 10 million phones by the end of 2008? Yes. Apple doesn't provide goals if it doesn't think it can both make and exceed them. While the economy and consumer spending are throwing up some roadblocks, I see Apple easily exceeding that goal by about 25% by the end of calendar 2008. And in case anyone was confused, that's the benchmark that Steve Jobs set: 10 million phones by the end of 2008, not 10 million phones in the first year of sales or the first fiscal year.

The bottom line: as the buzz at the Mobile World Congress proved, Apple changed the mobile phone market worldwide with its first and uncertain effort in a new market. Just as it did with computers, Apple isn't playing a market share game; it's building mind share. And while there only officially successful in a few countries today, imagine what will happen when they are Anywhere.

Disclosure: Long AAPL