http://www.morningstar.com/earnings/18349752-apple-inc-aapl-q4-2010.aspx

Apple Inc AAPL
Q4 2010 Earnings Call Transcript

Transcript Call Date 10/18/2010

We also think our developers can be more innovative if they can target a singular platform, rather than 100 variants. They can put their time into innovative new features rather than testing on hundreds of different handsets. So, we are very committed to the integrated approach, no matter how many times Google tries to characterize, it is closed. And we are confident that it will triumph over Google's fragmented approach, no matter how many times Google tries to characterize it as open.

Second, 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 entrance not exactly in avalanche. Second, almost all of them use 7-inch screen as compared to iPad and your 10-inch screen, let's start there.

One naturally thinks that a 7-inch screen would offer 70% of the benefits by the 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 up right in portrait view and draw an imaginary horizontal line halfway down the screen, the screens on 7-inch tablets are a bit smaller than the bottom half of the iPad display.

This size isn't sufficient to create great tablet app in our opinion. While one could increase the resolution of the display to make up for some of difference, it is meaningless unless your tablet also includes sands paper, so that the user can sand down their fingers to around one quarter of their present size. Apple has 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 touchscreen 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 app.

Third, every tablet user is also a smartphone user. No tablet can compete with the mobility of a smartphone. It's ease of fitting into your pocket or purse. It's unobtrusiveness when used in a crowd.

Given that all tablet users will already have smartphone in their pockets, giving up precious display area to fit a tablet in their pockets is clearly the wrong tradeoff. The 7-inch tablets, or Tweeners, too big to compete with a smartphone and too small to compete with an iPad.

Fourth, almost all of these new tablets use Android software, but even Google is telling the tablet manufacturers not to use their current release Froyo for tablets and to wait for a special tablet release next year. What does it mean when your software suppliers does not to use their software in your tablet, and what does it mean when you ignore them and use it anyway?

Fifth, iPad now has over 35,000 apps on the App Store. This new crop of tablets will have near zero.

Sixth and last, our potential competitors are having a tough time coming close to iPads pricing, even with their far smaller, far less expensive screens. The iPad incorporates everything we've learned about building high-value products from iPhones, iPods, and Macs. We create our own A4 chip, our own software, our own battery chemistry, our own enclosure, our own everything, and this results in an incredible product at a great price. The proof of this will be in the pricing of our competitor's products which will likely offer less for more.

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