CFO: Apple TV, iPhone are game changers

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Talk about the coming iPhone and Apple TV device dominated the discussion with the chief financial officer of Apple at an investment conference in San Francisco Tuesday.

Peter Oppenheimer, appearing at the Morgan Stanley Technology Conference, declined to give specific unit sales forecasts for the new products but anticipated they will be strong. Oppenheimer’s session can be heard via webcast at Apple’s Web site.

“Apple TV will change the way people gather and purchase their digital content,” said Oppenheimer of the $299 Apple TV, due out later this month after missing its scheduled February release date. It is a set-top box that delivers digital content stored on a computer, including video purchased from Apple’s iTunes Store, to a TV.

However, the usefulness of the Apple TV may be tied to the amount of video content available on iTunes. Today, Oppenheimer said, 400 movies and 350 TV programs are available for downloads. Those numbers are up significantly from when Apple added movie and TV-show downloads to iTunes— Apple started out with 75 movies in September 2006 and five TV programs when it added that service in October 2005. Apple continues to add content to iTunes, Oppenheimer noted—the company recently reached agreements with film distributors Paramount Pictures and Lionsgate Entertainment to sell downloads of their movies on iTunes.

The much-anticipated Apple iPhone is scheduled to hit the market in June. The iPhone, which Apple CEO Steve Jobs introduced at Macworld in January, features an innovative touch-screen interface on a combination phone, iPod, and e-mail and Internet access device. It will sell for $499 or $599 depending on storage capacity, and will require a two-year contract with Cingular Wireless, the mobile division of AT&T.

Oppenheimer declined to comment specifically on a March 1 report from Morgan Stanley analyst Kathryn Huberty, who interviewed him at the conference, in which she raised her forecast for 2007 iPhone sales to 8 million from an earlier forecast of 6 million, based on a survey of 2,500 U.S. customers. (Apple has set a goal of selling 10 million phones, or 1 percent of the number of mobile phones sold around the world last year, by 2008.)

“Half the demand is coming from the traditional high-end handset market and half from Apple’s customer base,” Huberty said.

While not commenting on the forecast, Oppenheimer said the iPhone will be a “breakthrough product.”

“Though Apple is new to the mobile phone market, we believe the addressable market will grow quickly,” he said.

Asked about what barriers stand in the way of the iPhone’s adoption, Oppenheimer predicted that the Apple device will redefine the cell phone market. “As an innovator, we don’t look at traditional market methodologies to think about how to develop products,” said Oppenheimer, citing the iPod’s success. When Apple introduced that product in 2001, the Apple CFO said, “we didn’t really ask ourselves what was the potential of the MP3 market by looking at products that were over $399. We believed that people really love music and that they would appreciate a product like the iPod.”

Oppenheimer also referred to the iPod when quizzed by Huberty on how the iPhone line might evolve, particularly when it comes to accessories. While declining to comment on specific products, Oppenheimer noted what Apple has done with both its iPod and Mac product lines; the former features more than 3,000 accessories while there are more than 23,000 Mac hardware and software products from developers.

In its last quarterly earnings report on Jan. 17, Apple posted net income of $1 billion, or $1.14 per share, on revenue of $7.1 billion for the three months ended Dec. 30, 2006.

Analysts forecast Apple to earn 62 cents per share on revenue of $5.16 billion in the current quarter, according to a consensus estimate produced by Thomson Financial.

In a 40-minute conversation with Huberty, including questions from other analysts in the audience, Oppenheimer did not discuss the stock options probe at Apple. The U.S. Securities and Exchange Commission and the U.S. Attorney’s Office in San Francisco are investigating whether Apple improperly accounted for and disclosed the backdating of options. No charges have been filed.’s Philip Michaels contributed to this report.

This story, "CFO: Apple TV, iPhone are game changers" was originally published by PCWorld.

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