Chris Nuttall Apple iPhone shortages may worry Verizon

The health of its chief executive aside, Apple’s biggest problem appears to be that it can’t make the iPhone fast enough, such is the level of demand.

The news that emerged on the company’s earnings conference call on Tuesday may in turn worry Verizon and its customers, who may not get the supplies they want when the iPhone 4 goes on sale with the US carrier on February 10.

Tim Cook, the chief operating officer now in charge of day-to-day operations during Steve Jobs’ medical leave, admitted Apple had not done enough in ensuring supplies. They were constrained and he could not predict when supply and demand would meet, he said.

“We do still have a significant backlog, we are working around the clock to build more, I believe the reaction and results from the Verizon customers will be huge…and we’re going to do everything possible to get the iPhone into as many hands of those customers as possible.”

The iPhone 4’s availability on Verizon will end AT&T’s exclusivity with the handset – the US has been the last remaining country where only one carrier has contractual exclusivity for the iPhone, with it now being available with 185 carriers in 90 countries.

Apple announced on Tuesday it sold 16.2m iPhones in its December quarter – worth more than $10bn in sales and up 86 per cent on the 8.7m sold a year earlier.

Other highlights from the call:

Apple sees no real competition to the iPad

Apple sold 7.3m iPads in the quarter, an increase of over 3m on the previous quarter and bringing the total to nearly 15m sold in 2010 in 46 different countries. Fifteen more countries are being added in January. Mr Cook said he did not see any real competition to the iPad from current Windows and Android-based devices, with the latter being like scaled-up smartphones, which Apple saw as a bizarre product. On next-generation Android devices unveiled at the Consumer Electronics Show this month, he said:

“There’s nothing shipping yet, generally they lack performance specs , they lack prices, they lack timing, so today they’re vapour, we’ll assess them as they come out.”

Apple had a huge first-mover advantage and it was not sitting still, he concluded, in an apparent reference to a new version of the iPad expected in the spring.

The iPad is cannibalising Macs and PCs

“Honestly…yes, I think there is some cannibalisation but I also think there is a halo effect, as we’ve seen on the Mac [from] the iPod some years ago,” said Mr Cook.

“I think there is a halo effect from Apple product to Apple product. In Asia in particular, customers were being introduced to the iPad, but some were choosing the Mac, where sales were up 67 per cent.”

“So if this is cannibalisation, it feels pretty good. The other point is if tablets or iPads do cannibalise the PC market, keep in mind we have low share of the PC market, so the other guys lose a lot more and we have a lot more to win. Cannibalisation is not something we are spending one minute on here.”

Customers are going back to the Mac

Sales of 4.1m Macs were up 23 per cent year-on-year and compared to just 3 per cent growth for the PC market as a whole. Apple reported more than 50 per cent growth in Asia Pacific and Japan, fuelled by strong demand for the new MacBook Air and continued strong sales for the MacBook Pro.

…But iPod sales are flagging

Apple sold 19.4m compared to 21m a year earlier. Sales of the iPod touch grew 27 per cent and accounted for 50 per cent of all iPods sold in the quarter, which makes the rest of the category look like its in trouble. However, Apple said it still had more than 70 per cent of the US market for MP3 players and it was a top-seller in most countries tracked.

Apple is big in China

Tim Cook said results had been “staggering” in China, where Greater China (including Hong Kong and Taiwan) revenues were $2.6bn in the quarter, quadrupling sales from a year earlier. Sales in Japan were up 83 per cent year-on-year despite a difficult economy there.

The elephant in the conference call room was the health of absent chief executive Steve Jobs. Not a single question was asked by analysts about this and Mr Cook was able to expound instead on the health of the company:

“Apple is doing its best work ever, we are all happy with product pipeline…excellence has become a habit and so we feel very very confident about the future of the company,” said the man expected to be Mr Jobs’ eventual successor.