MacRumors

Apple today seeded the first the version of Mac OS X 10.6.7, termed Build 10J842, to developers. Coming just two weeks after the public release of Mac OS X 10.6.6 to support the Mac App Store, Mac OS X 10.6.7 will be yet another free maintenance release for Snow Leopard users.

We've yet to hear word of changes included in 10.6.7, but we will update this post as more information comes in.

Update: We've now heard that Apple lists no known issues in the documentation, and asks developers to focus their testing on AirPort, Bonjour, SMB, and Graphics Drivers.

Kyle Wiens of repair site iFixit published a blog post today outlining Apple's increasing usage of custom "pentalobular" screws on the iPhone and other devices, with the company presumably making the shift in order to make it more difficult for users to open up their devices for repair or modification purposes.

Apple is switching to a new type of tamper-resistant screw. This is not a standard Torx, and there are no readily available screwdrivers that can remove it. This isn't the first time they've used this type of screw - it first appeared in the mid-2009 MacBook Pro to prevent you from replacing the the battery - and Apple is using a similar screw on the outer case of the current MacBook Air. This screw is the primary reason the 11" MacBook Air earned a lousy repairability score of 4 out of 10 in our teardown last October.

Apple chose this fastener specifically because it was new, guaranteeing repair tools would be both rare and expensive. Shame on them.

Wiens notes that there "isn't a single reputable supplier" offering the screwdrivers used by Apple technicians to handle the pentalobular screws.

Apple has used the pentalobular screws in iPhone 4s sold in some international markets since the device's release, although iPhone 4s sold in the U.S. have for most of the device's history used standard Phillips screws more accessible to users. But numerous reports have surfaced from users who have taken their iPhones in for service only to discover that Apple has replaced their Phillips screws with the new pentalobular ones.

In order to assist customers interested in opening up their iPhone 4s, iFixit is offering an "iPhone 4 Liberation Kit" priced at $9.95, containing a screwdriver that will fit the new pentalobular screws (although not an exact fit), two replacement Phillips screws, and a regular #00 Phillips screwdriver.

Much has been made of the new four- and five-finger multi-touch gestures for the iPad introduced in the first beta version of iOS 4.3 released last week, and many users were disappointed to learn that Apple had clarified in the second beta released yesterday that the new gestures are being included only for developer testing at this time and will not be present in the public release of iOS 4.3.

While the many-finger gestures seem natural on the iPad, some have been wondering whether the gestures could make their way to the iPhone and iPod touch or whether the significantly smaller screen size on those devices would make such gestures too difficult to use.

As noted by Engadget, one user has managed to get the advanced multi-touch gestures working on his iPhone, posting a YouTube video demonstrating that the gestures do indeed work on the smaller device although the screen appears to result in a cramped user experience when attempting to employ them.

Apple unsurprisingly may also be testing the new gestures on the iPhone if screenshots obtained by BGR are indeed genuine. The report's source has reportedly shared screenshots from an internal Apple test model of the iPhone 4 showing a special build of the iOS 4.3 beta with the four- and five-finger gestures enabled.

A pair of reports today from Patently Apple reveal newly-published patent applications from Apple describing the company's work on advancing input systems for its Macs, showing off concepts for a multi-touch display embedded on the Magic Mouse and virtual keyboards with tactile feedback.

According to the first report, Apple's patent application entitled "Computer Input Device Including a Display Device" demonstrates how Apple could embed a multi-touch display on top of the company's existing multi-touch Magic Mouse, bringing new functionality to the input device.

In one prominent example of the technology, Apple shows a virtual number keypad displayed on an Apple mouse very close in appearance to the company's Mighty Mouse that was shipping at the time of the patent application filing, allowing for easy data entry without the user needing to remove his or her hand from the mouse.

Apple discusses several options for how the display technology could be employed, but focuses primarily on using "collimated glass" fibers extending through the entire body of the mouse. Images to be displayed could be stored within the mouse itself, transmitted from a computer, or even simply be a magnified version of text or images located underneath the mouse.

In its second report, Patently Apple points to an Apple patent application entitled "Method and Apparatus for Localization of Haptic Feedback", which describes the use of a virtual keyboard with mechanical actuators to allow the device to provide tactile feedback when keys are activated.

In particular, Apple discusses means of improving the localization of such haptic response to key activation, seeking to create a better user experience than that available through current haptic feedback input devices that typically vibrate the entire input surface upon key activation, a mechanism that is particularly troubling for multi-touch based systems. Apple's proposed system includes a significant number of actuators embedded under the display in locations where users are expected to engage key presses, combining those actuators with methods for suppressing the propagation of vibrations to keep them localized to the region of the key activation.

Such systems could lead to new virtual keyboards offering the flexibility of key layouts easily customized to the task at hand and yet retaining many of the benefits of current mechanical keyboards when it comes to tactile registration of keystrokes.

During Apple's Q1 2011 Financial Results conference call, Apple revealed that they had made long term commitments with three companies in the amount of $3.9 billion. When questioned about the exact component, Tim Cook declined to answer citing competitive reasons.

During the opening statements, however, Peter Oppenheimer revealed that the agreements began in the September and December quarters:

"During the September and December quarters, we executed long-term supply agreements with three vendors through which we expect to spend a total of approximately $3.9 billion in inventory component prepayment and capital expenditures over a two-year period. We made approximately $650 million in payments under these agreements in the December quarter, and anticipate making $1.05 billion in payments in the March quarter"

Looking back at the previous quarters, it seems to us that Apple is likely securing LCD supplies from various vendors for the years to come.

When the iPad originally launched, the supplies were initially constrained specifically due to limited production of its LCD displays. Apple's supplier for the original iPad's display was LG. In July, LG's CEO Kwon Young-soo told reporters that they were simply unable to meet the production demands for the iPad:

"Demand (from Apple) keeps growing and we can't meet it all. Apple may have to delay launches of the iPad for some countries due to tight component supplies and strong demand. We are considering increasing production lines for iPad products but overall supply is likely to remain tight until early next year."

That experience alone would likely have incentivized Apple to explore more reliable supplies of LCD displays for their growing iOS portfolio.

In December, we heard two separate reports that Apple was investing $1.2 billion with Toshiba and Sharp separately. The rapid-fire sequence of the reports made us question that one might have been a mistake, especially since Toshiba actively denied the claim. But, in retrospect, one or even both of the reports seem to have been true. The Sharp rumor reported that Sharp would be spending 100 billion yen ($1.2 billion) to build production lines for "small to midsize LCDs, with Apple Inc slated to purchase bulk of the output for its iPhone". While the iPhone might be a target for the small LCDs, the reports description of "midsize" LCDs seems more appropriate for the iPad.

Apple was said to be shouldering the bulk of the investment and will buy up most of the panels that Sharp produces. The factory would not begin production, however, until 2012. Meanwhile, the Toshiba plant was rumored to be ready for production in late 2011.

Meanwhile, Hon Hai / Foxconn is said (video embedded above) to be considering a $1.2 billion investment in Hitachi's LCD arm to build a new factory in Japan that will begin operating in 2012. While Apple is not known to be involved in this deal specifically, Foxconn is one of the biggest manufacturers of the Apple iPhone and iPad and is expected to start supplying LCDs for Apple's iPad in 2011 through its Chimei Innolux subsidiary. Interestingly, despite Toshiba's previous denials, this news report says that Toshiba is indeed building a new LCD plant in 2011 which is set to supply Apple.

The latest reports peg Apple's 2011 iPad display orders at 65 million units (up from 15 million in 2010), showing that Apple will need an enormous supply of displays as the iPad's market continues to grow. It also suggests that Sharp and Toshiba may have been two of the three target companies for Apple's massive $3.9 billion long term investment.

Apple's developer release of iOS 4.3 Beta 2 has provided more visual evidence confirming that the next iPad will carry a front facing camera as well as the Apple Camera App and Photo Booth App. The above image (homeScreenOverlayFaceTime~ipad.png) was found in the latest beta and is used by iOS to show a preview of your wallpaper selection. The current iPad uses the following image, showing only the standard iOS icons for 4.2:

In iOS 4.3 Beta 2, however, Apple has already updated this image to reflect the three new app icons that must come with a standard installation. This includes FaceTime, Camera and Photo Booth as pictured at the top.

FaceTime will allow iPad 2 owners to video conference with iPhone, iPod Touch and Mac owners. The standard Camera app will allow you to take photographs. We still can't say for sure if there will be a back camera, as the camera app could possibly be used only for the front camera. Finally, the Photo Booth icon confirms that Apple is including their Mac OS X Photo Booth app which allows users to take fun photos and apply various filters to them. Filters also found in the beta include Thermal Camera, Mirror, X-Ray, Kaleidoscope, Light Tunnel, Squeeze, Twirl and Stretch.

Apple is expected to release the new iPad in the first quarter of this year.

With the release of Beta 2 of iOS 4.3, it seems there is more evidence that Apple is working on integrating more social features to iOS. The first beta revealed evidence of a "Find My Friends" features for MobileMe that might provide users with real-time location data of their friends. In Beta 2, 9to5Mac points to findings of references to two new services called "Media Stream" and "Photo Streaming".

With Photo Streams, you will also be allowed to invite" other users to view your pictures as you take them and upload them to a service. This service looks like it is connected to MobileMe, and we speculate that Media Stream can be directly connected to Find my Friends. We think Find my Friends will be another aspect of Apples social network, a part of a free MobileMe, where you can choose to view your friends Photo Streams all on that same map.

The site speculates that this service could tie in with Apple's massive NC data center. There only appears to be scant evidence of the new features in the latest betas, so it's hard to know how close they are to completion. This along with "Find My Friends" references could point to a significant new social initiative for Apple.

In a previous email, Steve Jobs claimed that MobileMe would get "a lot better" in 2011.

Update: We've received additional information about what "PhotoStream" is. According to text found in the iOS 4.3 beta:

Photo Stream uploads and stores the last thirty days of your photos on MobileMe and downloads them to all of your devices.

Photo Streams can also be shared to other individuals.

Apple today issued a second beta version of iOS 4.3 to registered developers, marking a quick turnaround since the initial beta version was seeded one week ago.

The new seed carries build number 8F5153d, up from the previous 8F5148b, and is similarly available in versions for the iPad, iPhone 4 and 3GS, and third- and fourth-generation iPod touch, as well as in a separate version for the new Apple TV.

There is no word yet on changes in the new build, but the first beta version added for support for a number of features including personal Wi-Fi hotspot functionality, new multi-touch gestures for the iPad, support for video streaming from third-party and web apps via AirPlay, and a new software option for selecting the functionality of the iPad's side switch.

Update: 9 to 5 Mac notes that Apple has clarified in the documentation accompanying the new build that the four- and five-finger iPad gestures added in the initial build will not be included in the public release of iOS 4.3 and are simply being included in developer versions so that Apple can obtain input from developers on their functionality.

This feature will not be enabled in iOS 4.3 for customers, but we are providing this preview to gather input on how these gestures work with your apps.

In a pair of reports today, Gear Live shares some information reportedly leaked from Best Buy's internal systems showing how the retailer and AT&T are gearing up to downplay the impact of the Verizon iPhone set for launch next month.

The first report indicates that AT&T will be simplifying its text messaging plans as of January 23rd, doing away with the existing plans offering 200 messages per month for $5 or 1500 messages per month for $15 and replacing them with a single plan offering 1000 messages per month for $10. The unlimited messaging plan priced at $20 per month will remain.

The document indicates that users currently on either of the two messaging plans being discontinued with be grandfathered in and be able to stay with their current plans, even through device upgrades.

According to the second report, Best Buy's training documents for its retail staff are offering arguments (apparently reprinted from a BGR report from last week) noting that with Verizon having spent significant time at CES 2011 earlier this month touting its 4G network and forthcoming devices, the Verizon iPhone will already be outdated at its launch.

Verizon's entire presence at CES last week was focused on one thing and one thing alone: 4G. Its LTE network is now live in 38 markets and a flurry of 4G phones will launch in the coming months. But their iPhone... the smartphone millions of Verizon Wireless subscribers have been dying for... is a 3G device.

The presumption is that Best Buy will not be carrying the Verizon iPhone for some time after the device's launch, making it advantageous for the retailer to convince customers to purchase alternative phones available in its stores. But at the same time, the company's arguments also curiously seem to argue against the AT&T iPhone, which is also a 3G device and available from Best Buy.

We've similarly heard from AT&T employees, even those who are not involved in customer-facing positions, who have received "talking points" from the company about why the iPhone on AT&T is better than the Verizon iPhone. Among the key talking points being highlighted by AT&T: network speed (memo claims 35% faster than Verizon on average nationally), ability to talk and surf simultaneously (memo claims one-third of customers use it daily), global network coverage, and Wi-Fi hotspots.

The memo goes on to note that AT&T is proud to have partnered with Apple over the last three and a half years on a ground-breaking device and that it continues to be on "great terms" with Apple. Finally, AT&T points to the fact that two-thirds of its iPhone users were already AT&T customers to begin with, and 80% of iPhone subscribers are on family or business plans, which make it more difficult to switch carriers.

Starbucks today announced that its mobile payments solution for the iPhone, iPod touch, and select BlackBerry devices is now available nationwide, allowing customers to pay for their purchases using the company's mobile app at nearly 6,800 traditional Starbucks locations and over 1,000 Starbucks locations in Target stores across the United States.

To experience mobile payment at Starbucks, customers just need to download the free Starbucks Card Mobile App for select BlackBerry smartphones, iPhone or iPod touch mobile devices. More than one-third of U.S. Starbucks customers use smartphones, of which nearly three quarters use BlackBerry smartphone or iPhone mobile devices. In addition to the mobile payment capability, the app allows customers to manage their Starbucks Card account, check their card balance, reload their card with any major credit card (iPhone users can also use the PayPal feature), check their My Starbucks Rewards status and find a nearby Starbucks store with the store locator feature.

Customers can pay with their smartphone by holding their mobile device in front of a scanner on the countertop and scan the Starbucks Card Mobile App's on-screen barcode to make a purchase.

Starbucks began testing the mobile app payment functionality nearly a year and a half ago in a handful of stores, expanding the trial to Target-based locations in March 2010.

While the Starbucks mobile payment system relies on a scanner being able to read a QR Code displayed on the iPhone's screen, many have been waiting for Apple to embrace more advanced technologies such as near field communications (NFC) that would allow users to make purchases by simply bringing their devices into close proximity with sensors at retail points-of-sale.

Rumors of NFC- or RFID-equipped iPhones have been circulating for some time, and Apple has also filed several patent applications related to the technology while also hiring several employees known to be experts in the field. One such employee, Benjamin Vigier, joined Apple last year, bringing extensive experience in NFC and other mobile payment technologies, including having developed the current Starbucks mobile payment system while working at mFoundry.

While full details of Apple's conference call yesterday covering the company's blowout earnings for the first fiscal quarter of 2011 are available in our coverage post, we've compiled a few of the more interesting items that merit some additional attention:

- Record-breaking quarter: Apple set new quarterly records for Mac, iPhone, and iPad sales, as well as revenue and profit.

- iOS device sales booming: Apple has now sold over 160 million iOS devices since the original iPhone debuted in mid-2007, with iPhones accounting for the largest share at nearly 90 million. Apple sold over 360,000 iOS devices per day during the quarter, and iOS devices generated nearly two-thirds of Apple's quarterly revenue.

- iPad sales skyrocket: Apple's iPad sales of 7.33 million were well above analyst expectations and brought total sales to 14.8 million over the first nine months of availability.

- iPhone supply issues: iPhone supplies remain constrained, and the company believes it could have sold more than the record 16.24 million units sold during the quarter if supply had been available. Apple is continually working to increase production capacity, but it takes time.

- Long-term component contracts: Apple has entered into three long-term component supply contracts worth $3.9 billion. Executives declined to elaborate on the suppliers or components involved, but likened the deals to one signed in 2005 to secure five-year access to flash memory as the company made its push into flash-based iPods and eventually the iPhone.

- Tablet competition: Apple COO Tim Cook divided existing tablet offerings from competitors into two flavors: Windows-based tablets requiring a keyboard or stylus and small Android-based tablets running an operating system not designed for the form factor and consequently yielding a "bizarre" scaled-up smartphone experience. Apple doesn't consider either of the two categories competitive with the iPad. Looking ahead to Android 3.0 tablets, Cook referred to most of the CES tablet announcements as "vapor" for the time being and indicated that Apple will evaluate them as they come to market, also noting that Apple is of course not standing still with the iPad.

- "Cannibalization" by the iPad: Cook noted the iPad is slightly eating into Mac sales, but that with the Mac's relatively small share of the PC market, there is room for the iPad to replace a lot of PC sales while only marginally affecting the Mac. Cook also referenced the "halo effect" in which customers introduced to the company with the iPad are finding themselves turning to Mac for their computer purchases. "If this is cannibalization, it feels pretty good," Cook quipped.

- Jobs' health: Surprisingly, Steve Jobs' new medical leave of absence was not addressed either by Apple executives or analysts posing questions during the Q&A portion of the call. Brief discussion of the issue from the perspective of whether there will be any substantive effect on Apple's operations going forward was widely expected.

TechTrackr noted that Hugh Hefner revealed on Twitter that full uncensored issues of Playboy will become available on the iPad in March.

While Playboy has had an official App Store app, the app has been content restricted and contains no nude images. There are no further details on the iPad version of the magazine.

We suspect the magazine delivery may be related to Apple's recent plans to open up subscription billing for magazine and newspaper content which has been rumored to debut in the coming weeks. News Corp's upcoming The Daily has been repeatedly cited as the first to take advantage of the new subscription model.

Update: According to Forbes, a Playboy spokeswoman has clarified that the uncensored version of the magazine will be offered through a web-based subscription service accessible through the iPad. By offering a web-based interface rather than an App Store application, Playboy will skirt around Apple's previously-stated objections to adult content in the App Store.

We are releasing a web-based subscription service with Bondi Digital Publishing that will give users access to every issue of Playboy both past and present. The service will be iPad compatible and will utilize iPad functions.

We also have plans to release a non-nude version of a Playboy-branded iPad app in the coming months that adheres to all of Apple's policies and guidelines.

Daring Fireball's John Gruber weighs in on the recent rumors suggesting the next iPad will have a super high-resolution Retina display running at a resolution of 2048x1536.

I asked around, and according to my sources, it is too good to be true: the iPad 2 does not have a retina display. I believe the iPad 2's display will remain at 1024  768. Its display may be improved in other ways - brighter, better power consumption, thinner, perhaps.

Gruber believes that the iPad will eventually get this 2048x1536 and even claims there are prototype iPads in Apple's campus with this exact resolution, but seems certain the next generation iPad will not be that iPad.

Meanwhile, Engadget editor Joshua Topolsky stands by his source that the next iPad will indeed have "super high resolution" screen, though makes no claim on the exact dimensions. Meanwhile, Gruber admits that it could be another resolution, but he doubts it:

I think that's unlikely for reasons pertaining to UI scaling math (the same reason that the iPhone display resolution didn't increase incrementally) - but it's worth noting that my sources only claim "no retina display", not that the resolution is unchanged. The "double or nothing" line is my opinion, not information from any source.

Both Gruber and Engadget have had a history of having accurate sources. For what it's worth, Kevin Rose also claimed that the next iPad will have a higher resolution screen, though will fall short of being a "Retina" display.

Apple today announced financial results for its first fiscal quarter of 2011, corresponding to the fourth calendar quarter of 2010. For the quarter, Apple posted revenue of $26.74 billion and net quarterly profit of $6 billion, or $6.43 per diluted share, compared to revenue of $15.68 billion and net quarterly profit of $3.38 billion, or $3.67 per diluted share, in the year-ago quarter. Gross margin was 38.5 percent, compared to 40.9 percent in the year-ago quarter, and international sales accounted for 62 percent of the quarter's revenue. Apple's quarterly profit and revenue were both company records.

Apple shipped a record 4.13 million Macintosh computers during the quarter, a unit increase of 23 percent over the year-ago quarter. Quarterly iPhone unit sales reached a record 16.24 million, up 86 percent from the year-ago quarter, and the company also sold 19.45 million iPods during the quarter, representing 7 percent unit decline over the year-ago quarter. Apple also sold a record 7.33 million iPads during the quarter.

"We had a phenomenal holiday quarter with record Mac, iPhone and iPad sales," said Steve Jobs, Apple's CEO. "We are firing on all cylinders and we've got some exciting things in the pipeline for this year including iPhone 4 on Verizon which customers can't wait to get their hands on."

Apple's guidance for the second quarter of fiscal 2011 includes expected revenue of $22 billion and earnings per diluted share of $4.90.

Apple will provide live streaming of its Q1 2011 financial results conference call at 2:00 PM Pacific, and MacRumors will update this story with coverage of the conference call highlights. Analysts will almost certainly ask about Apple CEO Steve Jobs' new medical leave of absence within the context of how it and any related changes will affect the company's business, although analysts and Apple officers will obviously touch on a number of other topics as well.

Conference Call Highlights- Peter Oppenheimer: "Very pleased" to report outstanding results. Quarterly records for Mac, iPhone, iPad, total revenue, and total profit.
- Macs: New record of 4.13 million Macs sold...growth 8x faster than overall PC market. Fueled primarily by strong MacBook Air demand, as well as MacBook Pro. Quarter ended with 3-4 weeks of channel inventory.
- Highlighting Mac App Store launch.
- Music products: 19.45 million iPods. iPod touch sales grew 27% year-over-year. Now over 50% of iPod sales. iPod continues to be top-selling music players in nearly every country.
- iTunes revenue exceeded $1.1 billion. Pleased to bring The Beatles to the store, and movies to Japan.
- iPhone: 16.24 million units for 86 percent growth. Average selling price of about $625. 185 carriers in 90 countries on board. Asia-Pacific and Japan strongest growth areas: more than doubled.
- Highlighting enterprise penetration.
- Ended with 3.5 million iPhones in inventory, up about 250,000 over last quarter. Could have sold more.
- iPad: Thrilled with customer interest. Available in 46 countries. 80% of Fortune 100 are using or piloting iPad, up from 65% in the prior quarter. Average selling price of about $600. Increased supply throughout quarter...channel inventory grew by about 525,000 to support new markets.
- Now over 160 million iOS devices sold in total.
- Retail stores: Record 851,000 Macs sold, up 24%. About half were to customers new to Mac. International stores grew more strongly than U.S. stores. Opened six new stores in the quarter...323 total with 87 outside U.S. Average revenue of $12 million, up 69% over year ago. Record 75.5 million visitors during the quarter.
- Gross margin at 38.5%, above expectations...factors included component cost savings and leveraging higher-than-expected revenue.
- Cash plus marketable securities on hand nearing $60 billion.

Q&A

Q: iPhone availability. With backlog that you couldn't meet during September quarter, how are you ensuring availability going forward with Verizon coming online?
A: We made a move in the previous quarter to move to 14 million, and we sold that many. We were able to step that up by another over 2 million this past quarter, and we've continued to work on increasing capacity. But it takes time. Relative to Verizon, we're thrilled to offer it to their customers. We're gonna do everything possible to get the iPhone into as many hands as possible.

Q: Thoughts on Mac App Store?
A: Just getting going, but thrilled to have announced over 1 million downloads.

Q: iPhone and iPad availability and supply/demand balance?
A: On iPad, we increased dramatically this quarter. This allowed us to expand...added 20 countries during the December quarter, with another 15 coming this month. On iPhone, we're working around the clock to build more capacity. I'm not going to predict when supply and demand will meet though.

Q: What's driving impressive sequential growth in Asia-Pacific?
A: We've put enormous energy into China, and the results have been staggering. Greater China revenue last quarter was $2.6 billion, up 4x from prior-year quarter. Korea has also been outstanding, primarily driven by iPhone and iPad. Japan is not in Asia-Pacific segment, but also performing extremely well.

Q: Any insight into long-term business plans...product roadmap?
A: Part of the magic of Apple is our roadmap, and I don't want anybody copying us. In my view, Apple is performing at a very high level. We've done outstandingly with our Mac, but still have a low share, so we still have enormous opportunity. Still have low share in the handset market, with smartphone market growing faster than a weed. iPad just got started, and we believe the market is huge. IDC is predicting it to quadruple in two years, although we don't really know what to predict beyond our expectations that it will be huge.

Q: Any thoughts on how many more iPhones you could have sold?
A: You can't run the experiment both ways, so we just don't know.

Q: Thoughts on component costs and what was the biggest benefit for you? Thoughts on future pricing?
A: We expect favorable pricing for DRAM, but some prices for some raw materials like metals are increasing. The bulk of everything else is in supply-demand balance, so we expect these commodities to fall in line with historical trends. As for last quarter, we saw favorable pricing in most areas, which was key to our strong gross margin performance.

Q: You're making long-term commitments with three suppliers. Can you identify the areas in which these are?
A: We don't really want to get into that. We're innovating in design. So I'll say that with something like the A4 chip, we focused on design and didn't need to invest in fab. We've also in the past signed long-term deals to secure supply. The most recent major one was a flash memory deal back in 2005. That was a fantastic use of Apple's cash, and we're constantly looking for more. And recently we've identified some other areas in which we can make similar arrangements for strategic long-term investment commitments.

Q: In the past, the bill of materials costs have come down over time that makes for favorable margin improvements. Any difference in expectations for iPad?
A: I don't think you can take a single product by itself, and as you know we don't guide a margin on the product level. We have always aggressively worked to lower our costs. We shipped a lot of iPads in the quarter and were very happy with our progress.

Q: Tablet competition...how are you viewing the coming offerings?
A: If you look at what's shipping today, there's not much out there. There's two kinds of groups on the market today: Windows-based tablets are generally big, heavy, and expensive with weak battery life and require keyboard or stylus. Customers are not interested in them. Then you have the Android tablets, and with the variety shipping today, the operating system isn't really designed for tablets. So you wind up having the size of a tablet below that offering a tablet experience. Instead you have a scaled-up smartphone, which is a bizarre product in our view. But the next-generation Android tablet introduced at CES and coming, they're not shipping yet. Generally they lack performance specs, pricing, release schedules...they're vapor. We'll assess them as the come out, but we have a huge first-mover advantage and we're not standing still. We're very confident to enter into a fight with anyone.

Q: Moves to iPhone non-exclusivity still not impacting average selling prices, even with Verizon? Should we expect more CDMA carriers globally?
A: Generally, we don't envision overall iPhone average selling price declining from last quarter to this quarter. And our policy is to not comment any further out than that. Regarding other carriers, we're always assessing every carrier and every country for opportunities, and we'll continue to do that. In every case where we've moved from an exclusive arrangement to dual or multi carrier arrangement, we've grown and our share has increased. But we look at each country individually. On the CDMA iPhone specifically, I don't have any specific thing to announce today other than that we're truly thrilled to be working with Verizon. We've signed non-exclusive multi-year agreements with both Verizon and AT&T, so we're very happy to have multi-carrier in the U.S.

Q: There are still some single-carrier countries, although you've said that there are no exclusivity agreements in place now.
A: I don't want to comment on any individual country, but yes, everyone wants to do business with us. I can confirm that we no longer have any exclusivity agreements anywhere in the world. The U.S. was the last one. And remember that our supplies continue to be constrained.

Q: Thoughts on Mac and any possible cannibalization by iPad?
A: We grew 23% year-over-year this quarter, almost 8x the market rate of growth. Asia-Pacific led growth with 67% increase, 10x the market there. U.S. and Europe also grew in double digits despite overall industry contraction. Is there some cannibalization? Yes, there is almost certainly is some. But there's also a halo effect from Apple product to Apple product. We've introduced many people in Asia and other places to Apple through the iPhone and now the iPad, and a lot of them are now turning to the Mac. If this is cannibalization, it feels pretty good. And keep in mind that we have low share of the PC market, so if the iPad cannibalizes computers, the other guys will hurt a lot more and the iPad will have a huge opportunity. Cannibalization isn't something we really worry about.

Q: You seem to be bringing iOS elements to the Mac, with Mac App Store and Lion glimpses. Is this the future?
A: Part of the magic of Apple is that there aren't high walls between these groups. It's a part of the way we run the company. We're always talking to each other. As Steve has said, if the Mac company were separate and iPad were separate, what would the Mac company build to compete with the iPad? It would be the MacBook Air, and that's a great way to put it.

Q: How does the iPad drive brand penetration in emerging markets?
A: iPad has gone through all the phases of early-adopters/enterprise/etc. very quickly, and we'll look at that as it all shakes out. But again look at Asia-Pacific where we've grown so quickly. It's clear we're introducing a lot of people to Apple who hadn't been introduced, and it's showing across all product lines.

Q: Thoughts on tablet opportunities between established and emerging markets?
A: The opportunity is so large, it's large everywhere.

Q: Revenue outlook for current quarter is down 17% from previous quarter, a bit larger than last year. And you have Verizon iPhone coming. Any thoughts on that?
A: We're working hard to increase iPhone supply, and that will come over a period of time. In terms of sequential guidance, we're thrilled to be giving you guidance of 50% year-over-year growth. We increased iPad and iPhone channel inventory by about 775,000, and that will have a bit of impact. On the Mac side, we're expecting a sequential unit decline, and a large one for the iPod, as is typical for both. We expect substantial increase for iPhone, and it's our first time through this on the iPad, although we expect a decline coming off the holiday season.

Q: Any thoughts on the battle with Android?
A: We had record iPhone sales, and we believe we could have sold more. From the estimates we've seen, it's suggested we're growing faster than the market. Continuing to expand countries and carriers. We're getting enormous enterprise traction. Have highest customer satisfaction ratings in the industry. Have the largest App Store. Have sold over 160 million iOS devices. Believe that our integrated approach delivers a far superior customer experience than a fragmented approach. You can see this in the multitude of app stores coming on other platforms. Look at data on users running the latest version of any given OS...iOS is always way ahead of the other guys. We think our approach is much better for the end user because it takes out the complexity rather than making the user a system integrator. I don't know too many people who want to be system integrators. I think the same thing on the iPad...it's the same issues at the end of the day. The difference on the iPad is that we've been running for three quarters without any significant competition. I think we're in a very good position.

Q: Insight on iPad gross margins? Can you improve the features on the iPad and hold pricing?
A: I can't really talk about that. We're always trying to improve costs. We feel very very good about the performance of our products and our pricing.

Q: On the MacBook Air, any insights on how you're viewing the platform...a premium tablet or a notebook?
A: It was a phenomenal part of our growth during the quarter. The customers love it...they love the thinness, the precision, the instant-on, etc. We're really happy with it as a starting block. We've only been shipping it for less than 90 days, so we're just getting going.

Q: "Consumerization" of enterprise driven by employees bringing their iOS devices to work. Are there other barriers in terms of corporate training or whatever getting in the way of even faster adoption?
A: Most CIOs are coming to the realization that the productivity of the employee is more important than everyone using the same thing. The ability to write apps in a straightforward manner through the SDK is key, and you can literally run your entire business off an iPad or iPhone in some cases. There's an enormous potential there. The iPad started shipping in April, and we're already up to 80% of the largest companies already working with it. This is unheard of. In terms of inhibitors, the iPad has a huge advantage because we've always put in huge chunks of enterprise features with every software release. So we've always been focused on this.

-End of call

Yesterday, a report surfaced claiming that Apple is considering discontinuing some of its server-related offerings beyond the Xserve slated to disappear at the end of the month and suggesting that Mac OS X Server could eventually be cut from Apple's lineup. The rumors certainly generated significant interest and concern from those who are fans of Apple's server- and storage-related products.

The new report led one MacRumors reader to let us know that he had emailed Apple CEO Steve Jobs in early December specifically to inquire about whether Mac OS X Server might soon meet the same fate as the Xserve, and Jobs reportedly replied with a simple "no".

Q: If you are abandoning enterprise solutions by eliminating the Xserve, does that mean OS X Server is not far behind? It seems that way. I would hate to see that because I like the product.

A: No.

Sent from my iPhone

Jobs of course has a clever way of selectively addressing customer questions so as to not give away too much information, so readers should be careful of reading too much into his simple comment. His response could optimistically be taken to mean that Mac OS X Server's future is secure for the foreseeable future, although a more skeptical interpretation could be applied to suggest that Mac OS X Server may or may not be under consideration for discontinuation but that any discontinuation would be a bit further down the road and not "not far behind" the Xserve's demise.

Even that latter interpretation would be consistent with Hardmac's claims yesterday, which suggested that there would be a server version of Mac OS X Lion later this year but that it could eventually mark the end of the line for Apple's server operating system.