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>> You know we're not perfect. We know that, you know that and phones aren't perfect either. But we want to make it, make all of our users happy. And if you don't know that about Apple, you don't know Apple. We love making our users happy. That's what drives us to make these products in the first place. So we're going to talk about how we're going to do that today. Before we get into that though I want to talk a little about the problems and the data that we've got that can help inform us about what the problems really are, so that we can make sure we make all our users happy. So let's get started. The iPhone 4 is perhaps the best product we've ever made at Apple. And we have sold well over three million since we launched it three weeks ago, just three weeks ago. And it's been judged the number one smart phone in a variety of publications. These are just a few: Wired, Engadget, PC World, Consumer Reports, so people seem to like it. More importantly users seem to love it. It already has the highest customer satisfaction rating of any iPhone and of any smart phone out there. So that's not bad in the first three weeks. However, we started getting some reports of people having issues with the antenna system, which is a very advanced new antenna system and the problems they were saying, obviously Gizmodo put there video on the web, people were touching X marks the spot here and they were seeing a large drop in bars. And this has been since dubbed Antenna Gate. So we heard about this not long after we started shipping, just 22 days ago from today, right. It's not like Apple's had its head in the sand for three months on this guy. It's been 22 days, and you know Apple is an engineer driven company. We've got some of the finest scientists and engineers here in the world in the areas that we need to create our products. And the way we work is that we want to find out what the real problem is before we start to come up with solutions. And so we've been working our butts off for the last 22 days to understand what the real issues are here, so that we can come up with real solutions. And today we want to share with you what we've learned. So let's go right to the data. Antenna Gate doesn't seem like a good idea if you can touch your phone, or more importantly grip your phone in a certain way and the bars go way down. That doesn't seem like a good thing. Well it turns out it certainly is not unique to the iPhone 4. That was one of the first things we learned. You could go on YouTube and see videos of Nokia phones and Motorola phones and other phones doing the same thing. Nobody had ever looked at them much before and frankly, we didn't trust them either. So we did our own testing, and we have extremely sophisticated testing here. Let me just show you an example of some other smart phones. So we're going to start off with some very credible phones. These are all good phones, there's nothing wrong with them. The first is the Blackberry Bold 9700 made by RIM. This is perhaps the most popular smart phone in businesses. So let's take a look at what happens when you hold it in a totally normal way. So you can see the bars right there. It's got five bars, and we're going to grip it like you might easily grip it to make a phone call. And you'll see the bars go down to one quite rapidly. And you ungrip it, and the bars go back up to five; pretty much identical to the videos on the web about the iPhone 4. So there's the Blackberry Bold, five bars to one bar. Different people grip phones in different ways but you can imagine that's a pretty popular way to grip that phone. Next the HTC Droid Eris, it's an android phone. Let's take a look at it. [Sound effects] Starts off with four bars, they only have four bars and the time it takes for the bars to go down is dictated by their algorithm. The signal goes down right away, but the algorithm sometimes delays it to make sure it's not a temporary glitch as to not confuse the user. So it goes down to zero bars and then when you take your hand away from wherever their antenna weak spot is, it goes back up, eventually four bars there. So again, the HTC Droid Eris, same behavior four bars to zero bars. Samsung Omnia 2, a windows mobile phone, let's take a look at it. It's got four bars to start. We grip it in a not unusual, this I believe they have a long historesis in their algorithm, so it takes a minute or so to drop the bars, but again the signal strength dropped immediately and the display goes dark quickly. They're trying to save battery life.
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>> A popular way to grip that phone.
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>> Like you might easily grip it to make a phone call.
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>> Place them and just grip the phone in just the right place and again all smart phones seem to do that. We haven't figured out a way around the laws of physics, yet. So, we do a lot of testing. We've got an extremely sophisticated antenna lab. This is one of the pieces of equipment somebody will sit there and rotate around inside, sees through all antennas looking at the antenna reception from every angle. Again fully automated testing where we're testing the reception in free space, and here's our biggest room right here. Again you have to build these rooms because if you don't shield what you're testing from all of the outside interference, you don't get accurate tests and you can't put your equipment in the room either. The equipment's got to all be remoted outside the room. Now this is a state of the art antenna test facility. We have 17 anechoic chambers. These things are not cheap. We've invested over a hundred million dollars in our antenna facilities over the last five years. We have 18 PhD scientists and engineers on a much larger staff, 18 PhD scientists and engineers working in this area and they do some very advanced antenna design. And so the iPhone antenna went through all of this. We tested it. We knew that if you gripped it in a certain way the bars are going to go down a little bit, just like every smart phone. We didn't think it would be a problem because every smart phone has this issue. So phones aren't perfect and it's a challenge for the entire industry and we're hoping to make some contributions to this in future years. As a matter of fact we think we've started with this antenna, which is a more advanced antenna that ever has shipped on a smart phone before. People are reporting better reception with this antenna then they've ever seen with their smart phones before. So, what have learned? The first thing we've learned is smart phones have weak spots. This is not unique to iPhone 4. This is a property of smart phones. They have weak spots. You can grab them in the course of normal use, and they're all different, but you will drop reception. Next, some really interesting data from Apple Care. As you know we get very high marks in terms of customer service. Our customer service program is called Apple Care. Whenever anyone calls in for a problem, in addition to solving their problem they're logged. We look at the statistics and we got the statistics on Apple Care and we asked ourselves what's the percent of all iPhone 4 users who have called Apple Care about issues relating to anything about the antenna or reception or anything even near antenna or reception. In other words if you read all these articles out there you would have thought Jesus, at least half our customers must have called in to complain or ask questions or be angry, right? So what percent of iPhone users have called Apple Care, hard data? One half of one percent, one half of one percent, 0.55 percent, and this data is just a few days old, 0.55 percent. Historically for us, this is not a large number. So this doesn't really jive with what you read about this problem. Let's keep going. So smart phones have weaknesses and Apple Care, about a half percent of iPhone 4 users have called in about problems related to reception, antennas, etc. Even after reading all of these articles out there, 0.55 percent. The third return rates, like Apple AT&T who is the largest reseller of iPhones has, if you will, a buyer's remorse return period. And people return phones for all sorts of reasons. The reception in their area isn't what they hoped. They try it out they just don't like it. The antenna just doesn't work for them when they grip it a certain way. Whatever it is, no questions asked, they can return a phone just like at Apple. So, what are the return rates to our largest reseller of iPhone 4's? Well what we're going to do is compare it to iPhone 3GS because iPhone 3GS has been the best selling smart phone in history. It's the gold standard. So in the early days of iPhone 3GS a year ago, AT&T's return rates were 6 percent, which is below the smart phone average. Everybody was pretty happy about that. What are they for the iPhone 4? Again, you go online and you read all these articles about it, and you think, "Gee at least half the people must be returning their phones" right? It's pretty serious. Well, we've got the data now and the hard data says it's 1.7 percent. It is less than a third of the return rates for the iPhone 3GS; hard data, just a few days old. So smart phones have weak spots, about a half of one percent of all iPhone owners have called Apple Care about anything related to antennas and reception. And the returns at our largest iPhone 4 reseller are a third of what they were for a phone that was regarded as spectacular a year ago. Okay, pretty interesting. One more data point, AT&T has given us the early call-drop rate information just three days ago. They obviously run a very sophisticated network. They do a great job and they log call drops. That helps them improve their network. And so we can't give out the absolute call-drop data, that's very confidential, proprietary to them for competitive reasons they don't want to give it out, and I totally agree with them. But they are going to let us release the delta to the iPhone 3GS. So how is the call drops, how are iPhone-- how do the call drops on the iPhone 4 compare to the call drops on iPhone 3GS during its early period a year ago? How many additional calls are dropped per every hundred calls you make on an iPhone 4, compared to an iPhone 3GS? And I can tell you since we are being totally transparent that even though we believe the iPhone 4's antenna is superior to that of the iPhone 3GS, I must report to you that the iPhone 4 drops more calls per hundred than the iPhone 3GS. That's what the data says. We got it three days ago. So how many more calls per hundred does the iPhone 4 drop than the iPhone 3GS? Again, listening to Antenna Gate on the web you would think, "Whoa, it must be dropping half the calls. It must be dropping at least fifty more calls per hundred or twenty-five more calls per hundred" right, wouldn't you expect that? This is the hard data. The iPhone 4 drops less than one additional call per hundred more than the iPhone 3GS. Less than one additional call per hundred. Now, even less than one is too much for us. We're trying to find out why. We want to drive this lower than the 3GS, but this does put it in perspective. So I have my own pet theory on this, which we have no proof of, but I'll give it to you anyway. When the iPhone 3GS came out we did not change the design from the iPhone 3. And there was a healthy market of cases for the iPhone 3G that were already in stores that fit the 3GS perfectly, since the design didn't change. And in our stores 80 percent of the iPhone 3GS users walked out with a case. The iPhone 4 has a radically new design. None of the old cases fit. Since we didn't show it to anybody, none of the new cases are ready, and we can't make enough of our bumper cases. And so in our stores about 20 percent of the people are going out with a case. And I think that has something to do with this disparity. But who knows, we're going to track it down. But again zooming out, less than one additional call drop per hundred calls over the iPhone 3GS. So if you put these four things together, smart phones have weak spots. Almost every smart phone we've tested exhibits the identical behavior if grabbed in a reasonable way as the videos you've all seen on the web of the iPhone 4. Around a half of one percent of iPhone owners have called Apple care in relation to reception and antenna issues. Only 0.55 percent of all iPhone owners have called; an extremely low number. The return rates for iPhone 4 are running one third of those for the iPhone 3GS a year ago. And the iPhone 4 drops less than one more call per hundred than the iPhone 3GS. Now when we look at this data, when our engineers and scientists look at this data it's very hard to escape that the conclusion that there is a problem, but that that problem is affecting a very small percentage of users. I myself have gotten over five thousand emails from users telling me how their iPhone 4 works perfectly and they can't figure out what all of this is about. So, we think there's a problem, but we think it's affecting a small percentage of users and we think some of that problem is inherent in every smart phone. But, having said this we care about every user, and we're not going to stop until every one of those is happy. But I think it's important to understand the scope of this problem. Because what this data says leads you to the conclusion that this has been blown so out of proportion that it's incredible. I know its fun to have a story, but it's less fun when you're on the other end of it. [Laughter] So, we care about every user. So let me tell you what we're going to do. The first thing we did yesterday, we released IOS version 4.0.1 that is now out. People are updating it. It fixes the wrong formula that we used to calculate how many bars to put up for a given signal strength, and there was a nasty Exchange bug in there that a lot of our corporate customers are hitting, and that's been fixed as well. So those bugs are fixed. IOS 4 is out, 4.0.1 is out. We recommend that every iPhone owner update to it. Secondly a lot of people told us the bumper solves the signal strength problem. Consumer Reports is the latest one this week, we've heard it from a lot of people. "Why don't you just give everybody a case?" Okay great, let's give everybody a case. We've got our bumper case here. We want to give everybody a free case. Every iPhone user is going to get a free case, one for every iPhone 4. If you've already bought one we'll give you a full refund for a bumper and we're going to do this for every iPhone purchased through September 30th. We'll re-examine this in September and decide whether to keep going or maybe we'll have a better idea. But at least through September 30th, a free case for every iPhone, and if you've bought a bumper, we'll give you a full refund. Now, everything in life is more complicated than it seems on the surface. We're going to send you a free case. We can't make enough bumpers alright. We were planning on selling them and making a certain percentage and we have the tooling done. If we're going to try to give the bumper to everyone, no way we can make enough in the quarter. So what we're going to do is source some other cases and give users a choice of cases and they'll be able to pick one. And you can apply on our website starting late next week, it takes about a week to get this all up, pick a case and zoom we'll send it off to you, that simple. So, a free case for every iPhone 4 user, simple, and if you're still not happy before or after you get a free case, as we've said, you can bring your iPhone 4 back undamaged within 30 days for a full refund. We've waived any restocking fees, anything, full refund.
[Background music] So we are going to take care of everyone. We want every user to be happy and if we can't make em happy we'll give them a full refund. [Music]
