Apple Says iPhone Finding Its Business Niche

The iPhone's status as a shiny consumer device that's unsuitable for business use appears to be fading.

Businesses and other large organizations are beginning to purchase large quantities of iPhones for use in their environments, Apple executives said Tuesday during the company's third quarter earnings call.

In a Q&A during the call, Apple executives said the hardware encryption and improved security policies in the iPhone 3GS and iPhone OS 3.0 are spurring iPhone adoption in organizations of all sizes. This is particularly true of small businesses that allow individuals to purchase devices for individual use within the corporate environment, Apple COO Tim Cook said.

Twenty percent of Fortune 100 firms have bought in excess of 10,000 iPhones and there are multiple corporate, government, and higher education customers that have bought more than 25,000 units, according to Cook. "We think we're just at the tip of the iceberg in terms of [iPhone adoption] with business customers," he said.

Airight security helped propel RIM's Blackberry to a dominant position in the business smartphone market, and stronger iPhone security is crucial to Apple's ability to win the hearts and minds of corporate IT departments that have previously balked at supporting the device.

"If you're Apple, you have to win over the IT guys who've always been somewhat anti-Apple, and encryption and overall strong security are the keys to doing that," said Shane Spiess, president of Portland, Ore.-based Apple reseller MacForce.

Apple's recently unveiled Find My iPhone and Remote Wipe services are currently available only to MobileMe subscribers but are the exact types of features that can convince IT departments of the iPhone's viability for business use, Spiess added.

Apple sold 5.2 million iPhones during the quarter, a more than 600 percent increase from the 717,000 it sold in the year-ago quarter. However, demand for the iPhone 3GS appears to have reached an unsustainable level and could interfere with Apple's plan to expand iPhone distribution to 80 countries this fall.

Apple CFO Peter Oppenheimer admitted during the call that Apple is currently unable to meet iPhone 3GS demand and said the situation isn't likely to change in the short term. Asked whether that would affect Apple's plans to expand iPhone 3GS availability to 80 countries this fall, Oppenheimer said he believes the majority of countries will be selling the device by the end of Apple's fiscal year Sept. 27.

One country where Apple won't be selling any version of the iPhone anytime soon is China. Despite long running negotiations between Apple and Chinese carriers, Cook said only that bringing the iPhone to China continues to be a priority for Apple and it hopes to do so with a year.

Apple's exclusive U.S. iPhone carrier AT&T has taken heat for its delay in supporting new iPhone 3GS features like MMS and tethering, and there have been rumors that Apple might develop a CDMA version of the iPhone that would run on Verizon's network.

However, when asked to comment on the AT&T relationship, Cook said only that Apple is satisfied and doesn't foresee any changes. "It's an excellent relationship and we're very happy with it," he said.

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