Tim Cook at Goldman Sachs Conference: Retail Philosophy, Acquisitions, and the Apple Ecosystem

timcookApple CEO Tim Cook is now speaking at the Goldman Sachs Technology and Internet Conference, participating in a Q&A session with analyst Bill Shope. Apple is streaming live audio of the session on its investor site, and we'll be sharing some of the highlights here in this post.

Question about Apple's cash usage strategy...do you have a Depression-era mentality?

What a way to start! We're making significant investments in a number of areas: supply chain, retail stores, corporate acquisitions, etc. Now, we do have a significant amount of cash, and we're fortunate to have that. We're returning some of it to investors and will continue to have discussions on that.

Thoughts on Greenlight's proposal about unlocking more capital for shareholders?

We welcome input from our shareholders and are discussing a broad array of options.

How about Greenlight's lawsuit regarding your proxy statement?

There are some misconceptions over what this is about. It's not about turning money back to shareholders. It's about corporate governance. So we've decided to eliminate the ability to issue "blank check" shares ourselves. We could still do it, but would have to go to shareholders for approval. So frankly, this seems bizarre to me that we're being sued over something that's good for shareholders.

We wish people involved in this lawsuit would take this money and donate it to a good cause. This is a waste of money for all involved...a silly sideshow. But you're not going to see us sending out a mailing or campaigning for our proposal. It's the right thing to do, and I'm going to vote for it. You're not going to see a "Yes on 2" sign in my front yard.

Question on acquisitions...most of them are small. Is there something in your culture against large acquisitions?

We do a fair number of acquisitions...one every other month. Most of them are for talented people working on smaller projects that we absorb and then move them to our own projects. PA Semi is an example...talented chip folks working on PowerPC and we moved them to iOS device work. We'll do more deals like this.

As for large companies, we have and will continue to look at them. But so far they haven't passed smell test for us. We could do it, but we're disciplined. Not interested in just growing revenue, but if there was a large acquisition that fit our needs, we would do it.

How do we think about Apple's culture of innovation today?

It's never been stronger. It's so embedded in Apple...the desire to make the very best products in the world. It's in the DNA of the company, and so I feel fantastic about it. Now, if you look at some essentials for innovation, there's no formula. But some of the essentials are skills and leadership. If you look at skills, Apple is in a unique and unrivaled position...expertise in software, hardware, and services. Consumers want an elegant experience where technology floats to background and customer is at the center. The real magic happens at the intersection of software, hardware, and services, and we have the ability to innovate and create magic there.

For many year, this idea of "vertical integration" was out of favor. People thought it was kind of crazy, but we never did and we continued to build. This is something you work decades for. I think there are people trying desperately to catch up, and they're finding it very difficult to do.

In terms of leadership, I look around the executive boardroom and see superstars. Jony Ive is the top designer and now turning his attention to software. Bob Mansfield is the leader in silicon. No one better than Jeff Williams at operations. Schiller, Riccio, etc. I've never been more bullish on Apple...we have the talent to pull this off.

Question about law of large numbers. Have we reached a natural limit on iPhone growth?

We don't have the word "limit" in our vocabulary. It's because of that that we've been able to do things for so many years and deliver things people never knew they needed. When I look at smartphone market, I see a market that was at 700 million last year...projected to double over next four years. Over the long-term all phones will be smartphones and there are a lot more people in the world than 1.4 billion. And people like to upgrade regularly. This is an enormous market to get to.

We've sold 500 million as of the end of last year, but over 40% of that happened last year. So there's incredible momentum. And we've built a great ecosystem that is also fueling a developer industry..we've now paid out over $8 billion to them. Innovation has all moved to tablets and smartphones, so there's so much momentum. When you look at what we're doing in China, it's impressive. There are also areas where we're not doing as well, and we view those as opportunities. When I string all of these things together, I see a wide open field.

Question about opportunities...low-cost and prepaid markets have little access to iPhone given expense. How do you create a quality product accessible to more people?

We wouldn't do anything we don't consider to be a great product. That's just not who we are. That said, if you look at what we've done for people who are price sensitive, we've lowered the price of the iPhone 4 and 4S as of last September, and last quarter we didn't have enough supply of the iPhone 4. It surprised us.

Also take a look at the history of iPod. When we started, it was $399. Now you can get an iPod shuffle for $49. Rather than cheapening, we build new products with a separate experience. For years, people said 'Why don't you have a Mac under $500 or $1000 or whatever?' We worked on that for a long time and came up with the iPad. So we're always trying to reinvent with great new products.

Question about Apple's design choices..focusing on iPhone 5 screen size and how Apple's knows it's right for users.

First of all, I'm not going to talk about what we might do in the future. But look back at the PC industry...companies have historically competed on two fronts: price and specs. But customers are interested in the experience. Do you know the speed of an Ax processor? It doesn't matter. So when we look at displays, there are a lot of factors...and it's all about the experience. There are many details of a display (Retina is twice as bright as OLED, and better color saturation), and we sweat all of them to create the best experience, which is always broader than can be defined by a single number.

Question about the "Apple would never..." religion

The only thing we'll never do is make a crappy product. That's the only religion we have...we must do something great. Something bold, something ambitious. Something great for the customers, and we sweat all of the details.

Question about iPad and potential for tablet market

It's a huge opportunity. It's an ideal example of the intersection of hardware, software, and services. Look at PCs...we sold more iPads last year than market leader HP sold of their entire PC lineup. There were about 120 million sold last year...projections suggest 375 million within four years. Will exceed PC sales.

Apple is the poster child of the post-PC revolution. We have over 300,000 apps custom designed for the tablet. The other guys have a few hundred. And you can see the whole of Apple coming out here. I don't know about market share because we're the only ones really report numbers, but if you look at usage, IBM saw over Black Friday that shopping activity on iPad was twice as high as the entire Android market. Data is very clear that iPad is popular and people use them more. I'm not sure what people are doing with these other tablets. We want people to use our products, not just buy them. Our relationship starts there...it doesn't end there.

iPad is also moving into all of the key markets. In almost every Fortune 500/Global 500 company. Making inroads in education, and of course consumers. It usually takes a long time to penetrate all of these markets, but we've already done that. But we still think we're in the early innings of this. Customers want integration and we deliver that.

iPad mini was huge last quarter. iPad set a standard for pricing, and iPad mini brought that down further. But it did bring down margins. What about tradeoffs between entry pricing and financials for the company.

I get asked about cannibalization a lot. The first time I remember being asked about this was the iBook versus the PowerBook. When the iPad came out, people said we were going to kill the Mac. The truth is we don't think about that. If we don't cannibalize, someone else will. In the case of iPad, the Windows PC market is huge, and there's a lot more there to cannibalize than there is of Mac. If a company ever begins to use cannibalization as a major factor in their decision-making, it's the beginning of the end. Because if they don't, someone else will.

If you look at the iPad, over 50% of the people buying iPad in countries like China and Brazil don't own any other Apple products. And we've seen a very clear pattern of people buying an initial Apple product and then buying more. We've seen this halo effect with iPod for the Mac, iPod for iPhone, and now even iPad for iPhone. Seems perfectly reasonable to me to have both iPad and iPad mini in our lineup. I think this is going to be the mother of all markets. And customers are voting and they're buying.

Your margins have long been above your competitors'. How do you think about this over the long-term?

I don't want to get into projecting margins beyond what we do in conference calls, but in general here's what we do. You can always go in and accept a lower margin for strategic reasons, but at the background we always know that this halo effect plays out. We also are confident in our ability to manage the supply chain and bring down the cost curve. Because we're not a "hardware company", we have other ways to make money and reward shareholders. Last quarter, for software and services, it was $3.7 billion. If you look at software and services companies, that's an incredible amount of revenue. Being more than just a hardware company gives us some flexibility over the short-term. We're managing Apple for the long-term.

Looking at Apple as a platform company, address how things might differ between developed markets and emerging markets. Some markets, for reasons outside of Apple's control, don't have iTunes music and movies, etc. How does that affect platform strategy.

Last year, we put major effort into expanding our ecosystem into new markets...App Store, iTunes Store, iBookstore all in over 100 countries. Only one major country where we're not selling movies. We advanced significantly last year in getting our infrastructure in place in countries around the world. We still have a ways to go, and you're right, in some cases it's beyond our control, but we keep knocking on the door. But versus last year when we were talking, there is a dramatic difference in our ecosystem in emerging markets.

Question on retail strategy

There's no better place to discover, explore, and learn about our products than our retail stores. Our people are amazing. You walk in and immediately realize the store isn't there for selling, but for service. The store helps you get more out of your products and acts as a gathering place. You might find a youth program with kids coming on an elementary school field trip. You might find a local musician performing. I'm not even sure "store" is the right word anymore. They are the face of Apple for almost all of our customers. People don't think about the Cupertino headquarters...they think about the local Apple store. Last quarter, we welcomed 120 million people in our stores, and we only have a little over 400 of them.

So this is huge, in fact so huge that some of our stores aren't big enough. But like cash, it's a good problem to have. So this year we're closing 20 stores and moving them to larger spaces. And opening 30 more stores, disproportionately outside of the U.S., including first store in Turkey.

I don't think we would have been nearly as successful with iPad if it weren't for our stores. This was something new that people didn't know anything about, but the stores gave people the chance to come in and experience it.

We're incredibly bullish on stores and going to continue to invest in them. Our people are fantastic, and there's no place quite like it. I don't have very many bad days, but if I ever feel that I'm dropping down from an excited level, I go and visit a store. It's like a Prozac.

Look back at first full year as CEO. What are you most proud of?

Most proud of our employees. I have the privilege every day of working with people who want to make the very best products in the world, and they're there to do not only great work, but the best work of their lives. It's a privilege of a lifetime for me to be there now.

I'm proud of products. For those things we've elected to do, they're really great. I'm incredibly bullish on the future. I'm proud that we have a spine and are out in front on supply chain responsibility. I'm proud that we're doing heavy lifting with the environment...eliminated toxics, largest private solar farm anywhere, etc. I'm proud about all of these things. It's both the privilege of a lifetime and incredibly humbling to be able to work with all of these great people.

-End of Session-

Top Rated Comments

Allenbf Avatar
132 months ago
I can't speak for everyone of course, but in my opinion, Cook is a great CEO. He isn't Jobs, he doesn't have to be. Let Ive handle design, innovate as a company (from the ground up) and let Cook handle what he's great at. :apple:
Score: 20 Votes (Like | Disagree)
gregwyattjr Avatar
132 months ago
"How about Jonathan Ive? How's he coming with that new Mac Pro?"
Score: 14 Votes (Like | Disagree)
arcite Avatar
132 months ago
Love it. Tim Cook telling Wallstreet to take a hike. Apple will do what Apple does best, making products!
Score: 13 Votes (Like | Disagree)
ECUpirate44 Avatar
132 months ago
Once again confirms Ive is working on software!
Score: 11 Votes (Like | Disagree)
samcraig Avatar
132 months ago
My favorite spin quote

"The only thing we'll never do is make a crappy product. That's the only religion we have...we must do something great. Something bold, something ambitious. Something great for the customers, and we sweat all of the details. "

I can list a few in recent years that wouldn't pass this test.
Score: 8 Votes (Like | Disagree)
Peace Avatar
132 months ago
Tim keeps saying "We are constantly looking". Well make up your friggin mind man. Stop looking and start doing.
Score: 8 Votes (Like | Disagree)

Popular Stories

iOS 16

Apple Releases iOS 16.4 With New Emoji, Safari Web Push Notifications, Beta Changes, Voice Isolation for Calls and More

Monday March 27, 2023 10:03 am PDT by
Apple today released iOS 16.4, the fourth major update to the iOS 16 operating system that initially came out last September. iOS 16.4 comes two months after the launch of iOS 16.3, an update that added Security Keys for Apple ID. iOS 16‌.4 and iPadOS 16.4 can be downloaded on eligible iPhones and iPads over-the-air by going to Settings > General > Software Update. It can take a few minutes...
iOS 16

iOS 16.4 Will Add These 8 New Features to Your iPhone

Sunday March 26, 2023 8:06 am PDT by
Following nearly six weeks of beta testing, iOS 16.4 is expected to be released to the public as soon as this week. The software update includes a handful of new features and changes for the iPhone 8 and newer. To install an iOS update, open the Settings app on the iPhone, tap General → Software Update, and follow the on-screen instructions. Below, we have recapped eight new features and...
apple mixed reality headset concept by david lewis and marcus kane

Some Apple Employees Seriously Concerned About Mixed-Reality Headset as Announcement Draws Closer

Sunday March 26, 2023 8:25 am PDT by
Some Apple employees are concerned about the usefulness and price point of the company's upcoming mixed-reality headset, The New York Times reports. Apple headset concept by David Lewis and Marcus Kane Initial enthusiasm around the device at the company has apparently become skepticism, according to eight current and former Apple employees speaking to The New York Times. The change of tone...
iOS 17 on Phone Feature

Gurman: iOS 17 to Provide Several 'Most Requested Features'

Sunday March 26, 2023 6:05 am PDT by
Apple changed the strategy for iOS 17 later in its development process to add several new features, suggesting that the update may be more significant than previously thought, Bloomberg's Mark Gurman reports. In January, Gurman said that iOS 17 could be a less significant update than iPhone updates in previous years due to the company's intense focus on its long-awaited mixed-reality...
apple tv 4k red image

Apple Releases tvOS 16.4 for Apple TV 4K and Apple TV HD

Monday March 27, 2023 10:00 am PDT by
Apple today released tvOS 16.4, the fourth major point update to the tvOS 16 operating system that came out last September. Available for the Apple TV 4K and Apple TV HD, tvOS 16.4 comes two months following the release of tvOS 16.3. The tvOS 16.4 update can be downloaded over the air through the Settings app on the ‌‌‌‌Apple TV‌‌‌‌ by going to System > Software Update....
Steve Jobs Theater dusk

Apple Reportedly Demoed Mixed-Reality Headset to Executives in the Steve Jobs Theater Last Week

Sunday March 26, 2023 5:53 am PDT by
Apple showcased its mixed-reality headset to the company's top 100 executives in the Steve Jobs Theater last week, according to Bloomberg's Mark Gurman. In the latest edition of his "Power On" newsletter, Gurman explained that the "momentous gathering" is a "key milestone" ahead of the headset's public announcement planned for June. The event was intended to rally Apple's top members of...
Apple Music Classical

Apple Explains Why It Launched an iPhone App Dedicated to Classical Music

Monday March 27, 2023 8:54 pm PDT by
Apple today published a support document explaining why it decided to release a standalone Apple Music Classical app for classical music. In short, Apple says the app was designed to support classical music's complex metadata:Classical music is different. It has longer and more detailed titles, multiple artists for each work, and hundreds of recordings of well-known pieces. The Apple Music...
iPhone 15 Pro Buttons CAD Leak

iPhone 15 Pro Low-Energy Chip to Allow Solid-State Buttons to Work When Device is Off or Out of Battery

Wednesday March 29, 2023 1:54 am PDT by
The iPhone 15 Pro and Pro Max will use a new ultra-low energy microprocessor allowing certain features like the new capacitive solid-state buttons to remain functional even when the handset is powered off or the battery has run out, according to a source that shared details on the MacRumors forums. CAD-based render of new solid-state buttons on iPhone 15 Pro models The source of this rumor is ...