Early this morning, Apple CEO Tim Cook took to the stage at Goldman Sachs' Technology and Internet Conference - and we mean early as he took the stage at 7:15 am Pacific time. Cook has apparently been invited to sit next to Michelle Obama tonight during the State of the Union address, hence the early time slot (he was originally slated to go on at 1:30 pm PT). Although billed as a keynote presentation, it turned out to be a straight forward Q&A from the get-go, with Cook making no actual presentation.
Let's get the important stuff out on the table immediately - no one asked any questions that were either out of the ordinary or new in nature - they were the same questions that have been asked before - some of them most recently at Apple's latest earnings call. And no one asked about an iPhone 5S - rumors of which have been showing up again in headlines this morning. No doubt no one asked about it because Cook certainly would not have said anything about it. No one asked Cook about a rumored iWatch either, no doubt a good thing.
The extent and summary of the iPhone 5S rumors are that Apple is preparing to launch a less expensive iPhone made with a plastic body. Or it isn't. The usual collection of unnamed sources - and a specific call out from a media person created the headlines - but in fact there is no real news to be had. Our previous coverage of what an iPhone 5S might look like and deliver on is as valid today as the day we wrote it in early December 2012. We expect Apple to launch an inexpensive smartphone - but look for it to be the most expensive inexpensive smartphone possible, and one that maintains Apple's high standards for build quality - plastic body or otherwise.
The media person, iLounge Editor-in-Chief Jeremy Horwitz claims the following: “Yes, it will be made substantially from plastic. No, it won’t just be a Retina- and Lightning-equipped refresh of the iPhone 3G or 3GS, Apple’s last plastic iPhones, nor will it look just like an all-plastic version of the iPhone 5. This new model is actually a cross between the iPhone 5, 5th generation iPod touch and - wait for it - the iPod classic. Yes, really. It will have a 4 inch screen, like the iPhone 5, a bottom like the latest iPod touch and a shape that’s most similar to the iPod classic.”
There you have it - believe what you want, but perhaps what Apple will actually announce is a new iPod.
Rumors out of the way, let's turn back to Cook's Q&A. We won't field the entire Q&A here (some of the conversation has been written about ad infinitum) but we'll highlight the most interesting. As we noted, the questions were - in our humble opinion, rather mundane, but Cook did attempt to generate enthusiasm in his responses at every turn.
The very first question was, of course, about the cash stash and Apple's tête-à-tête with David Einhorn and his investment firm Greenlight Capital. Einhorn claims that Apple has a cash-hoarding depression era mentality. Well, Cook politely disagreed but did note that the company is financially conservative but remains a fierce innovator. Cook notes in essence what we all already know (we're paraphrasing): Last year we invested $10 billion in CapEx, and we believe we'll do the same in 2013. Cook noted that his definition of a depression era mentality wouldn't be of a company investing $20 billion over two years. We continue to invest heavily and globally on retail, in product innovation and new products, and we continue to invest in our supply chain. We're also continuing acquiring various companies.
And he noted the $45 billion in declared dividends for shareholders and share buybacks, though $45 billion now is low relative to sitting on $137 billion. Cook noted that yes, Apple has a lot of cash, and the board is exploring what to do about it. Cook was characteristically upbeat regarding Einhorn's demand for a perpetual preferred stock saying, "I think it's creative and we are going to evaluate the proposal." But Cook also added that his own belief is that the entire thing "Is a silly sideshow." One can draw a certain conclusion from that!
Following up on the issue of acquiring companies, the question was asked about Apple not making large scale acquisitions. Cook took stock of Apple's recent acquisitions, which he noted have taken place roughly every other month over the last three years. Cook says Apple looks for (again, surprise) smart people and/or highly useful IP. Cook claims that Apple has looked at various large companies but none have met Apple's simple test for smart people and IP.
The conversation then logically segued from IP and smart people to Apple innovation. Cook went to great lengths to position Apple as the world's greatest innovator and stated his belief that innovation is in the DNA of the company. He then focused on the usual suspects driving Apple innovation, citing his senior management team - of course, chief among them Jony Ive on the design front and Bob Mansfield, who Cook believes "is the top silicon expert in the world." We ourselves continue to believe that Apple has dropped the innovation ball and that Apple needs to deliver some serious, new game changing innovation by the time its World Wide Developer Conference comes around in July 2013 to prove that Cook's belief remains true.
A World Full of Apple Opportunities!
Circling back to issues of general Apple market share, the question was then asked if Apple's markets are approaching a "limit." Cook's reply was of the rose-colored glasses type, and infused with effusive optimism - Cook sees a market that is projected to double over the next several years, and one where all phones will be smartphones. He also noted that there are many more people on planet Earth than 1.4 billion, and he also noted that people love to upgrade very regularly. The sky is still the limit for both iPhone and iPad sales. Cook also noted that Apple has now helped to generate over $8 billion in revenue for iOS developers (let's call a spade a spade and note that this is huge for developers).
Cook next called out China as the great land of opportunity. He pointed out that Apple has gone from a few hundred million in revenue to $3 billion to $13 billion. "We're adding over $10 billion every year."
Cook was then asked his view of iPad's future - and again, surprise - Cook said, "It will be a huge opportunity for Apple." He pointed out the 23 million iPads sold during the last quarter in context to HP, which sold 15 million PCs. Cook believes that this is a sea-change and that the industry is "still in the early innings of this game." He also noted the broad appeal of the iPad, which ranges easily from the enterprise to the pure consumer.
Cook goes on to note that over 50 percent of the people in countries like China and Brazil that buy iPads are first time buyers for Apple products. "This is a huge thing for us to go out and show people what Apple is and introduce them to the company. Through the years, we've found a very clear correlation between people getting in and buying their first Apple product and some percentage of them buying other Apple products," Cook goes on to say.
More generally, Cook goes on to note that, "We're managing Apple for the long term. I know people care about quarters and so forth and we care, but the decisions we make, the profound decisions we make, are for Apple's long-term health. Not the short-term 90 day [financial analyst] clock."
Retail is King
Cook was also asked about the value to Apple of retail, and of course we all know that retail is a huge foundation for Apple's success - which Cook then went on to make absolutely clear. Apple has put enormous energy into expanding its ecosystem globally.
The App Store now operates in 155 countries, and the iTunes store now operates in over 100 countries. As for the retail stores, Cook notes that there is simply no better place to discover, explore and learn about Apple products than in retail. Cook says that Apple now has stores in 13 countries and that there are many more yet to go. "We're going to add lots more." Cook also adds that the average store delivered over $50 million in revenue in 2012.
Cook spares no compliments for his retail workforce: "Our team members are the most amazing, awesome, incredible people on earth. It's the best retail experience, it's an experience where you walk in and instantly realize it's for the purpose of serving, not selling."
Cook goes on to mention that he believes the Apple store is now a place that has an important role in the community. "I'm not sure store is the right word any more, they are the face of Apple for almost all of our customers. They don't think about Cupertino, they think about the local Apple store." Cook then took it to the limit: "Going into an Apple store is like Prozac for me - it's exciting, energizing…if I'm ever feeling a little down all I need to do is drop into an Apple store." Yes, he said that and we sort of believe him.
Cook also credits the Apple store for the iPad's success. The store experience is what convinced people that a tablet is not "This heavy thing the Hertz guy held. Our store is the place to go and discover and try the iPad out and see what it really is and what it can really do. I don't think the iPad launch would have been nearly as successful without stores that welcome people in. It gives Apple an incredible competitive advantage."
Finally, someone noted that Cook's first full year as Apple CEO is coming to a close and asked Cook what he is most proud of. He enumerated the products and summarized it as "I'm incredibly proud of the products" But he is "Most proud - incredibly proud - of our employees. They're there to not only do great work but the best work in their lives. They're there to do it without limits, and they're the most creative in the world. It's a privilege."
And then he was off to catch his plane to Washington DC.
TechZone360 Senior Editor
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