Highlights from Tim Cook’s Goldman Sachs talk


As announced yesterday, Apple CEO Tim Cook is speaking at the Goldman Sachs Technology and Interactive Conference in San Francisco. Right on schedule, he began discussing topics of interest at 7.15am Pacific, 10:15am Eastern time, just after the markets open. Originally scheduled at 4:15pm Eastern, Cook’s segment was shifted so he could be whisked more than 2,000 miles to Washington DC to sit beside Michelle Obama for the President’s State of the Union address.

Apple is streaming its chief executive’s remarks live on its Investor web site and should post the full audio shortly after the event. If you don’t have the time to sit through the whole thing, we’ve got you covered with the most interesting bits and pieces from Cooks’ presentation…

On leadership changes

With former iOS boss Scott Forstall now out of the picture and design guru Jony Ive assuming broader responsibilities that now include both hardware, software and user interface design for all Apple products, Cook said Apple has “the talent to pull this off.”

When I look around the executive table, I see superstars. I see people who are at the top of their game.

The CEO called Jony Ive the “best designer in the world”, un-retired Technologies chief Bob Mansfield the “top silicon expert in the world,” and Jeff Williams Apple’s “best guy for operations”.

We’ve known that Ive and Mansfield are Apple’s top players and trust Cook about Williams. After all, the guy was his right-hand man back when Cook was Apple’s op-chief.

On crazypants analysts and shark investors

The profound decisions we make are for Apple’s long-term health. We know people care about quarters, and we care too, but we’re making decisions to ensure Apple’s health past a ninety-day window.

On innovation

Apple’s always been famous for its vertical integration. The company likes to control the technologies that go into its products and it brings them all together under the same roof to design tightly integrated experiences.

Apple has both “the ability to innovate like crazy and cause magic” and the “desire to make the best products in the world”. Cook has “never been more bullish on Apple” and its future prospects.

Consumers want this elegant experience where the technology floats to the background and the customer is at the forefront of the experience,” said Cook. Apple designs Mac hardware, OS X and iCloud services that tie its products together.

Other companies chasing Apple in this space are starting to realize they must focus on integration and innovation. Samsung, for example, just announced it is turning the home turf of Apple into a center of its own innovation by announcing the new Samsung Open Innovation Center in Silicon Valley.

On clunky old PC software

The innovation has moved away from PC development to the tablets and smartphones. Who is making PC apps now? No one, except the usual suspects.

On quality

Seemingly forgetting about the Maps fiasco and ongoing Siri woes, Cook explained Apple isn’t about blindly pursuing market share, or even profit for that matter. The bar is set high and “the only thing Apple will not do is make a crappy product,” he explained.

Customers want a great experience and they want that ‘aha!’ moment each time they use the product, which isn’t dependent on specs. You want a fabulous experience.

On OLED tech

Apple’s been rumored for years to adopt OLED display technology. Recent news of Apple hiring an OLED expert from LG Display gave hope that perhaps upcoming iDevices will switch to OLED panels.

Not so fast, the CEO warned as he trashed OLED tech:

The color saturation on OLED displays is awful. You shouldn’t depend on an OLED display’s color. The retina display is twice as bright. There are many attributes of a display and Apple sweats every detail. We want the best display. I think we’ve got it. We care about all of it.

He also advised online shoppers to “think twice before you depend on the color of the OLED display”.

On Apple Stores

Cook sung praises for Apple’s brick-and-mortar stores that continue to defy the economics of the retail business. These aren’t just stores, they’re almost like shrines for customers, a Disneyland for tech, if you will, he said before likening the Apple Store experience to taking a Prozac:

I’m not sure “store” is the right word anymore. They’ve taken such a broader role than that. People don’t think about Cupertino headquarters, they think about their local Apple Store, and because people think of those things, they love them.

The iPad owes much of its success to Apple’s retail outlets:

I don’t think we would have been nearly as successful with iPad if it weren’t for our stores. It gives Apple an incredible competitive advantage. Others have found out it’s not so easy to replicate. We’re going to continue to invest like crazy. The average store last year was over 50 million in revenue.

He then explained the Apple Store philosophy:

There’s no better place to discover, explore and learn about our products than in retail. Our team members there are the most amazing, awesome, incredible people on earth. It’s the best retail experience. It’s a retail experience where you walk in and you instantly realize this store is not here for the purpose of selling, it’s here for the purpose of serving.

And this:

There store acts as a gathering place. It’ a place that has an important role in the community. If you look at an agenda for an Apple store on any given day you might find that there’s a youth program going on.

You might find a local musician entertaining people in that store. It’s incredibly exciting what these stores do. I’m not even sure store is the right word anymore. They have taken on a role much broader than that. 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.

Some tidbits related to Apple’s retail biz:

Last quarter we welcomed a 120 million people in our stores. It’s so huge that some of our stores aren’t big enough. We’re closing 20 of our stores and moving them and making them larger this year. And in addition to that 20 we’re adding 30 more… disproportionately outside the U.S. First store in Turkey gets us into 13 countries.

And your Prozac quote:

I don’t have very many bad days. But if i ever feel I’m dropping down from an excited level, I go in a store and it instantly changes.

It’s like a Prozac.

It’s a feeling like no other.

On Gorilla-sized devices

Recognizing the rush to release jumbo-sized mobile devices and competitors slugging it out on speeds and feeds, Cook said average consumers really don’t care about the technicalities:

The way companies compete is with two things, specs and price. In the camera business people say “I have the most megapixels”.

Do you know the speed of an AX processor? Does it really matter at the end of the day?

You want a fabulous experience when you use the product. If you look at displays, some people are focused on size.

Interestingly enough, the Apple boss didn’t rule out the possibility of an iPhone with a screen larger than four inches.

On budget iPhone

Our North Star is making great products. We wouldn’t do anything that’s not a great product. It’s not why we’re on this earth.

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.

Remember when Apple execs focused on why Apple products are great instead of why rival products aren’t? Defense vs. offense.

— Zach Epstein (@zacharye) February 12, 2013

So sometimes, you can take the “issue” and solve it in different ways. But North Star is always great products, not how we hit a price point.

On iPhone growth

Cook reiterated the notion that Apple is poised to benefit as the remaining 50 percent of the cell phone market upgrades to smartphones.

I believe on a longer-term basis, all phones will be smartphones. There are a lot more people in the world than the 1.4 billion people who own smartphones already out there. I see this as being one of the best markets of all time.

We have enormous momentum. That 500 million iPhones sold was from 2007 to the end of last year. And forty percent of that happened last year! There’s incredible momentum there that in a tiny amount of time we built an ecosystem that is the best user experience on the oplanet, and a major economic market for developers. We’ve paid $8 billion to developers.

iPhone is only available to fifty percent of subscribers in the world. Frankly speaking, I see a wide open field.

On iPad growth

Fielding questions of the iPad and its performance relative to other tablets, and based on reports that Apple’s tablet share shrunk, Cook quoted an IBM survey that put the Apple tablet at the top of Black Friday shopping and said Apple sold more iPads last year than Hewlett-Packard sold PCs.

Cook has no idea what the iPad’s market share is because “we’re the only company that reports how many units we sell“.

I think the tablet market will be huge. It is a huge opportunity for Apple. It is one of those areas that show – what I mentioned earlier – of software and hardware services being integrated and creating an experience that is jaw dropping.

In context, HP, the world’s largest PC seller, sold 15 million PCs. There were more iPad sold than HP sold of their entire PC lineup. So, there has been a change here. We’re in the early innings of this game.

And Apple’s embarked nicely on the post-PC trajectory because its tablet is being picked up by many people who’ve never owned a computer before. And for those types of users, Apple offers experiences unmatched by its rivals, he said:

If you look at what we bring there, we worked on our experience. Over 300,000 apps take advantage of the canvas that is iPad. Other guys only have a few hundred. We have a big lead in this area.

“The age-old model of everyone doing a sliver of something” doesn’t apply in this market, he added, “Customers aren’t buying it.”

On Apple peaking

Apple’s been taking lots of beating lately by both big media and analysts who fear that the company’s best days are over because it isn’t growing as rapidly as before.

“Apple has made products for years that people didn’t know they wanted and now they can’t live without,” Cook explained and then added, “We don’t believe in limits.”

On bold acquisitions

Cook says Apple has recently been snapping up smaller companies at a rate of about one new company every other month. And because “we really like to control the primary technology”, these were all basically acqui-hires, or talent-related acquisition.

Look at the last three years, we’ve averaged about an acquisition every other month. The kind of companies that we’ve push cased have been companies where ether have really smart people and or IP. Generally speaking, in many cases, we’ve taken something that they’re working on and moved the skills to work on something else. 

Cook describes Apple’s thinking by outlining how the company decided to buy chip experts PA Semi a few years back:

With PA Semi we were in the process to design the engine that is in today’s iPhone. We took the incredibly skilled group of guys and used them to supplement the staff off Apple to work on the iPhone, iPad and iOS device engines. We’ve done many others that are similar nature to that and will do many more like those.

That’s not to say Apple hasn’t considered putting its cash reserves to some bold use by acquiring large companies, like Yahoo! or Nokia. They did, but none of those acquisitions was a fit for Apple.

In terms of large acquisitions, we’ve looked at large companies. In each case, it didn’t pass our test for various reasons.

I’m sure we’ll look again and could do it again, but we’re disciplined and thoughtful and we don’t feel the pressure to go out and acquire revenue. If a large company can help us make great products then we’ll go over them.

Cook then remarked that Apple’s cash pile “isn’t burning a hole in our pocket”.

On stockholders, David Einhorn and cash reserves

Last Thursday, David Einhorn went public in his battle against Apple, telling CNBC he was frustrated with Apple’s capital allocation policy and its $137 billion cash mountain.

The investor sued Apple and the company responded with a media release that reiterated a plan to return $45 billion to shareholders over three years. “As of next week we will have executed $10 billion of that plan”, Apple wrote.

Responding to Einhorn’s critique of Apple’s cash management strategy, Cook said:

Apple doesn’t have depression era mentality. Apple makes bold product bets. Last year $10 billion CapEx, do the same this year, investing in R&D, new products, supply chain, we’re acquiring some companies. I think it’s hard .

Or at least my definition wouldn’t include investing a pair of 10s over two years, and $45 billion back to shareholders, I don’t know how a company with depression era mindset would have done all those things.

Now, we do have some cash, but it’s a privilege to be in this position. That we can seriously consider returning additional cash to our shareholders. Management team and the board in very active discussion, we will do so thoughtfully.

Hi dismissed Einhorn’s lawsuit as a “silly sideshow”:

It centers on Prop 2. Right of shareholders. It’s not about whether returns additional cash to shareholders, not about how much to return to shareholders, not about mechanism to return it, it’s about the right of shareholders. In 2012, we were looking at what we could do to improve governance, one item that came out was we should eliminate a blank check preferred. Not that Apple can release preferred, but if we do it we need to go to our common shareholders.

Frankly, I find it bizarre that we would be sue for doing something that would be good for shareholders. It’s a silly sideshow. You’re not going to see a yes on 2 sign in my front yard. It’s a waste of shareholder money.

I support prop 2, I think it’s the right thing for shareholders to have the right on this, I encourage others to vote on it. but, it’s not something we’re going to spend cycles on.

The serious thing is the return of cash, how to do it, and we’re serious about that.

Prop 2 a silly sideshow. We feel so strongly that for Apple that shareholders should approve an issuance of preferred stock that common shareholders, we would go for a vote regardless. That’s the way I see it.

So, what do you make of Cook’s talk?

And memorable quote in there?