tim cook at goldman sachs conference

Business Insider

Tim Cook spoke with Goldman Sachs' analyst Bill Shope at Goldman's technology conference this morning. We listed to the interview and our live notes are below.

Here is the high level summary of what Cook said:

• Apple doesn't have a "depression-era" mentality when it comes to cash, despite what David Einhorn said. He says Apple has paid out a lot to shareholders and is actively looking at how to do more.

• He thinks Einhorn's lawsuit is a silly sideshow. What Apple is trying to do is make it better for common shareholders, and Einhorn is actually trying to make things worse.

Apple has done ~6 acquisitions per year over the last few years, and they're mostly small companies. Apple has looked at big companies, but passed because it wasn't a good fit. Apple could do big acquisitions if it really wanted, but it's not going to buy revenue. Only smart people and good products.

Apple's culture of innovation is based on the fact that it can do hardware, software, and services. At the intersection of these three, Apple has "magic," and its rivals are trying to catch up.

The iPhone isn't done growing. The smartphone market is big and getting bigger. Apple can grow.

Don't limit your thinking when it comes to an affordable iPhone. The iPad is an affordable Mac. There is a way for Apple to make a great, inexpensive product.

Worrying about the iPad Mini killing the big iPad is stupid. Just make a great product before the competition does.

Apple's services business can help its margins on its hardware sales.

Cook loves Apple's stores. If he's ever feeling down, he just goes there and it makes him happy. He likes the energy, he likes to see all the people.

  • 10:10 AM



  • 10:15 AM

  • It's starting .... Goldman talking about Goldman right now.

  • 10:17 AM

  • Lloyd Blankfein is in the house...

  • 10:18 AM

  • Lloyd: I won't take long, I know why everyone is here this early in the morning (for Tim Cook).

Lloyd blankfein

  • 10:18 AM

  • Blankfein: Always nervous at this conference, because tech changes so quickly, I'm afraid I'll embarrass myself talking about last year's tech.

  • 10:20 AM

  • Blankfein is introducing Tim Cook, running down all the crazy numbers for Apple...

  • 10:22 AM

  • Here's Cook... he starts off with Safe Harbor statement

cook at goldman

  • 10:24 AM

  • Reaction to notion that Apple is in depression-era mindset re: Cash

Cook: 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 despression era mindest would have done all those things.


  • 10:25 AM

  • Thoughts on Greenlight secuirty idea?








  • 10:33 AM

  • Question about acquisitions...

We have done 6 acquisitions per year on average. Mostly IP, or something people are working on, and moved the skills to work on something else.

Great example: We bought PA Semi. We were working on designing the engines in all iOS gadgets. This was a skilled group of guys and they could supplement people in Apple. They were working on PowerPC, so move skills to iOS device engines. That's a great example of what we've done.

We will do more of those. Constantly looking in the market for more to do.

We have looked at large acquisitions but passed. We don't feel a pressure to acquire revenue, we want to make great products, that's what we're about. If a large company could do that, we would do it, but deliberate, thoughtful is the way to do it.

  • 10:37 AM

  • Where is Apple's culture of innovation?

Cook: Never been stronger. A belief there are no limits. Deeply embedded, in the values, in the DNA of the company, I feel fantastic about it. No better place for innovation.

Look at essentials for innovation, there is no formula. Without releasing all magic, for us, it's skills and leadership.

If you look at skills: Unique and unrivaled position. Skills in software, hardware and services. Reality is that hte model that grew PC industry, someone specialized in something, that model is not working for what consumers want today. The customer is at center of experience.

Where you can innovated in hardware, software, services, the real magic happens at the intersection of these. Apple can innovate like crazy and cause magic.

The iPad is magical because a company was doing all of these things.

Some peopel call this vertical integration, for years, was out of favor, people called it crazy. We never did. This isn't something you can go write a check for. You work decades for this. We're unique and unrivaled, there are people trying to catch up.

I see superstars. People at the very top of their game, I see people like Jony Ive, he has the best taste in the world.

I see Bob Mansfield, top silicon expert in the world.

Jeff williams, phil, dan, craig, so focused on products at the very top of their game.

I look at Apple, and I see culture deeply embedded.

  • 10:43 AM

  • Is growth at a natural limit in iPhone?

Cook: We don't have limit in our vocabulary. People I work with don't have limits. It's because of that, people can't live without. When I zoom out and look at smartphone market, I see a market that last year was around 700 mill +/-, projected to double to 1.4 billion. More on a longer term basis all phones will be smartphones.

People love to upgrade their phones, I see a market that is great to be in, one of the greatest markets to be in. Apple has enoromus momentum.

Incredible momentum, over period of time an ecosystem, best customer experience on the planet. Incredible economic gain for developers. Look at App economy, money flowing ... all moved to mobile (tablets/smartphones) I see momentum, ecosystem, when I look at what Apple has done in China.

Gone from a few hundred million to $3 bill to $13 billion to $23 billion last year. I also see in markets where we havent done as well, optty.

When I string it all together, and I consider that today, the iPhone only available to 50% of subscribers in the world, frankly, I see a wide open field.

  • 10:47 AM

  • But can everyone afford iPhones?

Cook: Good question. Our north star is "Great Products." We would never do something that isn't a great product, not why we're on this earth.

That said, if you look at what we've done to appeal to people that are price sensitive — lower price of iPhone 4, iPhone 4S, in most recent quarter, not enough supply of iPhone 4. Suprised us. We are making moves to make things more affordable.

If you look at Apple's history. Look at iPod. It was $399. Today you can get an iPod shuffle for $49.

Instead of how can you cheapen to get it lower, we were saying how can we make something great.

The same thing in a different way, people said why don't you have a Mac that's less than $1,000? We worked on them, put we couldn't do a great product. What did we do? We invented iPad and it starts at $329.

Sometimes you can take the issue and solve it in different ways, our north star is great product and that has served us well. I think of this one, a track record to show it.

  • 10:47 AM

  • So we shouldnt think of it as a limit?


  • 10:50 AM

  • Quesiton about screen sizes, why not bigger?

Cook: I don't want to say what we will do or won't do. The truth is...

Let me compare to PC. Way companies compete were specs and price. They would say I have largest drive or fastest processor, or camera would say megapixels.

Products want great product, and those things have nothing to do with that.

Do you know speed of AX processor? You don't , it doesnt matter. You want a fab experience.

If you look at display. People focus on size.

But there are other things. OLED color saturation is horrible. If you buy something online and want to know color, don't depend on OLED display.

Retina 2X as bright as OLED.

There are many attributions of a display and Apple sweats every detail. Not going to comment on what we do in the future, it's always broader than that which can be defined by a simple number.

  • 10:51 AM

  • Cook: Only thing we'll never do is make a crppy product. We're going to make a great product. Something bold, something ambitious. We sweat the details. Hopefully we've proven this is something we can do.

  • 10:54 AM

  • Talking iPad now. Strong on unit basis. How do you think about optty going forward?

Cook: Tablet market will be huge. It is a huge opportunity. It's one of those areas that show integrated experience that is jaw dropping. To put 23 million in some context. HP world's largest PC maker sold 15 million PCs. 50%+ more iPads, and if you look at full year, more iPads last year than HP's entire PC lineup, sea change here. I think we're in the early innings of this game. 120 mill tablets last year, projection is that it will triple in 4 years. Think about that that's more PCs sold around the world and PC growth is contracting.

Tablet attracting people who never owened a PC and people who owne them but wnat better epxerience.

Cook: 300,000 apps for iPad. Other guys have a few hundred. We have a significant lead in this area.

You can see the whole of Apple here. If you look at usage, there are companies that have very very good usage.

IBM did a survey of usage on Black Friday. Mobile product that had most shopping was iPad. 2X as every Android device, every phone, every tablet. Why? because iPad an incredible experience.

We're in every fortune 500, almost every global 500, in education, a long time for products to engage all of these markets, we've already done that. But I still think we're in the initial innings of this. Profound for industry. Age old model of everyone doing a sliver of something and hoping it comes together, customers aren't buying it.

  • 11:00 AM

  • Question about iPad Mini and cannibalization.

Cook: I get this question a lot. I remember people asking about the iBook. OMG, you're going to kill the Mac! You're stupid.

We don't think about it that much. Our belief, if we don't cannibalize, someone else will. In iPad, I would argue Windows PC is huge and there is more to cannibalize than Mac or large iPad.

If you ever use cannibalizing as a measure of products, it's the beggining of the end.

Look in Brazil, those people buying iPads don't have Apple stuff. This is a huge introduction. We've found correlation between first Apple product and other Apple products. We saw this with iPod and iPhone and iPad for iPhone. All synergies and stuff. It's not about just a point product. As you can probably tell from my response, I think this is a huge opportunity. It seems perfectly reasonable to me to have an iPad and iPad Mini. I think this is going to be the mother of all markets. Customers voting and buying, we had difficult time satisfying everyone.

  • 11:06 AM

  • From investor perspective ... revenue growth and gross margin preservation?

Cook: Dont want to project margins beyond what we do in earnings. You can go in and accept a lower margin at any time for a strategic reason. Could be our entry into that and at the background, we know the halo effect plays. We have confidence in our ability to execute supply chain. In area of tablets, market huge, have another product. People wanted full iPad in someting smaller and lighter. Becuase we're not a hardware company, we have other ways to make money and reward shareholders. This doesn't get noticed, but last quarter, services and software was $3.7 billion. If you look at that vs. software and services companies, that's an incredible amount of revenue. Because we're not a hardware company other things we're doing and could to have revenues and profits flow. We don't look at the sales of a product as our last part of the relationship. Our stores do a fantastic job. There's financial benefit, but our focus in on customer. Larger than a hardware company affords us ability to not worry about so much in short term, managing for long term. I know people care about quarters, we care, but decisions are for long term health not for short term, 90-day.

  • 11:09 AM

  • Platform strategy in emerging markets? China, App Store, iCloud popular, but in emerging markets, customers can't buy music/movies. How do you think about that?

CooK: Last year we put enormous energy in expanding geographically. iTunes over 100 coutnries. iBooks over 50 countries. iCloud in every country. Messages in every country that we can, some goverment restrictions, but only one major country nto selling movies. We advanced last year in getting infrastructure. We advanced the ball. Our intention is to have a great eco-sytem everywhere. We don't believe in limits, keep knocking at the door.

Cook: Not for selling, but for service. Get more out of Apple products over life of them. It's a gather place that has important role in the community. If you look at agenda, might be youth program coming in as a field trip or a local musician entertaining people, incredibly exciting what these stores do, not even sure store is the right word. They are the face of Apple for all our customers. They dont think of Cupertino, think of the store.

120 million people last year in our stores and we only have 400 stores.

We're closing 20 stores, making them larger. We're adding 30 more, disproportionatly outside the U.S. First store in Turkey, puts us in 13 countries. 4 stores in China last quarter, add lots more. Serve customers there.

One of the things not understood, we wouldn't have been as successful with ipad if nto for stores. It's a different product. People's view of tablet is something the Hertz guy is holding that no one wanted. Our store is a place to explore and discover. I don't think the launch would have been nearly as successful without the stores. It gives Apple competitive advantage to have these stores. It's not so easy to replicate to launch these products. I'm bullish on the stores.

Avg store last year was over $50 million in revenue, who would have thought a store could do that?

If i ever feel like I'm dropping down (feeling bad) I go into a store, it's like a Prozac. A feeling like no other.

  • 11:18 AM

  • What are you most proud of over the last year?

Cook: Employees. Have privilege of working with people that want to make the best products in the world.

(He rattles off all the "best things" Apple makes...)

Proud we have largest private solar farm anywhere, proud of all of these things.

Cook thanks everyone for showing up early.