Tim Cook Spends an Hour with Goldman Sachs

Apple CEO Tim Cook spoke at the Goldman Sachs Internet and Technology Conference Tuesday (12 February 2013), and he did so with conviction. I think I’ve said before that I don’t always like his stage presentations, but when he’s just talking about Apple... his love of the company and the things it does seem both genuine and obvious. 

If being beaten up on Wall Street for the past five months bothers him, you sure couldn’t hear it yesterday. 

Topics covered included, but were not limited to, Cook’s reaction to Apple investors David Einhorn’s comment earlier this week that Apple has a “depression era mentality.” 

Cook denied that charge... saying “Apple makes bold and ambitious bets on products and is conservative financially.” That said, they’re investing in R&D... investing in new products... investing in the supply chain... investing in retail... and acquiring new companies. They invested $10Billion last year... they expect to invest another $10Billion this year. “Investing a pair-of-10s,” said Cook, “does not sound like a company with a ‘depression era mentality.’” That said, Apple execs are talking over whether and how to return more cash to shareholders. 

Cook finds Einhorn’s perpetual preferred stock idea to be creative. It’s something Apple will consider, though it’ll also consider proposals from other shareholders as well. As for the lawsuit initiated by Enihorn, Cook calls that a “silly sideshow,” saying it’s a waste of money, and he wished they’d donate the money being spent on it to a good cause instead.

The moderator - Goldman analyst Bill Shope - wanted to know about Apple’s acquisition strategies, wondering - specifically - whether the Cupertino-company was allergic to large acquisitions.

Cook said over the last three-years, Apple’s actually averaged an acquisition every other month, though those have tended to be small companies with really smart people and/or IP that Apple can plug into other projects. This they do because they like to control the primary technology behind their products. At the same time, though, Apple has looked at large acquisitions, but each time those acquisitions have not passed their test. They’ll keep considering large acquisitions. They believe they’ve got the management team to make a big buy work... But they don’t feel a pressure to go out and acquire revenue. Apple wants to make great products says Cook. If there’s a big buy that can help them do that, cool... but deliberate and thoughtful is the company motto when it comes to acquisitions.

With Apple’s history of disruption, Shope wondered about the states of Apple’s innovation culture today.

In Cook’s estimation, It’s never been stronger. Apple - he says - is in a unique and unrivaled position in that it’s strong in hardware, software and services - not just one of those with solutions to the others sourced from elsewhere. Consumers want this elegant experience where the technology floats to the background. Apple’s integration makes that happen. This isn’t something you can just go write a check for. This is something you spend decades building. Plus Apple’s execs are superstars... they’re people at the very top of their game, all of which led Cook to say he’s “never been more bullish on innovation at Apple.”

Shope wanted to know about Apple’s ongoing opportunities in the smartphone space, specifically, what would the company do about acquiring pre-paid customers in emerging markets? That was the question, though the implied question was “Would Apple make the low cost iPhone that analysts keep saying Apple should make?”

Cook said something he’s said more than once before: Apple’s north star is great products. That’s what they think about. They wouldn’t do anything that they’d not consider a great product. That said... they have lowered the prices of iPhone 4 and 4S... and in December they ran out of iPhone 4. The level of demand was surprising and they have made moves to make things more affordable. 

He then held up the iPod as an illustration. It started at $399. Now, you can get an iPod shuffle for $49. For years people said Apple should make a Mac for between $500 and $1000. Apple tried, but didn’t feel they could hit that price point with a Mac that would also provide a good customer experience. So - instead - they created the iPad, which now starts at $329. So there may be other ways to solve the perceived price problem, but the north star is still great products.

Shope wanted to know what Cook made of the talk of iPhone’s with a larger screen. 

Cooks answer here was interesting. He made it clear that he wouldn’t say what Apple would or would not make in the future, seemingly leaving the door open for a pahblet. But there’s more to a screen than size. Here he held up PCs as an example. Manufacturers used to compete on specs and price, but those days are largely over. In Cook’s opinion, Customers want quality. They want the “a ha” moment. Mostly, they don’t care about specs. They want a fabulous experience. 

Bringing that back to smartphones, some people are focused on size but there are other considerations. Cook says color saturation on OLED displays is awful. Retina is twice as bright as OLED. There are many factors in displays, he says. Apple likes theirs. He made it clear - again - that he wasn’t saying what Apple would or would not do... but when it comes to screens, it’s not just size that matters.

Other notable quotes:

“The only thing we’ll never do is make a crappy product. We’re gonna make a great product. That’s the only religion we have. We must do something great. Something bold. Something ambitious. We want to enrich the customers’ lives.”

Cooks says Apple is not a hardware company. Because they’re not a hardware company, there are other things the company can do to keep revenue flowing. Selling a device to a customer is the start of a relationship, not the end of it. 

On Apple Retail: Cook sang the praises of the stores and their staff. “Retail is not there for selling,” said Cook, “but for serving.” The store is a gathering place. It has an important role in the community. Kids go there for field trips. Musicians inform and entertain there. Apple Retail is more than a store... it’s the face of Apple for almost all of Apple’s customers. Some stores aren’t big enough, but he says that problem is a privilege to have. To solve it, Apple plans to close 20 existing stores to move or enlarging them, and they plan to open 30 more this year, with most of those outside the U.S. 

But it sounds like retail’s importance cannot be overstated. In Cook’s opinion, the iPad would not have been as big a hit as it’s turned out to be had there not been the stores to showcase them. Retail gives Apple an incredible competitive advantage to launch these products and educate people about a new category. Cook is bullish on the stores. Apple will keep investing in them... and the people who work in Apple Retail are awesome.

Wrapping up their time together, Shope wanted to know of what at Apple was Cook most proud. 

Cook said he’s most proud of our employees. They’re there to do the best work of their lives... to do it without limits. He’s incredibly proud of Apple’s products, which include the best tablet, the best smartphone, the best PCs and the best digital music players on the market. he’s very proud that Apple is out front and has a spine on supplier responsibility. He’s incredibly proud that Apple’s doing heavy lifting on the environment. He’s proud that they have the largest private solar farm ever. And finally, he says it’s both the privilege of a lifetime and humbling to work with the people with whom he works.

And that wasn’t everything. If you’d like to hear what he had to say for yourself, Apple has a replay of yesterday’s hour-long event up on its site. The best way to get to that is by hitting investor.apple.com.