Full Transcript Of Tim Cook’s Goldman Sachs Talk

A few hours ago, we told you tha Apple’s COO, Tim Cook, is speaking today at Goldman Sachs in San Francisco. Tim Cook spent an hour answering analyst questions about Apple and you can hear the audio here.

Full transcript via businessinsider after the break…

4:08 Clapton’s “Change the World” is playing leading up the presentation. Now “Sunny Came Home.”

4:09 Getting underway. Tim Cook reads disclosure.

4:10 Q&A begins. Steve Jobs was very clear about leadership in mobile devices. Is that how we should think about Apple at this point? Tim Cook: Yes. Let me elaborate. If you look at Dec. quarter results, which included revenues of almost $15.7 billion, as we compared ourselves to every other company in the world, including Sony and Nokia and Samsung, which now have huge mobile device businesses, we found out we were the largest in the world, measured by revenues.

4:11 How are you channeling resources differently? Transition to mobile devices began in 1991 with first introduction of portable product for Apple with introduction of the TFT screen. During that time, the Mac business has become a predominantly mobile device business. Huge difference between us and the balance of the industry in portable share.

4:12 Ah, a history lesson. Going through all the mobile devices Apple has ever launched. Vast majority of Apple’s revenue now comes from mobile devices and content purchased for those devices. Believe we’re well positioned to do extremely well because we can seamlessly offer software and hardware.

4:13 Who are biggest competitors and who are biggest partners? Tim Cook: I wish the world were that simple. Many people you can’t cleanly put in one or another. Take Microsoft. In Microsoft, we love the Mac Office division. They do a great product and we partner with them and work with them very tightly. Most of the balance of Microsoft we compete vigorously against, in OS, in mobile OS, etc. If you look at Google, I would say Google is similar in that respect. We partner with them in maps, in search for most of our products, but we also compete with them in the mobile OS space and now in the hardware phone space. So, it’s difficult to put people in one camp or the other always. There are some companies like the media companies where we partnered with so well that Apple is now selling billions of dollars of digital content.

4:15 Also companies like carriers where we partnered with to bring iPhone to in 86 countries. Ones that draw the most attention are the ones that are more complex, where we’re both competitors and partners.

4:16 Apple TV is still a hobby. We’ve been very clear about that. The reason that we call it a hobby… if you look at the other businesses we’re in, these businesses are all in huge markets. The unit volumes in these things is huge. Apple TV is in a market that’s very small. Today. Apple TV did grow in the quarter we just finished by 35% in a unit basis year-over-year.

4:17 No interest in going into the TV market. But still think there’s something there. So we continue to invest in this as a hobby.

4:18 iMac is very key, will continue to be very key. I think people will continue to want a very gorgeous large screen, all-in-one, simple to use, very elegant machine, we’re going to continue to deliver it.

4:19 Where growth coming from going forward? Here’s the exciting thing. If you take a look at the Mac, the Mac has outgrown the market 20 of the last 21 quarters. 5 years in a row. Has outgrown the market. And in many of those quarters, outgrew it by multiple. The PC industry is over 300 million units per year. Last fiscal year, Mac did over 10 million units. Ceiling is far above. Continue to invest in enormous amount of energy and talent in the Mac. Doesn’t take Market growth. 50% of customers in Apple store are from Windows.

4:20 iPod touch has been a runaway hit, and it helps the platform that you’re talking about. If you look at the iPod touch, it grew 100% last fiscal year. 55% y/y last quarter. Each fuels more app sales, more developers. iPad? Haven’t sold one yet. A lot of interest in it. I’ve been using one for 6 months or so, I’ll tell you the experience is just absolutely incredible. Can’t wait to start shipping it.

4:21 iPhone, I feel we’ve just gotten started.

4:22 Over 3 billion downloads on app store, over 140,000 apps for sale, these are incredible numbers. Who would have dreamed of these? I see opportunity all over the place.

4:23 The word “complete” is not in our dictionary. We’re all about innovation. Many times that means we’re all about obsoleting ourselves. Going to continue to make things better and going to continue to innovate. I’d say the ecosystem is really good, the platform is really good. Certainly all the foundation is in place. Will it get better? Clearly yes. But great now.

4:24 iPad new use case or replacement for netbooks? We haven’t sold one. I’m a paranoid guy by nature, but I’m not losing any sleep over cannibalization, to be honest with you. Who would buy it? I’ve been very clear about my view of netbooks. I think they are an experience that most people will not want to continue to have. People were interested in the price and they got it home and used it and went ‘Why did I buy this?’ so I think when somebody looks at iPad and compares it to a netbook, I find it hard to believe that people are going to buy netbooks. Not everyone will make the comparison so I’m not suggesting that. But I think what I’d rather do with this question is report back to you.

4:26 iPad will launch in direct channel first, and indirect channels where we have assisted sales, such as store-in-store at Best Buy, and Internationally, Apple Premium Resellers. Initially, it will be around places with really great assisted sales. Over time, it will expand. Where it goes and how fast it goes, we’ll see.

4:27 Why so cheap? We didn’t want to leave pricing umbrella for competition. For those who haven’t focused on this, it has best browsing experience you could ever imagine. Very anxious to start getting it out.

4:28 Extended key partnership with AT&T. Can you talk about advantages and disadvantages of having exclusive agreement? The primary advantages on a single carrier model, and I’ll talk about the iPhone, is simplicity and in some cases, we’re able to innovate along with the carrier and provide a feature it would be difficult to work with multiple carriers and provide. We brought visual voicemail to market, which took innovation from Apple and carrier partner. On a multi-carrier model, the question is, can you sell more units? And so what that gets at is, in some countries, carriers have very sticky relationships with their countries, so having more carriers and more distribution allows you to sell more units. If you look where are from the end of our Q1 in December, if you looked at top 10 iPhone countries, 5 were single carrier countries. 3 of those we had a contractual exclusivity, 2 we can add carriers when we desire. Across 2009, we added carriers in France, UK, Singapore, several Scandinavian countries. A great deal of our work on distribution side was expanding carriers in existing countries. Pleasantly surprised that in every single country, our units increased significantly, and our share with it. Feel like we made really good decisions. Not saying we would do it in every country. But that was our experience with the ones we did it in 2009. We do it on country by country basis.

4:32 Would another carrier need to match pricing on iPad to become carrier for it? I think AT&T’s pricing is revolutionary. (Unlimited data for $30/month, 250 MB for $15/month.)

4:33 Talked a little before about virtuous cycle we have with devs. How do you protect user experience as developers go out and develop products? This is the privilege and curse of technology. Same as you’d see in PC world; at some point, if you include every hardware you’ve ever shipped, you stifle innovation. Because we’ve done this for so long, I feel like we’ve come to a really intelligent conclusion on these each time. I think that’s part of our knowledge and heritage as a platform provider.

4:35 Which way is OS market moving? I don’t see it as this or that — iPhone vs. Mac — or this over that. I think there is a place for both. What you’re seeing for Apple is that the Mac OS is very scalable. Huge competitive advantage for Apple. Use the Mac OS in a lot of products. Don’t think there’s another company that can use the foundation of their OS that way. Move at a fast speed with many fewer people than it would take if we were geographically north. (Slap at Microsoft.)

4:36 Our surveys indicate Mac and iPhone are attracting significant interest in enterprise. What are you doing?

4:36 For the iPhone, 70% of Fortune 100 companies in US are either deploying iPhone or currently testing for deployment. 50% of the FT 100 are doing the same thing. Huge uplift in interest as we went to iPhone 2.0 software and then 3.0 because we put a number of enterprise features in the software. We clearly see this continuing. On Mac side, amazing how many CIOs are now visiting Apple and are interested in the Mac. We haven’t put on a huge channel, and don’t have a huge sales force, but many CIOs that once thought standardization was the most important thing in life, they now look at salaries of people and the importance of having peoples’ creativity at peak, and are increasingly allowing employees to decide. This helps Apple immensely.

4:39 I think people in general and they think enterprise is bigger than consumer. But it’s not. In PCs, it’s 10%, which is sizable, but consumers are over 50%. Our heart and soul and DNA is in consumer. It just so happens there are consumers working in enterprises who want to use these products.

4:41 People are looking at this differently. At least the people with a lot of vision are.

4:41 Just short of 300 stores. Ron Johnson has built a retail team Bar None. We went into retail not as a test, not as pilot, but to sell to consumers, because many wanted it. We knew we’d never have enough stores to cover the world. So after we got going, we set a range of 25-50, reasonable range we could execute really well. Made a strategic call in 2008, we thought we’d see many more opportunities — some top properties would come on the market with better economics. And guess what? Now, there’s a lot of great properties on the market. So we’re going to do about 50 this year. We’ve always had the team to do 50. It’s not easy to do, it’s very hard to do. But we’re going to do it. We didn’t lower the bar at all. These stores are among the best we’ve ever done. If you haven’t been to NYC Upper West Side store, it will make your jaw drop. Next time you’re in Paris, go to the Louvre; it’s just amazing. Another store in China in Shanghai in the summer that is mind blowing. Another one in London that will also drop your jaw.

4:45 New chip. Apple has been in silicon design business for years. Not new to us to be in silicon design business. As we looked at some of the products that we are doing like the iPad, and some we will do in the future, we felt that we had the best knowledge of what we wanted the silicon to do. And were in the best ability to deliver that ourselves versus going out to somebody else and buying something that wasn’t exactly what they wanted.

4:47 Acquisition strategy: Historically, we have acquired companies for technology and talent. And they have been on the small size. We’ve looked at large companies, but we have not had a large company pass a strategic and a financial test. We don’t let our money burn a hole in our pocket. Unless we find something that really makes sense for Apple shareholders, we’re not going to do it. The small ones have been incredibly valuable for us, mainly from the talent POV, but also from technology. If we find a large one, we won’t be shy about it. But we won’t do it to do it. We have never been about being the biggest, we’ve always been about making the best products. Not having highest market share or most revenue. Acquiring something that makes our revenue go higher wouldn’t be a reason why we’d buy a company.

4:49 How do you stop hubris from creeping in? Executive team in the company spends a lot of time thinking and discussing how to retain and recruit the best talent in the world. At the end of the day, I know it’s a cliche, but people are our most important asset in the world by far. It’s people who deliver innovation. We are the most focused company that I know of or have read of or have any knowledge of. We say no to good ideas every day. We say no to great ideas in order to keep the amount of things we focus on very small in number so that we can put enormous energy behind the ones we do choose. The table each of you are sitting at today, you could probably put every product on it that Apple makes, yet Apple’s revenue last year was $40 billion. I think any other company that could say that is an oil company. That’s not just saying yes to the right products, it’s saying no to many products that are good ideas, but just not nearly as good as the other ones. I think this is so ingrained in our company that this hubris you talk about that happens to companies that are successful and sole role in life is to get bigger, I can tell you the management team at Apple would never let that happen. That’s not what we’re about. Small list of things to focus on.