Yesterday, Apple CEO Tim Cook gave a presentation at the Goldman Sachs Technology and Internet Conference. It isn’t often that we see an extensive interview with an Apple CEO, and this presentation was particularly interesting. You can currently listen to an audio recording if you want to hear it all, but there were five parts of his presentation that I thought would be of particular interest to iPhone J.D. readers, and thus I transcribed what Tim Cook said that so that you could simply read it. The topics that I included below include (1) the working conditions at the Chinese factories where iPhones and iPads ar assembled, (2) the future of the iPhone, (3) the future of the iPad, (4) the future of iCloud and Siri and (5) Tim Cook’s general plans for Apple.
The following headings in bold are mine, but the words that follow are pretty much exactly what Tim Cook said, although I omitted some “umms” and the like, and I may have made some minor errors as I quickly typed this up. I also left out the questions because I think that Tim Cook’s answers stand on their own. Hopefully you will find what Tim Cook said as interesting as I did.
Working conditions for Chinese workers who assemble Apple products
The first thing that I would want everyone to know is that Apple takes working conditions very, very seriously, and we have for a very long time. Whether workers are in Europe or in Asia or in the United States, we care about every worker. I spent a lot of time in factories personally, and not just as an executive. I worked at a paper mill in Alabama, at an aluminum plant in Virginia. Many of our top managers and executives visit factories on a regular basis, and with hundreds of employees who are based there full time. So we are very closely connected with the production process, and we understand working conditions at a very granular level.
I realize that the supply chain is complex. And I’m sure that you realize this. And the issues surrounding it can be complex. But our commitment is very very simple. We believe that every worker has the right to a fair and safe work environment, free of discrimination, where they can earn competitive wages and they can voice their concerns freely. Apple suppliers must live up to this to do business with Apple.
We also believe that education is the great equalizer, and that if people are provided the skills and knowledge that they can improve their lives. We put a lot of effort into providing education resources to workers throughout our supply chain. We provide free classes in many of the locations in our supply chain. And we partner with local colleges to provide courses like English and Entrepreneurship and Computer Skills and the like. More than 60,000 employees have attended these classes, which is pretty amazing when you think about it. If you could take all of these employees and move them to one location, it would be a campus population larger than Arizona State, which is the largest public university in the United States. Many of these workers go on to earn an associates degree. And so this is a very powerful stepping stone for people looking to advance their careers and their lives.
In terms of problems that we are working to fix, you can read the details on our website, but I would tell you that no one in our industry is doing more to improve working conditions than Apple. We are constantly auditing facilities, going deep into the supply chain, looking for problems, finding problems and fixing problems. And we report everything because we believe that transparency is so very important in this area.
I am so incredibly proud of the work that our teams are doing in this area. They focus on the most difficult problems, and they stay with them until they fix them. They are truly a model for the industry.
Let me give you some examples, because I think this is so important and so topical. And both from large to small.
We think the use of underage labor is abhorrent. It’s extremely rare in our supply chain, but our top priority is to eliminate it totally. We’ve done that with our final assembly vendors and are now working down into the supply chain. If we find a supplier that intentionally hires underage labor, it’s a firing offense.
We don’t let anyone cut corners on safety. If there’s a production process that can be made safer, we seek out the foremost authorities in the world, the foremost experts, and cut in a new standard, and then take that and we apply that to the entire supply chain. We focus on the details. If there is a fire extinguisher missing from the cafeteria kitchen, then that facility doesn’t pass inspection until that fire extinguisher is replaced.
We’re continuing to focus on the problems that are endemic to our industry like excessive overtime. Our Code of Conduct has a cap of 60 hours for a work week, but we’ve consistently found violations to this code over the course of our time. So at the beginning of this year, we announced that we’re determined to drive widespread change, and we’ve begun to manage working hours at a very micro basis. As an example, in January, we collected weekly data on over a half a million workers in our supply chain, and we had 84% compliance. Now this is significantly improved from the past, but we can do better. And we’re taking the unprecedented step of reporting this monthly on our website so that it’s transparent to everyone what we’re doing.
Now as you probably know, the Fair Labor Association began a major audit of our final assembly vendors at our request. We started working with the FLA last year on an auditing project, and just in January we were the first technology company ever admitted into their association. The audit that they’re conducting is probably the most detailed factory audit in the history of mass manufacturing in scale, in scope and in transparency. And I am looking forward to seeing the results.
We know that people have a very high expectation of Apple. We have an even higher expectation of ourselves. Our customers expect us to lead, and we will continue to do so. We are blessed to have the smartest and most innovative people on Earth. And we put the same kind of effort and energy into supplier responsibility as we do with our new products. That is what Apple is all about.
Apple’s last fiscal quarter and opportunities for iPhone growth
37 million [iPhones sold from from September 25, 2011 to December 31, 2011] is a big number. It was a decent quarter. [audience laughs] It was 17 million more than we had ever done before. And so we were pretty happy with that. But, let me give you a different, at least the way that I look at the numbers, which is maybe a little differently than you do. As I see it, that 37 million for last quarter represented 27% of the smartphone market. So there’s three out of four people who bought something else. And it represented less than 9% of the handset market, so nine out of ten people are buying something else. The smartphone market last year was half a million units. In 2015 it’s projected to be a billion units. The handset market is projected to go from 1.5 to 2 billion units. And so when you take it in the context of these numbers, the truth is this is a jaw-dropping industry. It has enormous opportunity to it.
And so, up against those, the numbers don’t seem so large anymore. What seems large to me is the opportunity. And so what we’re focusing on is the same thing that we’ve always focused on, which is making the world’s best product. We think that if we stay laser focused on that, and continue to develop the ecosystem around the iPhone, that we have a pretty good opportunity to take advantage of this enormous market.
iPads
This 55 million [iPads sold to date since they started shipping in April of 2000] is something nobody would have guessed, including us. To put it in context, it took us 22 years to sell 55 million Macs. It took us about 5 years to sell 22 million iPods. It took us about 3 years to sell that many iPhones. And so this thing is, as you said, it’s on a trajectory that’s off the charts. And so why is this?
Well, the product is absolutely incredible, and the pace of innovation on the product has been incredible, and so we’ve gone from iPad 1 to iPad 2 in fairly short order. And the ecosystem that developers have helped us build out is about 170,000 apps that are optimized for iPad. And so this is incredible. But the reason that it’s so large, in my view, is that, one, the iPad has stood on the shoulders of everything that came before it. And so the iTunes Store was already in play. The App Store was already in play. People were trained on iPhone, and so they already knew about multitouch. And so there were lots of things that became so intuitive when someone began to use a tablet, that, I mean, literally … I gave one to my mother and she knew how to use it like this from just watching the commercial. And so, it’s amazing how the product has captured so many different people. You’re using one. My mother’s using one. My seven year old nephew uses one. I go to the gym in the morning, the trainer’s using one. At Starbucks, I look around, everybody has one reading their newspaper or whatever. In education, it’s being used. In the enterprise, it’s being used in big numbers. So, from my point of view, it’s the fastest adoption across a wide range that I’ve ever seen before.
… We started, obviously, at Apple using the iPad well before it was launched. Of course, we had our shades pulled and everything so nobody could see us. But what I started noticing about my own personal behavior is that it quickly became 80% to 90% of my consumption and work was done on the iPad. And so honestly, from the first day it shipped, we thought, and not just me, many of us thought at Apple, that the tablet market would become larger than the PC market and it was just a matter of the time that it took to occur. And I feel that stronger today than I did then. Because as I look out, I see all of these incredible usages for it, and I see the incredible rate and pace of innovation in the developers.
If we had a meeting today at this hotel and we invited everybody who is working on the coolest PC apps to come to the meeting, you might not finding anyone at the meeting. If you did that same thing for iOS or that other operating system and you said everyone come who is working on this, you couldn’t get everybody in this hotel. You’d have somebody covering every square inch here. That’s where the innovation is. That doesn’t mean that the PC is going to die. I love the Mac. And the Mac is still growing and I think it can still grow. But I strongly believe that the tablet market will surpass the unit sales of the PC market and it’s just a matter of the rate and speed and time that that happens. It’s too much of a profound change in things not to, I think.
iPad competitors
Price is rarely the most important thing. A cheap product might sell some units, and somebody may get it home, and you know they feel great when they pay from their wallet the money, and then they get it home and use it, and the joy is gone, and the joy is gone every day that they use it, and they wind up not using it anymore. And so you don’t keep remembering “oh I got a good deal” because you hate it. And so what happened last year is that everybody who was in the PC industry and everybody who was in the phone industry, everybody decided that they had to do a tablet. And so by some estimates there were 100 tablets put on the market last year. And everybody was kind of aiming at iPad 1, and we were trying to innovate quickly to get to iPad 2, and so by the time they had something that they thought could compete with iPad 1, we were on iPad 2, and you know we would up with 170,000 apps and I’m not sure there is 100 apps on the other platform. And so I think people at the end of the day, they want the great product.
Amazon is a different kind of competitor. They’re different, they have different strengths, and so forth. And I think they’ll sell a lot of units. I think they have and they will. But I think that the customers that we’re designing our products for are not going to be satisfied with a limited function kind of product. And I think that the real catalyst to the tablet market will be innovation and pushing the next frontier. And so, honestly, we’ll compete with everybody. I love competition. And so long as people invent their own stuff, I love competition.
The future of iCloud and Siri
Siri and iCloud are profound. If you take iCloud, and if you dial back 10 years, 12 years, Steve announced a strategy for Apple that positioned the Mac or PC as the hub of someone’s digital life. And out of that Apple developed a whole suite of apps called iLife, and you could connect many gadgets off of this and sync all of your music or photos. You could edit your photos, you could edit movies, and so forth. But the idea was that the PC or Mac was the repository.
iCloud turns that on its head because it recognizes that across that decade, particularly the last two or three years, you and I live off of multiple devices. It’s no longer a great customer experience to have to sync your iPad to your Mac, and then your iPhone to your Mac, and then resync your iPad because there was something on your iPhone, you know this is a hair-pulling exercise. iCloud recognizes the Mac or PC as another device. All of a sudden, your life has just gotten so much easier. We now have a hundred million users of iCloud. We just launched it in October. A hundred million. I mean, this is unbelievable. And there is obviously more that we can do with it. I view iCloud as not something with a year or two product life, but it’s a strategy for the next decade or more. So I think it’s truly profound.
Siri. For years, if you were a PC or Mac user, you used a physical keyboard and you used a mouse for input. And you pretty much did that for a long, long time. And there wasn’t a great deal of, there was evolution in the space but not a great deal of revolution. And then all of a sudden Apple comes out with multitouch on the Macbook Pros, and this was really cool. And then extended that into phones and tablets, so this has completely changed those industries in total. Siri is another profound change in input. And it is something that we’ve always dreamed of. I think all of us wanted this to work. It’s sort of like having a video call with FaceTime and it’s like “Aha, this can work.” And Siri, it’s hard to imagine that it’s just a beta product. I’ve never felt I couldn’t live without a beta product before, but now I feel I can’t live without one.
I think that these two are both profound. They are not things where we run separate [profit and losses] on. Because we don’t do that, we don’t believe in that. We manage the company at the top and just have one P&L and don’t worry about the iCloud team making money and the Siri team making money. We want to have a great customer experience, and we think measuring all of these things at that level would never achieve such a thing. But I do think that both of these go in the “profound” category. They’re not these things that will not mean anything a year or two from now. They are things that you’ll look back at, that you’ll talk to your grandkids about, that were profound changes.
The future of Apple under Tim Cook
Apple is this unique company, unique culture, that you can’t replicate. I’m not going to witness or permit the slow undoing of it. Because I believe in it so deeply. Steve grilled in all of us over many years that the company should revolve around great products. We should stay extremely focused on a few things rather than try to do so many that we did nothing well. And that we should only go into markets where we could make a significant contribution to society, not just sell a lot of products in a market.
These things, along with keeping excellence and an expectation of everything in Apple, these are the things that I focus on. I think that those are the things that make Apple a magical place that really smart people want to work in and sort of do not just their life’s work but their life’s best work. There’s no better thrill than to look out at an audience, I can’t see anything with these lights, but look out at an audience and see people using iPhones, or go to the gym and see people using iPods, or go to Starbucks and seeing people use the iPad, these are the things that bring a smile to my face. There’s no replacement, no substitute for that. We’re always focused on the future. We don’t sit and think about how great things were yesterday. I love that trait because I think it’s the thing that drives us all forward.
Those are the things I’m holding onto, and it’s a privilege to be a part of it.
