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The event comes on a day when the stock continues to move determinedly into uncharted territory. A few minutes ahead of the event, Apple shares are up another $2.20, or 0.4%, to $504.80, boosting the company's market cap to $471 billion, which makes it by far the most valuable publicly traded company in the world. Earlier today the stock traded as high as $506.18. The stock closed above the $500 level for the first time on Monday.
- Bill Shope, Goldman's hardware analyst is doing the introduction.
- Cook starts with the standard safe harbor statement. Blah, blah, blah.
- This is going to be in the form of Q&A between Shope and Cook.
- Shope starts with a question on the working conditions with Chinese companies in the Apple supply chain. Cook says that Apple takes working conditions very, very seriously, and has for a very long time. He says they care about every worker. He says he has spent a lot of time in factories personally. He worked in a paper mill in Alabama and an aluminum plant in Virginia. He says Apple understands working conditions at a very granular level. Cook says he realizes the supply chain is complex, and that the issus surrounding it can be complex, but that Apple believes every worker has a right to fair and safe work place where they can earn a competitive wage, free from discrimination.
- Cook adds that Apple thinks education is the great equalizer. That if people are given skills and knowledge, they can improve their lives. Apple provides free classes at many locations in their supply chain. He says more than 60,000 employees have attended these classes. He says if you moved them all to one location, it would a campus population larger than Arizona State, the largest public university in the U.S. He says many of the workers go on to earn associate's degrees.
- Cook says no one in the industry is doing more to improve working conditions than Apple. He says they are constantly looking for and fixing problems. Cook says he is "so incredibly proud" of what teams are doing in this area. He says Apple is truly a model for the industry.
- Cook says that the use of underage labor is abhorrant. He says it is extremely rare in their supply chain, but that they trying to eliminate it entirely. If we find a supplier that intentionally hires underage labor, he says "it is a firing offense."
- He also says they also focus on employee safety. If there is a fire extinguisher missing from a cafeteria kitchen in any particular facility, it does not pass inspection.
- They have cap of 60 hours for a workweek in their code of conduct; he says they found violations. Cook says they have been managing working hours on a "very micro basis."
- In January they collected data on over half million workers in the supply chain; they had 84% compliance. He says this is improved from the past, but that they can do better. He says they are going to report this information monthly.
- Fair Labor Association as they said yesterday is starting an auditing process of their assembly partners sites. The audit they are conducting is the most detailed factory audit in the history of mass manufacturing in scale, scope and transparency, he says. Cook says he is looking forward to seeing the results.
- Cook says they are blessed to have the smartest and most innovative people on Earth; he says they put the same effort and energy into supplier responsibility as they do into new products. "That is what Apple is all about."
- Shope shifts the conversation to products. He starts with iPhone; noting that they sold 37 million units in the December quarter. He wants to hear about growth opportunities for the iPhone.
- Cooke says 37 million was a big number. 17 million more than any quarter ever before. But he adds that as he sees it, that 37 million for last quarter was 24% of the smartphone market. The rest bought something else. And less than 9% of the handset market. Handset market headed to 2 billion units. This is a jaw-dropping industry, with enormous opportunity. What seems large to me is the opportunity, he says. They are focusing on making the world's best products; that if they stay focused on that, that they can take advantage of the opportunity.
- Shope asks about making the iPhone more affordable to emerging markets. Cook says those markets are critical. He notes smartphone market will be 1 billion units by 2015, with China and Brazil taking 25% of that. Apple, he says, has been very focused on China. They have had incredible success their; did $13 billion in revenue in Greater China in 2011. He says as it turns out, now many people agree with him on this, but what he sees is that there is a lot of commonality with what people want; they all want the best product, not a cheap version of the best product. He notes that there are go-to-market differences in emerging markets, where retailer has significant portion of the distribution. So go-to-market has to change in those markets. In subsidized markets, they have price points starting at zero. Cook says he comes back to the paramount thing is the product; it is the focus. Cook says he does not believe that all pre-paid markets are the same; he notes that they convinced China Unicom to try the post-paid business. He says this is great for customer, who gets phone at lower price, and carrier, who gets a lock-in with the customer. He says it is a different way of looking at the issue.
- What about iPad and Mac in China?
- Cooks says as it turns out, when Apple introduced iPod i 2001, it created a halo for the Mac. It created a resurgence for the Mac, which has outgrown the market for 23 straight quarters. But that was mostly in developed markets. It didn't work to the same level emerging markets; people already were getting music from phones. iPhone started introducing Apple brand to new people. Last year Mac in China grew over 100%; outgrew the market 10x. The iPhone is creating a halo for the Mac. And it has created a halo for iPad.
- Cook says that in 2007 - the year before iPhone launched overseas - revenue from emerging markets including China, India, LatAm, EMEA, was $1.4 billion. Last year, $22 billion. And he says there is lots more opportunity out there. It is profound and big for us, he says.
- Shope moves Cook along to the iPad. He notes they have shipped 55 million units.
- Cook says the 55 million units is something no one would have guessed. He says it took 22 years to sell 55 million Macs. Five years to sell that many iPods, and 3 years for iPhones. He says the pace of innovation on the product is remarkable. There are 170,000 apps optimized for iPad. The reason it is so large, he says, is that it has stood on the shoulders of everything that came before it. People were trained on iPhone. There were lots of things so intuitive; he gave one to his mother. At Starbucks, he says, everyone uses them. His 7-year-old nephew uses one.
- Shope asks how big iPad can get.
- Cook says he started noticing that it became 80%-90% of his consumption and work. He says from the first day it shipped, many at Apple thought the tablet would be bigger than the PC market, that it was just a matter of time. He says he thinks so even more so today than previously. Cook says the Mac can still grow, but that the tablet market will surpass PC units, it is just a matter of time.
- Shope notes that there were many skeptics when the iPad launched; he notes that last year, no rivals made a dent. But he notes that Amazon is making progress. He asks Cook to comment.
- Cook says that price is rarely the most important thing. He says people feel great, then they take it home, and the joy is gone. He says you don't keep remembering that you got a good deal, because you hate it. He says while everyone was aiming at iPad 1, they had launched iPad 2. Cook says people at the end of the day want the great product. Amazon is a different kind of competitor, he says. Cook says he thinks they will sell a lot of units, but that customers Apple is designing products for are not going to be satisfied with a limited function type of product. Cook says as long as people invent their own stuff, he loves competition.
- Shope also asks about how cannibalistic tablets are to PCs. Cook says iPad has cannibalized some Mac sales; he says they prefer to do it rather than have someone else do it. So you don't want to hold teams back, even if they take sales back from other products. Cook says he does not predict the demise of the PC industry. But he adds that iPad is cannibalizing more Windows PC units than Macs; and he thinks tablets in general will cannibalize PCs. What it will do largely, he says, is force players to sharpen their messages. He says tablets will simply be larger in units than PCs.
- Shope raises the question of the company's $98 billion cash pile. He wants to know if policy on what to do with it will change.
- Cook says they have spent billons on supply chain, and on building retail, and on acquisitions, and on building infrastructure. But yes, they still have a lot, he concedes. But he says they are judicious, deliberate, spending money like it is our last penny. He says holders want us to do that - they don't want the company to ask like they are rich. He says ge is not religious about holding cash, or not holding it. Cook says they are in very active discussions at the board level on what to do with the cash. Cook says they won't have a toga party or do something else outlandish.
- Have the discussions gotten more active as the cash has piled up?
- Cook says "it is being discussed more now, and in greater detail," as the balance has risen. He concedes that they have more cash than they need to run the business on a daily basis.
- Shope raises the subject of the living room and the TV market.
- Cook says he won't comment on future products. In terms of existing products, they sold just shy of 3 million Apple TV units last year, including 1.4 million last quarter. But he says they don't want to send message to shareholders that the market is the size of the other businesses. He says they don't want to suggest the length of that stool is the same as the other four. He says Apple does not do hobbies as a general rule. With Apple TV, though, despite barriers in the market, for those who use it, he says they have always thought that they might find something larger.
- Shope shifts to Siri and iCloud.
- Cook says that Siri and iCloud are profound. He says iCloud if you dial back 10-12 years, Steve announced a strategy for Apple with iLife strategy to be at the heart of your digital life. With the PC or Mac as the depository. He says iCloud turns that on its head. No longer a great customer experience to synch all your devices. He says that is a "hair-pulling exercise." He says now your life gets that so much easier. They have 100 million users of iCloud already. And he says there is obviously more that they can do with it. He says it is a strategy for the next decade or more.
- On Siri, Cook says for years PC or Mac users used keyboard and mouse. They Apple adds multi-touch. Siri, he says, is another profound change in inputs. He says it is something people always dreamed of. He notes that Siri is still a beta product, but that he already can't live without it.
- Final question. Shope wants to know how his leadership will change Apple.
- Cook says Apple is this unique company, unique culture, that you can't replicate. He says he is not going to witness or allow the undoing of this. He says Steve said the company should evolve around great products, and that they should stay focused on a few things. And that they should only go into markets where they can make a contribution to society, not just sell a lot of products. He says these are the things he focuses on. Those are the things that make Apple this magical place, where people come to do their life's best work. He says Apple is always focused on the future, not how great things were yesterday.
And that's it.
In today's regular session, Apple rose $6.86, or 1.4%, to $509.46.
