I thought the visibility went with Steve, not the company.
Tim Cook, the interview: Running Apple ‘is sort of a lonely job’ | The Washington Post
The global sales of PCs each year are about 275 million right now. That number’s been declining. The global market for smartphones is 1.4 billion. Over time, I’m convinced every person in the world will have a smartphone. That may take a while, and they won’t all have iPhones. But it is the greatest market on earth from a consumer electronics point of view.
Think about it: Families have a TV. Some families are fortunate enough to have multiple TVs. But if you looked at all the TVs in the world, it’s not one-to-one, and it’s not going to be one-to-one.
Look at the core technologies that make up the smartphone today and look at the ones that will be dominant in smartphones of the future — like AI. AI will make this product even more essential to you. It will become even a better assistant than it is today. So where you probably aren’t leaving home without it today — you’re really going to be connected to it in the future.
That level of performance is going to skyrocket. And there is nothing that’s going to replace it in the short term or in the intermediate term either.
I realize that the people who are focused on this 90-day clock say, “Oh, my God, the smartphone industry only grew by 1 percent or decreased by 6 percent.” You know, the global economy’s not that great right now. But if you’re in it for the long haul, this is the best market on earth.
I see enormous opportunity [in India]. There are still a fair number of people in this country who don’t have smartphones. They’re using flip phones or a feature phone. There are a lot of people switching from Android to iOS, and that’s huge for us because they have a lot more market share than we do, from a unit point of view. Our goal has never been to make the most. It’s always been to make the best.
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I’m not saying we’re not going to do anything else. I’m saying this is still an unbelievable product category to be in, and not just for this quarter, year or for years. So I would not want anybody to think this, oh, this “better days are behind us” thing.
Some analysts have said that.
And it doesn’t bother me. Because honestly, they were saying that about Apple in 2001. They were saying it in 2005. They were saying it in 2007 — ‘this stupid iPhone, whoever dreamed up this thing?’ Then they were saying that we peaked in 2010, then it was 2011. We got to $60 billion [in revenue], and they said you can’t grow anymore from this. Well, last year we were $230 billion. And, yes, we’re coming down some this year. Every year isn’t an up, you know. I’ve heard all of it before. And I don’t subscribe to it because it’s traditional thinking in a lot of ways: You can’t get large because you are large.
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But what about in terms of running the company?
I learned that the scrutiny was much higher than I thought. Media interest and scrutiny — social networking was taking off at that time — and so a lot of the “love,” so to speak, and interest from customers, I think transfers to media interest as well. And so there’s a lot of visibility on the company. We can do very few things without it being reported somewhere.
You and Alan Greenspan or Janet Yellen would probably have a lot to talk about. It seems like every word you say is scrutinized. How do you get used to that?
You don’t. … You build up —my skin got materially thicker after August 2011. … I think I’m a bit better today about compartmentalizing things and not taking everything so personally.
That was just downright shocking to me, honestly. I thought the visibility went with Steve, not the company. And so I thought with a different CEO, with me, that would instantly change. It didn’t.
With the fight with the FBI, did you have any idea what you were getting into?
… it became clear what was right when we did the first piece of work: Could we create a tool to unlock the phone? After a few days, we had determined yes, we could. Then the question was, ethically, should we? We thought, you know, that depends on whether we could contain it or not. Other people were involved in this, too — deep security experts and so forth, and it was apparent from those discussions that we couldn’t be assured.
The risk of what happens if it got out, we felt, could be incredibly terrible for public safety.
We knew the positioning on the outside would not be public safety. It would be security vs. privacy — security should win. But we went through the deep, deep, deep discussions on that. It became clear that the trade-off, so to speak, was essentially putting hundreds of millions of people at risk for a phone that may or may not have anything on it, and that likely didn’t, because of other things that we knew about. We thought this actually is a clear decision. A hard one, but a clear one. Then it became more of a matter of how do we explain this. Because this is not easy. You can imagine. You just hear: locked phone. Terrorist. People dead. Why aren’t you unlocking this?
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Customers should have an expectation that they shouldn’t need a PhD in computer science to protect themselves. So I think they depend on us to do some things on their behalf. So with that responsibility comes an obligation to stand up. And, in this case, it was unbelievably uncomfortable and not something that we wished for, wanted — we didn’t even think it was right. Honestly? I was shocked that they would even ask for this. That was the thing that was so disappointing that I think everybody lost in the whole thing. There are 200-plus other countries in the world. Zero of them had ever asked this.
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But in terms of privacy… There’s a broader thing in play. Privacy, in my point of view, is a civil liberty that our Founding Fathers thought of a long time ago and concluded it was an essential part of what it was to be an American. Sort of on the level, if you will, with freedom of speech, freedom of the press. The other thing is how all this data sits out there in different places. I do worry about people not really understanding deeply about what kinds of things are out there about them.
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Do you have a concern about privacy as you push into AI?
No. I think that talented people can come up with fantastic ways of using AI without violating privacy. There’s a new technology called differential privacy which essentially looks at large data sets to predict user behaviors and requests without going to the precise individual, which might violate privacy.
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Back in 2009, you said, “We believe in saying no to thousands of projects.” Name one product or project in the past five years you have put on the shelf.
[Laughs]. I don’t know if I want to do that, because it gives competition some heads-up about things. But be assured that we have. More than one. Because the wonderful thing about Apple is there are many ideas about doing things. We have resources to do a few, but you can only do a few things deep and well, and so you have to say no and have debates about what things are in versus out. So more than one big thing has left the page.
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We don’t have divisions. We’ve elected not to do what business school, and I think every other larger company, does: They break down their company into smaller divisions. They give each division a P&L, and each division does their own marketing and communications and operations.
We always re-challenge ourselves on this question. But we keep coming back to what the customer wants from us is a user experience that is seamless. They want to start working on whatever they’re working on from their iPhone. And then they want to go to the Mac, and they want it to be absolutely seamless. The only way to assure that is to do things once.
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When you look back, are there mistakes you’ve made that you’ve learned something from?
Maps was a mistake. … I hired the wrong person for retail initially. …
It’s sort of a lonely job. The adage that it’s lonely — the CEO job is lonely — is accurate in a lot of ways. I’m not looking for any sympathy. You have to recognize that you have blind spots. We all do. Blind spots move, and you want to not just have really bright people around you, but people who will push on you and people to bring out the best in you. People that amplify whatever you’re good at. And then also the people who plug the parts that you’re not and may never be.
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At the end of every board meeting, I discuss succession with the board because I might step off the wrong curb or something. We have the good discipline to do that. Then my role is to make sure that the board has great candidates to pick from internally. And I take that role extremely seriously. Look around at the great people I get to work with — there’s some really just superb talent in the company.
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You’ve made more acquisitions at Apple…
At its current size, does Apple need big acquisitions like that to grow?
Do we need them? No. But we always are looking for companies that have really talented people and great intellectual property, and when we find them we do acquire them. …
I think we’ll continue to acquire companies. …
We clearly are capable of doing it both from a management-depth point of view and a financial point of view. But we’d only do it if it were great for Apple strategically. We don’t acquire for revenue. So the essential for us is the talent and/or [intellectual property]. Those are the things that we optimize around. …
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… Let’s talk about China. How much are you worried about competitive and regulatory threats there?
We make our investment decisions based on long term. We have to report every 90 days because that’s the rules, but it’s not how we run the company. So as I look in the long term, I think China is an unbelievable market — not only from a demand point of view and the revenue potential there, but also as a great source of talent. We have over a million and a half developers there. The reach is unbelievable. There are, sort of, speed bumps now with the economy. In a year-ago quarter, we were up 112 percent. So I think you have to back up and put it in perspective. If you look at it over a two-year basis, we were up over 50 percent in the quarter.
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We were talking about getting advice from people before your first testimony on Capitol Hill. That hearing focused on the corporate taxes Apple pays. Apple is now awaiting a European Union ruling on whether you owe billions in back taxes, and corporate tax reform is a big election-year issue. Does either a Trump or a Clinton campaign give you or the company any hope that there could be corporate tax reform anytime soon?
I think it’s in the best interest of the U.S. to have corporate tax reform, regardless of which political party is in charge of the White House. Because if you look at it, the U.S. rules today are that international companies like us and many others can keep their earnings that they earn overseas overseas, and then when they bring them back it triggers the tax liability.
What I’ve always felt should happen is that every dollar should be taxed immediately with no deferral. But as a consequence of doing that, you should have free flow of capital. What would happen is if a system like that were put in place, it should have more investment going into the United States. We’re the only major country in the world that has a system like this. It’s not good for the U.S., it’s not good for the economy, it’s not good for jobs, it’s not good for investments.
I think there’s wide agreement to that in both parties, by the way. There’s a difference of view with different people about how to fix it, but I think everybody agrees the current system isn’t working. So I’m optimistic that, in 2017, there will be some sort of corporate tax reform. The U.S. needs to invest more in infrastructure — so what would be great is, if they take the tax proceeds of a corporate tax reform and invest it in infrastructure and roads and bridges and airports.
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What do you say in response to Nobel economist Joseph Stiglitz’s comments on Bloomberg [television], where he called Apple’s profit reporting in Ireland a “fraud”?
… The money that’s in Ireland that he’s probably referring to is money that is subject to U.S. taxes. The tax law right now says we can keep that in Ireland or we can bring it back. And when we bring it back, we will pay 35 percent federal tax and then a weighted average across the states that we’re in, which is about 5 percent, so think of it as 40 percent. We’ve said at 40 percent, we’re not going to bring it back until there’s a fair rate. There’s no debate about it. Is that legal to do or not legal to do? It is legal to do. It is the current tax law. It’s not a matter of being patriotic or not patriotic. It doesn’t go that the more you pay, the more patriotic you are.
And so what we’ve said — we think it’s fine for us to pay more, because right now we’re paying nothing on that and we leave it over there. But we — like many, many other companies do — wait for the money to come back.
In the meantime, it’s important to look at what we do pay. Our marginal rate, our effective rate in the U.S. is over 30 percent. We are the largest taxpayer in the United States. And so we’re not a tax dodger. We pay our share and then some. We don’t have these big loopholes that other people talk about. The only kind of major tax credit that we get is the R&D tax credit, which is available to all companies in the United States. That’s important to know. The second thing I would point out is we have money internationally because we have two-thirds of our business there. So we earn money internationally. We didn’t look for a tax haven or something to put it somewhere. We sell a lot of product everywhere. And we want to bring it back, and we’ve been very honest and straightforward about that.
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It’s important for everyone to understand that the allegation made in the E.U. is that Ireland gave us a special deal. Ireland denies that. The structure we have was applicable to everybody -it wasn’t something that was done unique to Apple. It was their law.
And the basic controversy at the root of this is, people really aren’t arguing that Apple should pay more taxes. They’re arguing about who they should be paid to. And so there’s a tug of war going on between the countries of how you allocate profits.
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… In a tech industry where companies are trying to be “all things to all people,” how does Apple’s longtime philosophy of simplicity, and being very focused, move it forward?
It’s as important as it ever was. We’re a bit larger today, so we can do a bit more than we could do 10 years ago or even five years ago. But we still have, for our size, an extremely focused product line. You can literally put every product we make on this table. That really is an indication of how focused it is. I think that’s a good thing. Regardless of who you are, there’s only so many things that you can do at a very high-quality and deep, deep level — personally and in business. And so we’re not going to change that. That’s core to our model and way of thinking.
Apple has really ramped up spending in research and development. One analyst noted your R&D spending is now greater than what the 14 largest automakers spend, combined. What’s the most exciting technology out there to you right now?
That one I don’t want to answer, because it would give too much of an insight into the things we’re doing. But we have ramped up R&D because we are heavily investing in the future — both in current product lines and things that aren’t visible as well, including in services. In due time, some of those things will be visible. But there will always be other things that will replace those things that are invisible.