Three years ago at D5, Apple CEO Steve Jobs described Apple TV as a hobby. And since then, the company has continued to describe the digital media receiver that way. Indeed, COO Tim Cook referred to it that way at a Goldman Sachs (GS) conference in February.
Today Jobs told us why: Apple (AAPL) has no interest in a market that precludes it from rolling out a viable go-to-market strategy. “The problem with innovation in the TV industry is the go-to-market strategy,” Jobs said. “The TV industry has a subsidized model that gives everyone a set-top box for free. So no one wants to buy a box. Ask TiVo, ask Roku, ask us….ask Google in a few months.”
Below, a video of the anecdote.
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The center of financial gravity in the computing world—the Center of Money—has shifted. No longer directed at the PC, the money pump now gushes full blast at the smartphones market. One of my colleagues, Bob Ackerman, calls smartphones the very personal computers. Measured by size and potential, they’re both smaller and bigger than today’s PCs.
The Math
Consider the numbers: HP, the world’s foremost PC maker, sold $10B of “Personal Systems” in its last reported quarter:
(turn “on” display image in your mail reader
to see the graphics)
Despite their premier position, HP isn’t making much PC money: $500M, 5% Operating Profit. (The full HP Q1 report in PDF can be found here.)
Now let’s turn to Apple’s most recent quarter. Smartphones constituted 40% of the company’s revenue:
When we add up the numbers, we see that the iPhone = Mac + iPods. And this rough calculation “misunderestimates” the weight of the iPhone OS. In the more mature iPod category, the iPod Touch (the iPhone without a phone) grew by 63% year-to-year according to Apple COO Tim Cook in the most recent earnings conference call. (Full Q2 2010 SEC filing available here.)
Subtract an estimated $180 for manufacturing cost and another 12% for Operating Expenses…
..and we get 58% Operating Income for iPhones.
I realize I’m taking a bit of arithmetic license—I’m assuming Operating Expenses are uniform for all product categories, and so on. But the essence remains: Apple makes $3B of profit from its iPhone while HP takes in a mere $500M on its PCs—that’s a 6x difference. The Center of Money has shifted.
(As an aside: If we divide iPhone revenue by the number of units, we arrive at a $622 for each device. Accounting connoisseurs can search for “Retrospective Adoption of New Accounting Principles” in the SEC filing and decide for themselves how much iPhone revenue is accounted for at the time of sale, and how much is kept in reserve and parceled out in 24 monthly installments)
The Curve
HP’s low margins are a symptom of the mature PC sector. The personal computer has reached the S-Curve’s shoulder while very personal computers are still at the S-Curve’s knee, poised for the type of growth the PC has enjoyed over the past 30 years:
When we stare at the curve and consider that steep upward slope, when we consider what it will take to keep the ball rolling uphill, our thoughts turn to software platforms and operating systems. Is it a good idea to use a mature OS in this new genre? Will the layers upon layers of software silt that have accumulated over decades provide the proper environment for the growth of this new species? Until now, OS makers had to struggle to stay compatible with existing applications as they piled on additional modern features. Microsoft and Apple were prisoners of the past. But with the smartphone… Free at last! The smaller size provides an escape from backwards (and that is the right word) compatibility.
The smartphone isn’t just a new genre, it’s nothing less than a reboot of personal computing.
Google agrees. The very successful Android OS has been adopted by a rapidly growing number of handset makers. Recent AdMob statistics place Android ahead of the iPhone in US Web traffic. The cynics may disagree, rebutting with contrary Comscore stats and the supercilious observation that AdMob is being acquired by Google…but it doesn’t really matter. Android is ascending, and will soon show up in tablets (unless its close relative, Chrome OS, ends up as the chosen engine).
Google and Apple have seen—and have comprehended—the same opportunity. They’ve jumped on the next wave of very personal computing, in two form factors…or more…let’s see what happens with TVs.
(I’m not ignoring RIM, the maker of the very good and very successful Blackberry. It’s still the #1 smartphone in the US market, but it’s not apparent that they see what Google and Apple see. RIM seems to want to stay focused on what they do well. I’ll look more closely at RIM in a future note.)
The Objections
Realists will object that the new devices aren’t as capable, as powerful, or as useful as traditional PCs. Yes…for now. We always hear this objection when a new genre emerges. What, minicomputers? They can’t do what our mainframes do. Microcomputers? You must be joking. Look at how puny they are, they don’t even have a real operating system. The interloper does less, but it also costs less—sometimes much less. It’s lighter on the wallet, and it’s also lighter on the mind, easier to live with. The incumbent fights by adding features that reinforce its dominant status, but by moving upwards it makes room for the new device which, over time, gains more power and acceptance, and firmly establishes itself.
The upstart doesn’t signal the end of the previous generation. We still have mainframes, and we’ll have PCs for a long time. But give it time and, as stated at the beginning of this note, the Center of Money will shift as customers become more comfortable with the new, lighter, sexier model, as the nascent devices gain muscle and polish. This is the future Google and Apple have in mind for their Android/Chrome and iPhone platforms.
(If you’re interested in a more in-depth discussion of Google’s Android, take a look at Andreas Constantinou’s blog. Especially “Wintel future for mobile operators” and “Is Android evil?” The comments are worth your while as well. Or see Dr. Constantinou’s meaty 65-slide deck surveying “Mobile Megatrends”. One take-away: Google wants carriers to be mere bit pipes, wireless ISPs and nothing more. They want to drive the price of smartphones to less than $100 in order to take the carrier out of the subsidy business and, as a result, loosen the carrier’s control over handsets. Free, again, at last.)
The Surprise
As I was researching this note, something happened: HP jumped back into the smartphone game. The premier PC company announced that it was buying Palm for $1.2B. Their own smartphone platform, the iPaq line, has been losing ground. (See the recent NY Times article, H.P., Tech Powerhouse, Stumbles in Smartphones which points out iPaq’s “steady slide into irrelevance.”) Despite Palm’s obvious woes, its WebOS isn’t one of them—au contraire, the software platform was universally praised. So, here we go, let’s write a check and get ourselves a good engine for the new race.
In a previous MondayNote, I wrote that no one would buy Palm.
I was wrong. Perhaps I should stick to predicting the past. My mistake stings even more as I wake up and realize I failed to pick up a clue lying in plain sight: Todd Bradley, the senior exec running HP’s PC business, used to be Palm’s CEO. In private conversations, he was too disciplined to be critical of Palm (even after he left) but…from marketing to system software, he exhibited an impressive command of the company’s issues. Ah well…
Acquisitions are difficult affairs that often fail for cultural reasons, and the HP/Palm deal (Palm CEO Jon Rubenstein hails it as a merger) has been questioned here and here. But Todd Bradley’s unique insights, supported by HP’s technical, financial, and market access resources, could combine to prove the skeptics wrong.
And, there’s more…
Right after the HP/Palm announcement, we heard that Microsoft killed its Courier tablet project, quickly followed by news that HP cancelled its own Slate, initially touted, by Microsoft and others, as an “iPad killer”. HP’s Slate was to run a keyboard-less version of Windows 7.
The Center
Apple, Google, and now HP have seen the past and the future: The PC business is mature and graying; the growth is with the new very personal computers. Relying on Microsoft (or even Google, unless you’re Google) for the operating system puts you in a fast race to the bottom, to meager margins, to having key decisions for your business made in Redmond or Mountain View.
The Center of Money has definitely shifted.
Related columns:
Bottom line: Roughly 2 million units sold in greater China in the space of 6 months
Analysts scratching their heads about how they could have so badly underestimated Apple's (AAPL) iPhones sales — and as a result, its revenue and earnings — in the quarter that ended March 27 need look no further than the Chinese market for iPhones.
The 8.752 million iPhones Apple sold in Q2 2010 beat Wall Street's estimates by 25% to 30% — or nearly 2 million phones.
Where did those sales come from? Roughly half of them, it seems, came from China. Listen to this exchange between Barclay's Ben Reitzes and Apple COO Tim Cook during Tuesday's earnings call with analysts:
Reitzes:
Did China meet your expectations?
Cook:
China has been interesting. If you look at greater China which we define as mainland China, Hong Kong and Taiwan, the iPhone units were up year-over-year over 9 times. We added another 800 points of distribution in China. The revenue, we have never released this number before but I will do this in this particular case, through the first half of the fiscal year that we just completed for the six month period our revenue from greater China was almost $1.3 billion and this is up over 200% year-over-year. So we are well pleased with how the company is positioned to take advantage of the growth in greater China. (Transcript: Seeking Alpha)
Going to the back of our envelope (which is where we usually get in trouble), if you divide $1.3 billion by the average selling price of the iPhone in the March quarter ($622), you get nearly 2.1 million iPhones. That could be off a bit, but you get the picture.
Most of the iPhone-in-China stories we've read suggest that the launch has been a disaster for Apple. (Two notable exceptions: Dan Butterfield's excellent on-the-scene reporting in iPhonAsia and a research note last January by Morgan Stanley's Katy Huberty.)
Two million phones in a country of half a billion cellphone owners may not sound like a lot, but according to Huberty, the addressable iPhone market in China (which she defines as people with with an annual income over $20,000 and an average cellphone bill of $22 per month) is about 50 million. If she's right, Apple may have captured 4% of it in the space of six months.
See also:
[Follow Philip Elmer-DeWitt on Twitter @philiped]
Tim Cook “Shocked” At iPad Demand, “Can’t Think Of A Single Thing A Netbook Does Well” http://tcrn.ch/c7ZAOy
[Direct Link]RT @TechCrunch Tim Cook “Shocked” At iPad Demand, “Can’t Think Of A Single Thing A Netbook Does Well" http://tcrn.ch/9JSr6G
- Hutch CarpenterCOO Tim Cook clears $68 million before taxes; CFO Peter Oppenheimer, $46 million
Apple's senior staff had a busy — and profitable — day of insider trading Thursday.
More than a million restricted shares of Apple (AAPL) stock that seven of them were granted on Dec. 14, 2005 became fully vested Wednesday. The next day, with Apple opening at an all-time record high, four of them seized the opportunity to sell off all those shares.
COO Tim Cook, who two weeks earlier was given a $5 million bonus and stock options worth $17 million, was the big winner. He sold 300,000 Apple shares at prices ranging from $226.9 to $230.7, for a total of $68.8 million — $32 million of which was set aside for taxes.
When Cook was granted those shares, Apple was selling for $72.01. It opened Thursday at $230.92 and closed, thanks in part to all that selling, $4.57 lower.
Three other officers also dumped their restricted shares Thursday:
Three other senior staffers — Serlet Bertrand (granted 150,000 restricted shares in 2005), Scott Forstall (50,000) and Robert Mansfield (50,000) — sold some of their shares to cover their tax burden and held on to the rest.
See also:
[Follow Philip Elmer-DeWitt on Twitter @philiped]
Oh to have the privilege of setting aside $32 million for taxes...
- Louis Gray
Apple has long described its AppleTV business as “a hobby” and dismissed speculation that it’s considering an Apple-branded television. Indeed, during a February appearance at Goldman Sachs annual tech conference in San Francisco COO Tim Cook reiterated that stance. “We have no interest in the TV market,” he said.
In a note to clients today, Piper Jaffray analyst Gene Munster suggests Apple (AAPL) reconsider its position on the television market. Home entertainment hardware is a $31.8 billion business, says Munster, and Apple could easily tap into it with a connected HDTV that offered immediate access to iTunes movies, TV shows, music and podcasts.
“Apple’s ability to deliver hardware, software and content that could replace an entire entertainment system with a single TV, puts Apple in a unique position for the emerging connected TV cycle,” Munster writes. “Apple already has several of the key ingredients for success in the connected TV market, many of which would differentiate Apple from current market players.”
Among those key ingredients:
That seems a solid base upon which to build a connected TV business, particularly one designed to replace an entire entertainment system. Combine it with a reasonably priced iTunes TV subscription plan and you’d have a compelling offering indeed. But as I’ve noted here before, TV hardware is a tough business and the cable companies are wary of any offering that might threaten existing subscription fees.
Still, Munster is optimistic.
“Yes, TV hardware is a challenging, low-margin business if you don’t change the rules of the game; but we see potential for Apple to offer best-in-class hardware, software and content and charge a premium,” he says. “The bottom line, 32.4 million HDTVs sold in the U.S. a year is a real market, and if history repeats itself, Apple would find a way to compete in a commoditized market with a premium priced product. An Apple Television would address more than just the HDTV market, as it would likely include audio and video features that could replace the TV itself, a Blu-ray player, a cable set-top-box, possibly a gaming system, an audio receiver made to combine these inputs and play music, plus the installation of these devices.”
Given Munster’s confidence in an Apple gambit in the television market, how long will it be before we see one? 2-4 years, says the analyst — about the time we see an a-la-carte iTunes TV Pass.
For filling in for Steve Jobs: A $5 million bonus and stock worth nearly $17 million more
Photo: Monica M. Davey/EPA/Corbis
Tim Cook, Apple's (AAPL) chief operating officer and heir apparent, got his today.
For taking the reins when Steve Jobs went on medical leave in Jan. 2009 and heading the company with no visible hitches until his master's return six months later, Cook was awarded a $5 million cash bonus and 75,000 shares of restricted stock, according to Form 8-K filed with the SEC on Friday.
The stock doesn't vest until 2011 and 2012, but at today's close of $226.6, it's worth $16.995 million.
This was Cook's second stint as Apple's acting CEO. He ran the shop for a month in 2004 while Jobs recovered from surgery that removed a malignant tumor from his pancreas (see here). By the time Jobs returned to work, Apple's shares had risen 10.9% to what seems now like an impossibly low $35.86.
The fact is, Cook runs Apple's day-to-day operations even when Jobs is around, making the supply chains run on time and freeing his CEO up to cut high-level deals, rub shoulders with Hollywood moguls, and figure out where the puck is going, to paraphrase Jobs' favorite Wayne Gretzgy quote, not where its been.
For more on what Cook brings to the party, see Adam Lashinsky's definitive profile, published in the Nov. 2008 issue of Fortune.
See also:
[Follow Philip Elmer-DeWitt on Twitter @philiped]
I guess Tim doesn't work for a $1 a year like the boss.
- Lon SeidmanApple (AAPL) disclosed in an SEC filing that the compensation committee of the company’s board on Wednesday approved a one-time bonus of $5 million in cash and 75,000 restricted stock units to COO Tim Cook “in recognition of his outstanding performance” while he ran day-to-day operations at the company during the period in FY 2009 while CEO Steve Jobs was on medical leave.
Half of the restricted stock will vest on March 10, 2011, with the rest vesting a year later, all subject to Cook’s continued employment at the company.
At today’s closing price of $226.60, the RSUs are worth $17 million.
The filing said the bonus was recommended by Jobs, and was approved unanimously by the committee.
Would 2010 Steve Jobs Sue 1996 (Or 1984) Steve Jobs Over Patents? http://goo.gl/KsQc
Would 2010 Steve Jobs Sue 1996 (Or 1984) Steve Jobs Over Patents?
- Ryan SingerManufacturing Problems to Lead to Constrained iPad Supplies, Launch Delay? http://vdege.org/dAwgwG
Digital Daily is reporting that, according to Canaccord Adams analyst Peter Misek, Apple might be facing manufacturing problems that will lead to constrained supplies of the iPad, or even a delay in its launch:
“We have … heard that the upcoming iPad launch may be somewhat limited as a manufacturing bottleneck has impacted production of Apple’s newest device. An unspecified production problem at the iPad’s manufacturer, Hon Hai Precision, will likely limit the launch region to the US and the number of units available to roughly 300K in the month of March, far lower than the company’s initial estimate of 1,000K units. The delay in production ramp will likely impact Apple’s April unit estimate of 800K as well. It is also possible that, given the limited number of units available in March, the launch will be delayed for a month.”
Chief Operating Officer, Tim Cook runs Apple’s supply chain with more precision than an aluminum unibody chassis, however, so would a problem this large really be allowed to happen? DIgital Daily claims it’s a “big if” as to whether or not Misek is correct. Best case he isn’t. Worst case, despite Apple’s still current claim of the iPad shipping in late March, we may only see it in April.
Does this affect your odds of buying one either way?
Manufacturing Problems to Lead to Constrained iPad Supplies, Launch Delay? is a story by TiPb. This feed is sponsored by The iPhone Blog Store.
TiPb - The #1 iPhone, iPad, and iPod touch Blog
For years, at various times, tech giants such as Microsoft, Google and Apple have all been referred to as “benign monopolies.” Companies tend to earn that moniker when they reach a certain level of dominance in global markets, and have command over widespread standards. But now, more than ever, it’s worth remembering that extreme market dominance introduces trends that are far from benign.
As I look through many of today’s biggest tech headlines, and popular interpretations of them, I’m struck by how unpredictable people are at both leveling criticism against and showering praise on tech companies that command extreme global market power. Antitrust concerns, for example, are seen as a “mark of Google’s success.” And Adobe Flash apparently doesn’t need a kick in the pants or a challenge from competing and possibly better technologies; instead, it has worked beautifully for over 15 years. And just look at the flame war I incited in a recent post on Apple, when I suggested that it is increasingly pursuing closed policies, with the iPad shaping up to be the company’s most closed product ever.
In a post today titled “Is Monogamy Good for Technology?” Matt Asay describes the conundrums he is facing as he takes on his new job as COO of Canonical, which, of course, requires him to use Ubuntu Linux. A longtime user of all things Apple, Asay notes that Apple COO Tim Cook has recently suggested “that the magic of Apple is its seamless interoperability with other Apple technology.” Certainly, I have heard many Apple users praise the company’s products for working so well together, even as critics argue that closed technology is the byproduct of that phenomenon. Google, meanwhile, draws much praise for open policies, but has also made clear that its attitude toward openness isn’t entirely altruistic.
It’s worth noting that big commercial technology companies throw their weight around the world in increasingly anti-open, and dangerous, ways. As OStatic notes today, the powerful International Intellectual Property Alliance (IIPA) has just produced a 498-page report for the office of the U.S. Trade Representative arguing that government mandates to use open-source software must be “carefully monitored.”
The IIPA report recommends that numerous entire countries be placed on international watchlists because their governments favor such software, which it characterizes as a threat to innovation. A closer look at the report, though, shows that its recommendations are made in conjunction with the Business Software Alliance, which counts among its members Microsoft, Adobe, Symantec, IBM and many other large commercial software providers.
I’m in agreement with Asay that “no vendor dominates innovation once and for all.” While it is true that the most powerful technology companies have helped establish standardized ways for things to work together, it’s also true that closed policies and total market dominance must be questioned — always.
Innovation all around the world depends on countries, governments, companies and users finding harmonious ways to work together. Just ask the Chinese science community, which has made clear that without Google’s technology, its research efforts will suffer enormously. Now, more than ever, there needs to be a healthy and open global ecosystem for technology innovation, and the most dominant technology companies bear great responsibility for protecting it.
Image courtesy of Flickr user Mark Strozier.
Related Post On GigaOM Pro: Intel, Oracle and Antitrust: The IT Landscape Hangs In The Balance
The Myth of the Benign Monopoly
- LouCypher
The press, as usual, was barred from bringing communication devices into the Apple (AAPL) shareholders meeting that began at 1 p.m. EST (10 a.m. PST) Thursday.
But, as often happens, word is leaking out thanks to iPhones in the hands of shareholders who shall go unnamed. We'll post their dispatches, as they come in (all times EST).
12:37: Just going in to Mtg hall … Said hello to Daniel Eran Dilger. Jim Goldman is on scene… I'll try to say hi after the mtg. Security is very prominent
1:00: Jobs looks good!
1:08 Voting and formalities ,.. Yawn. Shelton Erlick now protesting Al Gore glaciers are not melting! Another shareholder stands in support of Gore to resounding applause
1:13 Sustainabilty proposal now on stage. Environmental groups pushing for an even greener Apple
1:21 The ever entertaining Shelton Erlick at the mic again calling environmental movement a new religion and sustainabilty proposal should be voted down. The environmentalists are not happy w Erlick and they are here in force grabbbing the mic to counter Erlick
1:27 Sustainability proposal voted down by shareholders. Steve back on stage with [COO] Tim Cook and [CFO] Peter Oppenheimer. Shareholder says very glad to have Jobs health and back! big applause! Jobs thanks Tim cook for his stewardship
Filed under: Apple Corporate, Retail, iPad
Last Tuesday, Apple's COO Tim Cook announced that consumers will be able to buy the iPad at Best Buy locations in the US. TUAWBest Buy to sell iPads originally appeared on The Unofficial Apple Weblog (TUAW) on Wed, 24 Feb 2010 15:00:00 EST. Please see our terms for use of feeds.
Today at the Goldman Sachs Technology and Internet Conference in San Francisco, Apple COO Tim Cook revealed that the iPad will be available at multiple retail locations soon after launch, including Best Buy.
In his Q&A at the conference, Mr. Cook revealed some interesting insights into the secretive Cupertino, CA company. The company considers itself (rightfully) a leader in mobile devices and, in fact, a mobile device company. It makes sense, if you consider that laptops, the iPhone and the iPod make up the vast majority of Apple’s revenue today.
His discussion of the iPad was more interesting, though. He was asked whether the iPad would be a replacement for netbooks or a new use case. To that, he isn’t sure since they haven’t sold any units yet, but he did trash netbooks, something that Steve Jobs also does on a consistent basis.
Also revealed: the iPad will first be sold in direct channels (aka online and in Apple retail stores), but will soon be sold in stores with assisted sales. He specifically mentioned Best Buy as a partner, although we’re sure eventually wherever iPhones are sold, iPads will be sold as well.
From his talk:
“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.”
Tim Cook also addressed Apple TV, a digital media receiver device that has not taken off like other Apple products. To that end, Mr. Cook described Apple TV as a “hobby” because it targets a “very small market,” although he did point to its 35% year-over-year growth.
[via Apple Insider and Business Insider]
Tags: apple, Apple Tablet, best buy, ipad
Apple (AAPL) COO Tim Cook says the AppleTV remains a hobby - but he also notes that the company is now the largest seller in the world of digital content. Those were just a few of the many things he had to say in a session at the Goldman Sachs Technology and Internet conference today at the Westin St. Francis in San Francisco. He was interviewed on stage by Goldman analyst David Bailey.
Cook actually started by reading a safe-harbor statement; here’s a rundown on some of his other thoughts:
Apple thinks of itself as a mobile device company. In January at the iPad launch event, Steve Jobs noted that “Apple is the largest mobile devices company in the world now.” And responding to a direct question today at a Goldman Sachs conference, liveblogged by the WSJ, COO Tim Cook reiterated: “Yes, you should definitely look at Apple as a mobile-device company.”
Cook also pointed out that the majority of Apple’s revenues now comes from mobile devices (including laptops) or content for those devices. Indeed, if you look at the breakdown of Apple’s fourth quarter revenues of $15.7 billion, nearly $12 billion of that came from portable Macbooks ($2.8 billion), iPods ($3.4 billion) and iPhones $5.6 billion). And another $1.2 billion came from iTunes.
Apple isn’t abandoning computers. It is a mobile device company because computing is going mobile. What about things like Apple TV? “Apple TV is a hobby,” Cook says dismissively, echoing another sentiment Jobs has expressed before. Nevertheless, the company sold 35 percent more Apple TVs last quarter than the year before and continues to invest in the opportunity.
For more on what Cook said today, read the liveblog notes from the WSJ or the Business Insider.
Apple’s Tim Cook on the iPad and the Company’s Mobile Future http://su.pr/2uyAy3 - WSJ Blog
Tim Cook, Apple’s chief operating officer, is one of the keynote speakers at Goldman Sachs’ annual tech conference in San Francisco. The event allows investors to hear from top executives at tech companies from Microsoft and Google to Netflix and WebMD.
Mr. Cook isn’t expected to break much news at the conference, but he could offer some interesting comments on Apple’s biggest recent development, the iPad. The audio of the address is being Webcast on Apple’s site beginning at 4:10 p.m. EST.
4:10 pm
We're awaiting the start of the keynote. The hold music on Goldman's site is Eric Clapton's "Change the World."
4:12 pm
The first question from Goldman is about mobile devices and whether such devices are "how we should think about Apple" from now on. Cook's answer: "Yes, you should definitely look at Apple as a mobile-device company."
4:13 pm
The Macintosh business has become primarily a mobile-device business, Mr. Cook says. "The vast majority of Apple's revenues" come from either mobile devices or the content for those, he adds.
4:14 pm
The traditional model, in which one company does apps, a separate one does hardware, etc., "falls apart" in a mobile-device world, Mr. Cook says.
4:17 pm
Talking about companies that are both competitors and partners, Mr. Cook talks about Microsoft and Google specifically. He compliments one part of Microsoft's business -- Office.
4:19 pm
The Goldman representative asks the obvious question about what this focus on mobile means for other aspects of Apple's business. "Apple TV is a hobby," Mr. Cook says. (Ouch.) But "because our gut says there's something there, we're continuing to invest in those." He is more effusive about the iMac business, saying it's "very key."
4:21 pm
"We continue to invest an enormous amount of energy and talent in the Mac," Mr. Cook says. He explains that Apple's success doesn't rely on market growth but on convincing Windows users to switch.
4:22 pm
Mr. Cook says he's been using an iPad for about six months and says Apple "can't wait to start shipping it."
4:27 pm
The Goldman representative asks about the market for the iPad and whether it will take the place of netbooks, which he calls "clearly an inferior product." Mr. Cook says that some people who would have bought netbooks will buy iPads, but he defers on the main part of the question, saying Apple will have more information once it starts selling the product.
4:29 pm
He elaborates on Apple's decision on the iPad price point (as low as $499): "We didn't want to leave a pricing umbrella for competition, so we got very aggressive on this."
4:33 pm
Likely alluding to reported problems with AT&T service, the Goldman representative asks about AT&T and the pros and cons of having a single carrier. The primary benefit of having a single carrier is "simplicity," Mr. Cook says, adding that this model allows Apple to more easily work with that single carrier to develop new features. He says the benefit of a multiple-carrier model is that it might allow for more sales in places where people are loyal to a specific carrier. He doesn't mention anything negative about AT&T.
4:38 pm
"What you're seeing with Apple is that the Mac OS is amazingly scalable," he says. Apple uses "the Mac OS from the iPod Touch to the iPhone to the iPad to the Macintosh." In what sounds like a dig at Microsoft, he says this gives Apple an advantage over some who are "geographically north." (Microsoft's headquarters are in Washington.) This gets a big laugh, but then Mr. Cook says he should probably move on.
4:45 pm
Speaking about the Apple stores, Mr. Cook says: "We knew we would never have enough stores to cover the world," but wanted to make sure Apple was committed to a "multi-channel" approach to sales. He says that after the recent recession began, Apple decided to scale back and wait for "top properties" to come onto the market. Now, he says, Apple is again ramping up the building of stores.
4:46 pm
Mr. Cook gives a shout-out to the stores in New York and Paris and mentions that upcoming stores in Shanghai and London will "make your jaw drop."
4:49 pm
Goldman's representative asks about acquisitions. Mr. Cook explains Apple's strategy: "We have acquired companies for technology and talent, and they have been on the small side." He says Apple has looked at large companies, but those haven't passed Apple's tests in terms of value and compatibility.
4:50 pm
Final question: How does Apple prevent success from affecting innovation? "People are our most important asset by far," Mr. Cook says. At least he acknowledges that it's a cliche.
4:53 pm
"We say no to good ideas every day" in order to keep the products Apple focuses on manageable. You could probably put on the table in front of you every product Apple makes, he points out. He says "this hubris happens to companies" that decide their sole purpose in life is to get bigger, and they start "adding this and that," and Apple will never do that. And with that, the keynote ends.
