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Apple's chief hints at new products -- iWatch, smart TV -- plus talks taxes, Lisa Jackson hiring, and lawsuits

At D11 Conference (the eleventh annual All Things D press event), Apple, Inc. (AAPL) chief executive Tim Cook delivered an interesting keynote interview.

I. Tim Cook Isn't Jealous of Android -- or so he Says

The interview comes at an interesting time.  Apple is continuing to struggle in China; its profit margins have slid for the first time in years; and its share prices hover at a relatively "low" (in Apple terms) $440 USD, having briefly dipped below $400 USD.  Meanwhile, Android rivals' devices are selling well -- in the month after its launch HTC Corp. (TPE:2498) has moved 5 million "One" smartphones, while Samsung Electronics Comp., Ltd. (KSC:005930shipped over 10 million Galaxy S IV handsets in the first month on the market.

But Tim Cook claims he isn't concerned about Android outselling iPhones in unit sales.  He remarks, "Is Apple in trouble? Absolutely not. Let's zoom out and let me give you my perspective on it. We're a product company, so we think about products.... For us, winning has never been about having the most. Arguably, we make the best PC, but we don't make the most."

He points to strong sales figures (even if those figures show slowing growth), but is especially ardent about usage, commenting, "More important than the numbers -- customers love them. The usage of these products is unbelievable. The latest NetApp numbers look at usage, and I follow these closely. Usage worldwide, smartphones and tablets, from web traffic -- 59 percent is from iOS. Worldwide!  I look at that, and I feel pretty good. We had an unprecedented number of new products last year."

Tim Cook is enthusiastic about new products like the iPad Mini, even if profit margins and growth have slid a bit.

Those "new products" include the iPad Mini (launched in Nov. 2012), the fourth generation iPad (also Nov. 2012); a third generation Apple TV (Mar. 2012); new iPod Touch/Nano (Sept. 2012); refreshed Mac computers including the Retina MacBook Pros; and, of course, the iPhone 5 (Sept. 2012).

II. "Game-Changer" New Apple Products Company

And Mr. Cook says new products are on the way, enthusing, "We're still that company. We have some incredible plans that we've been working on for a while. We have some incredible ideas. The same culture, and largely the same people that delivered the iPhone and iPad, are still there. The culture is all still there, and many of the people are there. I think we have several more game-changers in us."

What are those "game-changers"?

One will almost certainly be a "smart TV".  Tim Cook announced that Apple TV -- once a "hobby" product of late Apple CEO Steven P. Jobs -- had crossed the 13 million unit threshold, thanks to strong sales of around 7 million units in 2012.  That contrasts favorably to some of Apple's chief set-top box competition like Roku, which has moved a mere 5 million units to date [source].  All that success, he adds, is without any major effort in terms of publicity -- "We aren't marketing it," he states.

But Tim Cook is still greedily eyeing the smart TV -- a flat panel set with a built-in smartphone-like operating system (which provides internet browsing, media playing, and gaming without a set-top box).  He comments, "We think a lot about the TV experience can be better. We answered some of those, not all of those, with the Apple TV, and we're still working on that."

Apple is likely looking to eventually transplant the "guts" of Apple TV directly
into a Smart TV set. [Image Source: Engadget]

In other words, Apple is likely working on a smart TV and/or television geared services, but is still struggling to perfect them.

The CEO also hinted at an upcoming wearable product -- the smart watch.  Discussing the appeal of Google Inc.'s (GOOG) Glass Explorer wearable Android device, he argues, "It's tough to see this having a broad-range appeal. But, I think wearables are incredibly interesting. I think it could be a profound area for technology.  I wear glasses because I have to. I can't see without them. People generally want glasses to reflect their fashion, their style and so forth. From a mainstream point of view, this is difficult."

Interviewer Walt Mossberg (of All Things D and The Wall Street Journal) smartly asked, "But, the wrist is not?"

To which Mr. Cook replied, "I think the wrist is natural."

Apple won't be alone; Samsung is also working on a smart watch, as is Microsoft  Corp. (MSFT).  But it sounds like we could see an Apple wristwatch product this year (another clue lies in the iPod Nano which reversed its shift to a smaller wrist-watch wearable form, returning to a larger touch-screen late last year).  

A fan-made mockup of the Apple iWatch [Image Source: Lunatic]
Tim Cook suggests that sensors will play a key role in the upcoming product, enthusing about his NIKE, Inc. (NKE) Fuel Band.  Thus it sounds like Apple's wristwatch product will likely have some sort of built in functionality for athletics (think run tracking) and perhaps proximity aware sensing (similar to the Galaxy S IV; hold up wrist watch near face to give voice-commands or perhaps even cellular calls).

III. Major Overhaul to iOS Confirmed

On the operating system front, Tim Cook confirms that major updates to OS X and iOS will be rolled out in time for the 2013 Worldwide Developer Conference (WWDC), which runs June 10-14 in San Francisco, Calif.

While he did not specifically confirm the widespread rumor that iOS 7 will imitate Microsoft's Windows Phone/Windows 8's "flat" look, he did confirm part of the rumor -- that Jony Ive (who designed the original iPhone body) is hard at work perfecting the major update to iOS.

iOS 7 flat
An artist mockup of what iOS 7 might look like [Image Source: YouTube/Simply Zesty]

He comments, "Jony Ive has been really key [to this version.]"

He also indicates that his company is hard at work trying to repair one of its major misses -- Maps.  He says, "I think it's very important. Mapping is complex, and not just the underlying data of the map, but things like POIs and the other pieces around it. We have an enormous investment in Maps. We've made many, many improvements over the last several months, including a very significant change in Japan. We think location is very important.  [The product is] greatly improved, but not there yet. We're putting a lot of bright people on it. We screwed up there."

The executive shot down the rumor that Apple had made a bid for turn-by-turn directions company Waze.  Waze is a popular Israeli startup who has its own maps, based on a crowd-sourced approach.  The company has popular apps on Android and iOS and is particularly good at giving directions in that it "sees" traffic backups and suggests alternate routes thanks to its crowd-sourced strategy.

Google and, Inc. (FB) are rumored to be in contention for the app.

More surprisingly Mr. Cook suggests that Apple may eventually go -- to an extent -- the route of Google, opening up some of its base APIs.  He comments, "Of course -- on the area of APIs, I think you'll see us open up more in the future. But, not to the degree that we put the customer at risk of having a bad experience.  Will we open up more? Yes."

IV. Lawsuits and Taxes
Tim Cook also addressed three of the key controversies facing his company -- environmental compliance, taxes, and lawsuits (against) Android.
On the topic of lawsuits, Mr. Cook defends Apple's decision to sue Samsung commenting, "The pluses for the broader industry, is that I think we're running the standards-essential issue largely to ground. There were several companies trying to get injunctions for standards-essential patents. When Google sued us, and Samsung sued us with standards-essentials injunctions on our products -- largely, the world has said that this isn't right, and that it's an abuse. Not just for Apple."

Apple v. Samsung
Apple's CEO says he doesn't like to sue people.  [Image Source: Gizmodo]

Apple struck first against Samsung and HTC.  In the case of Google subsidiary Motorola, it was Motorola who struck the first blow and Apple who countersued in cases that were eventually tossed from court with prejudice not once, not twicebut three times.

When pushed by The Verge's editor Nilay Patel, who said, "But you sued Samsung first, and you just added the Galaxy S4..."

Mr. Cook continued to dodge the question of his company's ongoing legal war with Samsung, equivocating, "Generally, I don't like lawsuits any more than I did last year. But, I don't want copying. It's a values thing. This is about values at the end of the day."

It's important to remind readers that Apple has made a licensing truce with HTC -- its aggression towards Samsung appears to be largely from a competitive standpoint.

On the topic of taxes he continues to deny accusations of tax dodging, remarking:

For multi-nationals, the right approach is simplicity. Just gut the code -- it's 7,500 pages long. None of us can read it. Apple's tax return is two feet high! It's absolutely crazy. Let's throw away the expenditures, and let's set a reasonable tax to bring offshore profits back to the US. It helps the US economy.

Our effective tax rates is 30.5%. We pay $6 billion -- that's more than anyone in the U.S.! We aren't in there saying we should pay less -- in fact, we may end up paying more with our approach. But we'd have unlimited ability to pull our money back to the U.S.

I've seen something where people think we have a special deal with the Irish government where we get a two percent flat tax rate. We don't have that. Let me just set that aside.

The basic thing that's being debated -- for a company like Apple that sells things across the world, and develops them in the United States, some people believe that all of the profits around the world should accrue to the U.S. and be taxed in the U.S.

If everything developed in the United States is going to be taxed here, I worry about where development will be. We're now in a situation where we don't always have to make decisions based on financial implications. But for other companies that do? This wouldn't be good for jobs in the United States. I want people to think through the logical next steps [in Congress].

I think when you get a little larger, you get more attention. It comes with the territory.

Indeed other large companies like Google and Microsoft have come under scrutiny in the U.S. and European Union over similar tax dodging accusations.  

Apple money
Apple says it isn't dodging taxes.  [Image Source: SomanyMP3s]

Tim Cook's support of a flat tax is one shared by many Americans, but Washington D.C. politicians remain largely opposed to the idea, preferring the current convoluted system that allows them to sneak tax loopholes into legislation, which in turn earns them special interest dollars to win elections.

Lastly on the topic of "green" technology, Tim Cook thumped his company's track record, boasting, "Take the environment. We've been focused on that for a long time. We've eliminated toxins from all of our products. We're running our data centers with 100 percent renewable energy. We own the largest solar farm of any non-utility company (in North Carolina). We try to leave the environment better than we found it."

He reveals that his company just hired former U.S. Environmental Protections Agency (EPA) chief Lisa Jackson to help with Apple's compliance efforts.

Lisa Jackson
Former Obama admin. EPA chief Lisa Jackson is joining Apple. [Image Source: Reuters]

He explains, "Lisa Jackson is joining Apple. She recently left the EPA, and she'll now be coordinating these efforts across the company.  She'll report to me. I like her a lot, and she's a chemical engineer by background.  I actually forget the actual title, but she'll continue to coordinate our environmental efforts across Apple."

Lastly, on the topic of Apple's cash pile, which is expected to hit $170B USD this year, Tim Cook insists his company isn't hoarding cash.  In addition to its new dividend and share repurchasing programs, he reveals that in 2012 Apple acquired nine firms, up from its yearly average of six.

He would not disclose what those firms were (other than the publicly known ones) for competitive reasons.

Source: All Things D

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He meant to do that!
By drlumen on 5/29/2013 1:42:06 PM , Rating: 2
So sales are no longer really important since they don't have the lions share anymore? They are only focusing on the products? What? Huh?

RE: He meant to do that!
By BRB29 on 5/29/2013 1:57:26 PM , Rating: 2
At this point, having majority market share is more bragging rights. Smartphones used to be a premium product and now it is mainstream. Apple only wants to sell everything at a premium.

If they actually wanted to grab market share then they would make a low, mid and high end product and thus lower their profit margin. Instead, they have been making the same high end only product the entire duration. Look at all the products they sell, everything is only on the high end spectrum. They sell more $1200+ laptops than any other manufacturer combined. Ipods are all priced at a massive premium compared to other media players with same specs and features. Iphones have always been expensive unless you buy one gen behind. Look at all the sales for All-in-one desktops.

I don't like apple products but I have to give it to apple for not straying away from their business strategy.

RE: He meant to do that!
By ven1ger on 5/29/2013 2:13:06 PM , Rating: 3
Apple has changed their business strategy a little from prior. Now, they have incorporated using Patents as a weapon to try to stifle the competition. Bad for business but its a route they decided to choose.

RE: He meant to do that!
By TakinYourPoints on 5/30/2013 3:10:00 AM , Rating: 3
They probably see little reason to chase the low end. At best I think they're going to follow the iPod Nano or iPad Mini strategy with a lower cost iPhone: a product chasing the middle that is still more expensive than the low-end.

Here's a chart showing Apple, Samsung, and everyone else's unit sales compared to revenue and operating profit:

Low end devices are a boat anchor on revenue and profit, just look at those green sales from "all other" low end devices, 70% of units sold for ~5% of the profit. Who honestly wants that market share?

The thing that Apple and Samsung have in common is that they sell lots of high end smartphones. The more high end devices you sell, the more profit you get. The fact that Samsung sells the most popular high-end Android handsets is the only reason why their smartphone revenue and profit are as high as they are, even though they're under a quarter of their total smartphone sales and are a fraction of the iPhone's sales.

Its no wonder why Apple isn't chasing pure quantity with low end devices, and why Samsung spent more money than Apple or Coke marketing the GS3 and GS4 even though they are "smaller" products for them in their total sales. They'd love nothing more than for their expensive high end products to be the dominant ones in their portfolio.

RE: He meant to do that!
By captainBOB on 5/30/2013 12:05:12 PM , Rating: 2
Apple won't go below the high end because they already know the outcome of acing to the bottom.

Just look at the PC market, several major players are on the ropes, Dell is looking to pull out, HP is in dire straits and is stumbling to find some sense in the changing market. Only Acer, Asus, and Lenovo are doing ok so far, but their small profit margins are getting smaller.

Apple on the other hand is sitting comfortably in the high end PC market, Mac sales are down for sure, but they have a very comfortable profit margin to weather the storm. It's kind of funny, in the end they won in a way, they don't have a Mac on every desk, but they are making a lot more money than any other OEM.

RE: He meant to do that!
By retrospooty on 5/30/2013 12:41:53 PM , Rating: 2
Apple was very nearly extinct in the high end PC market. It got bigger again when the iPod and iPhone got huge. Not that I am saying they should change, they are clearly in good shape... Just pointing out if it were just Macs, Apple would still be a tiny player if still in business at all.

RE: He meant to do that!
By w8gaming on 5/30/2013 10:11:31 PM , Rating: 2
Samsung does have a whole spectrum of smartphone models that cover the low end to the high end. While Apple has no presence at low end at all. The market is transforming and there is download pressure on prices. Apple achieves its high share price, based on the assumption that they can sell the same amount of premium phones at the same high profit margin in the future. And the trend is showing that this is unlikely. Meanwhile, if Apple continue to stay with premium segment only, their market will shrink and they will sell less units. If they launch new models in the low end segment, their profit margin will shrink. There is no easy way out for Apple. Either their sales unit has to suffer or their profit margin has to suffer, hence their current share price cannot be sustained. Investors are demanding dividends as they doubt Apple management has a solution to their dilemma and may end up making a wrong decision and waste their current huge cash pile in bad decisions.

RE: He meant to do that!
By TakinYourPoints on 5/30/2013 11:17:39 PM , Rating: 2
There will certainly be a ceiling for high end phones. That said, high end devices like the iPhone and the GS3/4 sell more with each passing year. That ceiling in the high end hasn't been hit yet.

I don't think Apple has any interest in chasing the zero-profit smartphone market that is the majority of Android sales, just as they didn't chase that market with the iPod or iPad. A mid-range device that is still more expensive and powerful than the giveaway devices is much more likely, Apple really tends to go with that strategy.

A shrinking market share is something they don't seem concerned with as long as they continue to sell more product, and the trend in all high end devices is still up.

"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation

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