Tim Cook Tries to Explain Apple to Wall Street…Again

| The Back Page

$AAPLThere's one phrase from Apple's conference call with analysts on Tuesday that has resonated with me, and that was when CEO Tim Cook talked about the importance of customers being able to "access the entire ecosystem" with Apple's products.

As with everything that Tim Cook says, those words were very considered and deliberate, but I doubt analysts and investors will pay attention to the message. That message is simply that Apple isn't interested in market share for market share's sake, but that's something Wall Street has never understood.

Let's look at the comment in situ (emphasis added):

What we did with our lineup this time was the 4s is replacing the 4. If you look at the US as an example, the 4s is now free. The 4 was free previously. When you translate that out of the US, it depends on the market as to what specifically happens. Currency changes and the strength of the dollar doesn't always play in our favor in some goes. We see the 4s as our entry iPhone offer that gives somebody the ability to access the entire ecosystem as a fantastic product. We understand that there is elasticity in that market and it will move accordingly.

I realize that some people were reading rumors about that the entry phone would be the 5c, but that was never our intent obviously. Our entry iPhone is the iPhone 4s[...].

This phrase, "access to the entire ecosystem" was repeated later in the call. It was clearly a concept that Mr. Cook wanted to make sure analysts understood. Apple believes the value proposition of Apple's ecosystem is a valuable asset, and the company's isn't going to devalue that asset by shipping products that can't access that value.

What this means in terms of products is that Apple has determined that a "cheap" iPhone that plays better in emerging markets and will capture market share from all those cheap Android devices that make up the vast majority of Android share wouldn't be capable of running enough apps on the App Store or accessing all of Apple's services. It wouldn't deliver an Apple experience.

This is borne out by the repeated observation that Android owners don't do very much with their devices, a point CFO Peter Oppenheimer made during the call. This is most true at the low end, and that's the end that Wall Street and mainstream pundits want Apple to pay attention to.

It makes no sense. It never has, and Apple has tried repeatedly to explain that. Tim Cook and the late Steve Jobs said repeatedly that Apple's goal was to make the best products it could. That message has been crystal clear and consistent from Steve Jobs to Tim Cook, but Wall Street is wired to think that market share is all that matters.

This new idea, the importance of shipping products that give customers access to the entire ecosystem is a new way of explaining it. It will be interesting to see if it's effective. I doubt it, but it's interesting to watch Mr. Cook try.

Sign Up for the Newsletter

Join the TMO Express Daily Newsletter to get the latest Mac headlines in your e-mail every weekday.

Comments

Lee Dronick

Maybe Tim needs to be more clear when talking to lower denominators.

daemon

See, this is the problem with Apple. businesses exist to generate money for their owners. Apple refuses to transfer it’s 100+ billions of profit into the hands of it’s owners. Apple is then confused when it’s share price falls despite it making boat loads of cash. It’s cause that cash will never end up in an owner’s bank account.

jfbiii

Because $60 billion in buyback plans is “refusing” to transfer profits into the hands of its owners?

Cumulative payback is at $36 billion now with something like $45 billion still to run in the current buyback/dividend plan. That’s a total of more than $80 billion that they’ll buy back over something like a 4-year period of time. And I think they’ll do that without incurring any debt and without taking the huge tax hit they would take on the foreign capital that hasn’t been taxed in the U.S. yet.

The market is a side-game to the one where products are actually designed, made, and sold for a profit. Apple’s business fundamentals are sound, and the value of the stock is obvious. The market can set whatever arbitrary value it wants on the one Apple product that it controls but unless Apple plays along it can’t even damage the company. Largely because that big cash position acts as a safety net.

jfbiii

Maybe they already took on some debt for their buyback program. Can’t remember off the top of my head. So scratch that part about “without incurring any debt” if it’s not true.

Lancashire-Witch

“[Tim Cook] … but that was never our intent obviously.”

Obvious to whom?  It seems Apple’s strategic decisions are not obvious to many “analysts”.

Bryan Chaffin

I took that comment to be mean “obvious in hindsight, now that you’ve seen what we were really planning.”

daemon

“Because $60 billion in buyback plans is “refusing” to transfer profits into the hands of its owners? “

Stock buy back is not transferring profit to owners, it’s buying out owners.

Let’s say that you and I own a company, that company makes $1 billion dollars in profit, as the CEO you decide to keep all that money for the company, I object, saying that money, as profit, should be split amongst us owners, instead, you offer me $600 million dollars for my share of the company, more than the $500 million I’m due as half owner. Let’s say I take the $600 million. Next year your profits drop to $400 million, then rise to $600 million, then $800 million. You as the sole owner now have a company with $2.2 billion, I have $600 million. If the profits had been evenly distributed amongst the owners, you would have $1.4 billion, and I would have $1.4 billion.

That’s the difference between a buyout, and a dividend.

Do you see why a buy back is not the same thing?

Log-in to comment