Tim Cook’s Strategy: ‘We believe in investing in downturns’

| Analysis

In Apple's fiscal Q1'16 Earnings Report, Apple CEO Tim Cook made frequent references to the worldwide macro-economic downturn since 2014. Most companies would retrench and cut back in R&D and other investment in a such a downturn. Not Apple. Apple's strategy is very different. In fact, we've see it work before. Mr. Cook spelled out his formula, again, for all to hear.

Apple CEO Tim Cook

Tim Cook made a series of pointed declarations about Apple's intentions during the current worldwide economic slump.

We believe in investing during downturns.

Is CEO Cook trying to put a good face on a downturn that could slow the company's growth? The fact is that Apple has dealt with this before, under Steve Jobs. Back during the recession of 2008, Apple explained how all this works. Namely, Apple's customers who pay for premium brands are least affected by downturns. Henry Blodget explained, "Why Apple Won't Get Crushed By The Recession."

Mr. Blodget was right. And they weren't.

Tim Cook reiterated during the earnings report that Apple will be fine...

Despite bleak [geographic] areas.

Having seen his company weather bigger storms, Mr. Cook remained optimistic.

This too shall pass.

Mr. Cook made mention, obliquely, to other companies that retrench in market like this because they fear their customers will scale back. Declining sales means that there's no money to do research, reimagine the product line, or retain the best talent.

We are not retrenching.

Apple is also a company that takes the long term view. What's good for a company in the short term, virtually by quarters, often eviscerates a company's ability to thrive in the long term.

We will continue to invest. It is in Apple's long term interest to do so.

Finally, for a company with sufficient financial resources, a periodic downturn can be a blessing. Commodity prices drop. Within the limits of gradual obsolescence, it makes sense to grab commodity parts at fire sale prices for the day when the market rebounds. That helps gross margins. There is no company on the planet better equipped than Apple to do this as it also continues to spend US$6 billion per quarter in R&D. Mr. Cook gave us the signs...

Commodities get cheaper.

In summary, we've seen it all before. A downturn has some investors nervously worrying that Apple's growth will be stalled forever and the company will be crushed by ongoing macro-economic affairs. Apple, instead, invests in the future and comes out on the other side in a far better position that the competitors who short-sightedly retrenched.

Mr. Cook, in these quotes, couldn't have spelled out Apple's winning strategy any more clearly. It works.

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