Here are some of the most interesting things to come from Tim Cook during Q&A at Apple’s 1Q14 earnings call.
Bill Shope – Goldman Sachs & Company: Can you comment on your progress so far in getting down the cost curve for the iPhone, iPad and would you say you are in line with the types of improvement you’ve seen in cycles prior to the iphone-5/” title=”View all articles about iPhone 5 here”>iphone-5/” title=”View all articles about iPhone 5 here”>iphone-5/” title=”View all articles about iPhone 5 here”>iPhone 5?
Tim Cook – CEO: You can see that we have projected in the guidance gross margins between 37% and 38% and that’s despite going from a holiday quarter to a non-holiday quarter, which we lose quite a bit of leverage from in doing that. So, one of the primary things, that’s going on there is cost. So, yes, we’re happy with how we are doing.
Toni Sacconaghi – Sanford C. Bernstein: I have one for Tim and then a follow-up. Tim, I wanted to just step back and talk a little bit about iPhone market share. The market data isn’t out for Q1, but if we look at your prior four quarters, fiscal ’13 Apple grew its iPhone units about 20%, the market grew in the 40s. I think this quarter, even with a new product and having China front loaded, Apple’s – the iPhone’s going to grow at a fraction of ultimately what the market is likely to grow at? I know your belief in philosophy historically has been that you want to make the best product and that’s the most important thing. But in Macs you have actually succeeded in making the best product and being able to gain share. You have cited again how you gained share in 30 out of the last 31 quarters in Mac. But in iPhone that is not happening. So my question is, what is different about the smartphone market that is not allowing you to hold or gain unit share despite apparently having the best product? Do you propose to do anything differently going forward because I think it’s great to have an aspiration to make the grade with the best products but I think that’s in the spirit of ultimately growing at least in line or faster than the market and that doesn’t appear to be happening?
Tim Cook – CEO: Tony, as I said before our objective has always been to make the best not the most and we feel that we are doing that. If you look at what we did this year, we announced two iPhones for the first time rather than one and looking at last quarter, if you looked at our sell-throughs not the sell-in but the sell-through of what I will just call our entry phone or mid-phone and our top part of the 5s. All of those grew year-over-year versus the phones that were in those categories previously. If you look at the emerging markets, which is one of the things that I believe is key that we have to grow in these areas and grow at reasonable amount, in Latin America we grew at 76% year-over-year. In the Middle East and Africa we grew at 65%. In Central and Eastern Europe we grew 115%. In China we grew at 20%. However, as you know we just added China Mobile, the largest carrier there in this quarter and did not have a channel load in China Mobile last quarter, and so we just started selling those in January. Also in Japan as we’ve added DOCOMO, iPhone units were up 40%. […] The other thing that happened in North America specifically was that some carriers changed their upgrade policy, and this affected last quarter and will have some effect on the current quarter. This restricted customers who are used to upgrading earlier than the 24 months that they’re allowed and sort of stretch the time out to be a hard and fast last 24 months, and so, that’s the major factor playing into the North American result. So, as I backed up and sort of zoom out on this and look at it, one of the most important things for us in the iPhone business was to do really well in emerging markets and we had the best quarter ever from that respect. Another was to grow in China because I think you can’t be the business that we’re in and not have a reasonable China business and you can see how we did last quarter and we’ve now followed that up with a deal with China Mobile. So, I feel great about that. I think part of what’s happening in North America is a short-term effect because of this upgrade policy changes. This affects the trade of time three to six months I would say and then it washes through. So, as I look at it I feel very good about where we are and I would guess that the market numbers, some of the stuff that you’ve been seeing, will actually be decreased as the revisions come out, given you’re hearing what everyone is saying.
Andy Hargreaves – Pacific Crest Securities: Just a quick follow-up to Tim your comments about demand mix being significantly different or different than what you thought in the quarter. Do you have any thoughts on why it was so much different than what you expected to see?
Tim Cook – CEO: I think the 5s, people are really intrigued with Touch ID. It’s a major feature that has excited people. I think that associated with the other things that are unique to the 5s got the 5s to have a significant and lot more attention and a higher mix of sale.
Brian Marshall – ISI Group: Obviously, the iPhone business grew about 7% year-over-year, we are at 200 million and growing in sales now and that’s with two new versions being launched in the quarter. Can you help us think about how you guys view the iPhone new user growth out there in the marketplace versus simply a solid replacement cycle that the company has with its installed base?
Tim Cook – CEO: Brian, it’s Tim. We saw a significant new to iPhone number. It’s not numbers that we throw out, but we particularly saw that on the 5c, which is what we wanted to see. So, it’s clearly not just upgraders. As a matter of fact, the upgraders, particularly in North America would have been less than we thought because of the changes in the upgrade policy that I talked about earlier.
Brian Marshall – ISI Group: Then, with respect to innovation at the company, I mean, obviously, iPhone came out in 2007, iPad came out in 2010; 2013 came around and we got some new products, obviously, but nothing really from a new product category. Care to comment on sort of the innovation cycle at the Company and the cadence there?
Tim Cook – CEO: It’s never been stronger, Brian. I’m very confident with the work that’s going on and I think our customers are going to love what we’re going to do.
Keith Bachman – Bank of Montreal: Well yeah, sorry not price changes but at least product positioning, are you willing to go to expand the product portfolio into new categories within the phone family?
Tim Cook – CEO: We’re willing to make a new product that’s a great product, where our line in the sand is, is making something that’s not fantastic.
Gene Munster – Piper Jaffray: Second, this gets back to some of the other themes on the call here too, but you obviously are going to have a big year in terms of new product categories and maybe even thinking beyond 2014 in the new products commodity, kind of wrap in 2015. How do you think about kind of the trajectory of the platform or what would you say that I’d guess investors that say this is just a product cycle story?
Tim Cook – CEO: Well I would answer your question. I would just say innovation is as deeply embedded in everybody here and there is still so much of the world that is full of very complex products et cetera. There is never a — we don’t have – we have zero issue coming up with things we want to do that we think we can disrupt in a major way. The challenge is always to focus and to the very few that deserves all of our energy, and we’ve always done that and we’re continuing to do that.
