Yesterday we had the pleasure of listening to Tim Cook deliver a superb presentation to a group of institutional investors at the Goldman Sachs Technology and Internet conference in San Francisco.
I guess when you’re Goldman and you host your conference an easy drive from Cupertino, there’s a pretty good chance you can snag an appearance from Apple’s CEO.
If you didn’t catch the whole presentation already, you can catch a replay at Apple’s website. The first several minutes are focused on the issue of underage labor at factories from Apple’s suppliers. Cook was convincing that Apple is on top of the situation, but it honestly doesn’t spark my interest too much as a tech geek and shareholder.
Before I dive into the bits I found most interesting, I need to say that Apple is obviously a well oiled machine when it comes to everything PR. And speaking to investors, while technically an IR (investor relations) role, is still just another form of PR. After all, these events are publicly broadcast due to regulation FD.
Tim Cook knew exactly what he wanted to say to the audience. I’m quite sure that the Goldman analyst’s questions were vetted by Apple ahead of time. It’s all about controlling the message. Apple did this with the precision of a trained sniper.
So let’s move onto the stuff that got me jazzed as a shareholder.
Yeah, Apple shipped 37 million iPhones last quarter. But Cook points out that this still only means Apple sold 1 out of 4 smartphones. And they sold only 1 out of 10 mobile phones.
Consider Cook’s comments that the smartphone market will expand to one billion units by 2015. That’s no so far away. If Apple hangs onto even 20% of this market, that’s 200 million units, or an average of 50 million per quarter. This is substantially more than the record 37 million unit quarter Apple just delivered.
Emerging markets are playing a huge roll. Cook talked about how China generated Apple only a few hundred millions of dollars in revenue a few years ago. But last year? 13 billion bucks! Kinda makes it all clear as to why Apple is so focused on China.
Cook also gave a great example of how Apple keeps operating along its “think different” mantra. The company believes that no matter where you are, people want the best products. So they convinced China Unicom to try a post-paid (contract) plan for the iPhone. The result? It worked in spades. Who knows if Apple can swing this with more carriers in more markets, but for all of us (me included) who thought the market was moving more towards pre-paid, maybe Apple is changing the game again?
Oh, and Cook believes that 25% of smartphone demand will come from China and Brazil by 2015. Apple has said before that it has started to focus more on the Brazilian market over the last year.
One year ago, I wrote this blog post about how the tablet market would grow to be 400 million units, matching the then-size of the smartphone market.
Cook said that he thinks the tablet market will exceed the size of the PC market. His reasons for stating this line up really well with what I published last February. And just for comparison, by 2015 the PC market is expected to be somewhere north of 500 million units. His prediction exceeds mine. Nice.
Apple only holds a single digit percentage of the PC market. But with tablets? They invented the space. They dominate the industry. Even with the momentum of Android, I’m going to throw out a broad range and say that Apple could hang onto 30-60% of the overall tablet market. That’s 150 to 300 million units if the market demand reaches 500 million.
For comparison, last quarter Apple sold 15 million units. Run rate that number and you get 60 million (and remember last quarter was a peak holiday quarter, so run rating it isn’t exactly fair to do quite yet).
If you believe the tablet market is growing like crazy and that Apple can keep up a reasonable market share, revenue is bound to go up, up, up.
Even with reasonable ASP (average selling price) declines on the product line, the future is looking very bright for Apple. With that kind of growth opportunity, I’m more than happy to see the iPad cannibalize some Mac sales.
Tim’s comments here were very interesting. He said Apple doesn’t do hobbies. So why is Apple still calling the Apple TV a hobby? Well, Tim doesn’t think that it has the same kind of potential as the other legs of Apple’s stool (Mac, iPod, iPhone, iPad).
But he did tell us that Apple believed something would come of this market if they kept “pulling the string” and “following our intuition”.
Then he left us hanging, and they shifted the conversation to Siri and iCloud. Kind of interesting when you realize that these are two features that would make an entirely-Apple TV set a killer product. And let’s not forget that in the Steve Jobs biography, he said he felt they finally cracked the problem.
The TV is becoming a smart, connected device. Why shouldn’t Apple extend its dominance to this market? It’s just another device to interact with and connect to the iCloud.
If I were running Samsung’s TV business, I’d be crapping my pants in fearful anticipation of what Apple’s got planned.
Cook came right out and said that Apple has more cash than it needs to run its business. It’s an extremely obvious statement, but when a CEO publicly admits this it all but guarantees they’ll be doing something about it.
Wall Street is expecting a buyback or dividend this year. I think we’ll see it. I hope we’ll see it. I don’t think Apple is getting the credit for its cash hoard in its stock price. But we have to wait and see. Cook is asking for investors to be patient so they can “do this in a very deliberate way and make the best decision for shareholders”.
Overall, I thought Tim Cook did an amazing job at the Goldman Sachs conference. His message was clear, strong, and believable.
I’m in the camp that believes Apple will become the world’s first trillion dollar company (by market capitalization).
Who’s with me?