Apple Inc. (NASDAQ:AAPL) CEO, Tim Cook spoke today at the Goldman Sachs conference. Famous Apple analyst, Gene Munster of Piper Jaffray was content with Cook’s comments (more on that topic to follow). Cook emphasized the Apple was a software company, not a hardware firm. Cook also dismissed the lawsuit  filed by David Einhorn’s Greenlight Capital as a ‘silly sideshow’. Most of the talk consisted of a Q&A between Cook and Bill Shope, an analyst at Goldman Sachs. We have obtained the entire transcript and have pasted some of the notable sections from Cook’s speech below:

Tim Cook

Bill Shope – Goldman Sachs – Analyst

Alright. Let’s get started. I want to start off with a topic that has been top of mind for investors lately and certainly top of mind for the press. Last week Dave Einhorn characterized Apple as having a Depression-era mentality with its cash balance. What’s your reaction to that and is there room for you to get far more aggressive on this front?

Tim Cook – Apple Inc. (NASDAQ:AAPL) – CEO

You really wanted to get started. Apple doesn’t have a Depression-era mentality. If you look at what — Apple makes bold and ambitious bets on products and we’re conservative financially. But if you really look at what we’ve done in terms of investment, last year we invested $10 billion in CapEx. We think we’re going to do a similar amount this year. We’re investing in retail stores and distribution around the world, most important in R&D, in new products. We investing in supply chain. We’re acquiring some companies. And so I think it’s hard or at least my definition of a Depression-era mentality wouldn’t include a Company that’s investing in a pair of tens over two years. And when you add that to the fact that we announced just under a year ago that we’re returning $45 billion to shareholders through a combination of dividends and buyback and we’ve already completed $10 billion of that, I don’t know how a Company with a Depression-era mindset would’ve done all of those things.

Bill Shope – Goldman Sachs – Analyst

There was also a lawsuit last week through this same proposal from Greenlight related to your proxy. How do you think about that lawsuit? Where is the misunderstanding here?

Tim Cook – Apple Inc. (NASDAQ:AAPL) – CEO

This is a good question because I don’t think this is well understood. The disagreement centers around a proposal on Apple’s proxy which we filed our preliminary proxy back in December. It’s called PropTwo. And what this proposal is about is about the rights of shareholders. Specifically – I want to be very clear on this — it’s not about whether Apple returns additional cash to shareholders. It’s not about how much cash to retrn to shareholders. It’s not about the mechanism to return it. It’s not about any of those things. It’s about the rights of shareholders. Some time ago, early in 2012, we were looking at what things we could do to improve our governance further. And as a part of that review, one of the items that came out of that was that we thought we should eliminate a blank check preferred from Apple’s charter. And what that means is not that Apple could not release common shares or release preferred shares. It just says that if Apple decided to do it, we’d need to go to our common shareholders to get their approval. And so frankly I find it bizarre that we would find ourselves being sued for doing something that’s good for shareholders. But this is the position that we’re in. I think it’s a silly sideshow, honestly. And my preference would be that everyone on both sides of the issue would take the money they’re spending on this and donate it to a worthy cause. That would be a much better use of funds.

What we’re going to do — you’re not going to see us doing a campaign mailing. We’re not doing it. You’re not going to see a Yes on Two sign in my front yard. This is a waste of shareholder money and it’s a distraction and it’s not a seminal issue for Apple. That said, I support it, PropTwo. I’m personally going to vote for it. I think it’s the right thing for shareholders to have the right on this particular topic. I encourage others to vote for it. But it’s not something we’re going to spend cycles on. And so I think the serious issue at hand is the return of cash — how to do it, how much to do. It’s that. And we’re very serious about that. But this PropTwo thing is a silly sideshow and frankly one of the big reasons I feel like this is we feel so strongly that for Apple Inc. (NASDAQ:AAPL), that shareholders should approve any issuance of preferred stock because this is something — we have no preferred stock, as you know. This isn’t a matter of increasing shares. We feel so strongly that common shareholders would do it, if we decide that this is in the best interest of shareholders to issue, we would clearly go for a vote regardless of whether our charter requires is or not. That’s the way I see it.

Bill Shope – Goldman Sachs – Analyst

If we look at the opportunity set that you haven’t captured yet in smartphones, I’d say a common concern would be particularly for prepaid customers in emerging markets, the iPhone’s simply not affordable yet to a large portion of the world’s population. I know in the past you’ve said you wouldn’t just create cheap products for market share for revenue’s sake but how do you think about creating a great customer experience that’s also affordable to many of these customers around the globe that certainly, I would think, want your products.

Tim Cook – Apple Inc. (NASDAQ:AAPL) – CEO

This is a popular question. It’s important to understand — to understand Apple, our North star is great products. And so when everyone comes to work every day and leaves work, they’re thinking about that, front and center. We wouldn’t do anything that we consider not a great product. It would — it’s just not in us to do it. That’s not why we’re on this earth. There are other companies that do that. That’s just not who we are. That said, if you look at what we’ve done to try to appeal to people that are more price sensitive, with iPhone specifically, we lowered the price of iPhone 4. We lowered the price of iPhone 4S. We did that in September of last year. And in the December quarter, the one — the most recent that we reported, we didn’t have enough supply of iPhone 4 after we cut the price. It surprised us as to the level of demand that we had for it. So, we are making moves — or have made moves to make things s more affordable.

Also if you look back at Apple’s history what you would see is if you take something like an iPod, when we came out with iPod it was $399. Where is iPod today? Today you can go out and buy an iPod Shuffle for $49. And so instead of sayng how can we cheapen this iPod to get it lower, we said — How can we do a great product and we were able to do that at a cost that enabled us to sell it at a very low price of $49 and it appealed to a lot more people.

Bill Shope – Goldman Sachs – Analyst

So, we shouldn’t look at it as a limit? Every year there are pundits that push towards what they think the greatest new feature sould be on a smartphone and in various consumer electronics products. And in the past it has generally, we can safely say, a mistake to question Apple Inc. (NASDAQ:AAPL)’s choices on those fronts but more recently we’ve seen a lot of commentary that consumers want larger screen sizes, for instance, on smartphones than what Apple Inc. (NASDAQ:AAPL) offers. You’ve argued that the iPhone 5 currently has the optimal screen size for your customer base and for most customers. Can you walk me through how you get to that conclusion and frankly your confidence in that conclusion?

Tim Cook – Apple Inc. (NASDAQ:AAPL) – CEO

I don’t want to say what we will do or won’t do. Don’t interpret anything I say along those lines. The truth is that — let me go back and compare it to the PC industry for a minute. The PC industry over the years, the way that companies competed were two things — specs and price. And so people would want to say — I’ve got the largest drive or I’ve got the fastest processor. Or in the camera business people began to say — I’ve got the most megapixels. The truth is customers want a great experience and they want quality and they want that ah-ha moment each time they use the product. Thaht’s rarely a function of any of those things. These are things that technology companies invent because they can’t have a great experience and so they talk about the specfs of something. Do you know the speed of an AX processer? You probably don’t. Does it matter? Does it really matter at the end of the day? You want a fabulous experience when you open it and use the product. And so, if you look at displays, if you kind of contrast this to displays, some people are focused on size. There’s a few other things about the display that are important. Some people use displays like OLED dislays — the color saturation is awful. So, if you ever buy anything online and you want to really know what the color is as many people do, you should really think twice before you depend on the color that — of the OLED display. The retina display is twice as bright as an OLED display. I wonly bring these points up to say there are many attributes of a display and what Apple Inc. (NASDAQ:AAPL) does is sweat every detail. We care about all of them and we want the best display. I think we’ve got it. I feel ggreat about it. I’m not going to comment about what we’re going to do in the future because that releases our magic. I’m not going to do that. But it’s always broader — the customer experience is always broader than that wich can be defined by a simple number.

Bill Shope – Goldman Sachs – Analyst

In closing, you’ve just finished your first full year as CEO. When you look back on this, what are you most proud of?

Tim Cook – Apple Inc. (NASDAQ:AAPL) – CEO

I’m incredibly proud over a lot of things. I’m most proud of our employees. I have the privilege every day of working with people who want to make the very best products in the world. They’re there to do not only great work, but the best work in their lives. They’re there to do it without limits.

They’re the most creative on earth. It’s a privilege of a lifetime for me to be at Apple Inc. (NASDAQ:AAPL) at this point in time and work with all these people. I’m incredibly proud of the products that we have. We have the best smartphone on the market, we have the best tablet on the market, we have the best PC on the market, we have the best digital music player on the market. For those things that we’ve elected to do, and we continue to focus on a few, they’re really great. I’m incredibly bullish about the future and what Apple Inc. (NASDAQ:AAPL) can do and more contributions it can make to the world.


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