Tim Cook: We’re More Than Our Hardware!
Apple’s (NASDAQ:AAPL) strength as a hardware manufacturer may be under question these days, but it is increasingly beginning to get support from its software and services universe, with many experts calling the company’s ecosystem stickiness its strongest suite.
And it appears the company is beginning to think this way, too. Chief executive Tim Cook said at the Goldman Sachs tech conference on Tuesday that Apple was not worried about the possibility of falling margins because it does not consider itself solely a hardware company and had other ways of making money.
“Because we’re not a hardware company, there are other things we’re doing and could do to have revenues and profits flow,” Cook said, noting that Apple also sells software and services and sees itself as a platform company. “We don’t look at the sale of a product as our last part of the relationship with the customer, it’s the first. We are very focused on that. There’s also financial benefit in doing that.”
Cook added that being more than a hardware company afforded Apple the ability to not worry in the short term about a drop in growth rates. “We’re managing Apple for the long term,” he said. “I know people care about quarters and so forth, and we care, but the decisions we make, the profound decisions we make, are for Apple’s long-term health. Not the short-term 90-day clock.”
Specifically addressing the question of falling margins, Cook said that lower margins have to be often accepted for a product for strategic reasons, such as making an entry into a new sector. The point of reference was the iPad mini, which Apple launched last October…
While the company has seen huge sales of the smaller tablet, analysts have expressed worry that, because the cheaper device cannibalizes sales of the full-size iPad, it negatively affects gross margins.
Cook said the company had the ability to withstand small margin drops in favor of growing sales for the future. Eventual, with supply chain changes, profits would edge up again.
“At the background, we always know that this halo effect play, we had confidence in our ability to execute the supply chain and walk down costs,” he said. “In the area of tablets, we think the market is huge and it makes sense to have another product there. People wanted a full iPad experience, but in something smaller and lighter. We have other ways to make money and reward shareholders.”
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