Let me give you an example of China. Last year Mac sales in China doubled. That's pretty remarkable. The personal computer market grew 10% last year in China, so we were ten times the industry growth rate. And it's pretty clear that iPhone is creating a halo effect for Mac and for iPad as well. So you can clearly see the synergies between these products not just in developed countries but also in emerging markets.
We will continue to focus on our unique issues in this industry such as excessive working hours. Our code of conduct states that workers should not work more than 60 hours per week, yet we continue to find partners who violate this rule. Therefore, we announced earlier this year our determination to implement comprehensive reform.
We began managing worker hours from every detail. For instance, in January we collected weekly data on about 500,000 supplier workers and found that 84% of suppliers complied with the regulations. The situation has significantly improved compared to before, but we can do better. We are taking unprecedented measures by publishing labor conditions on our website every month so everyone will be clear about what we are doing. Tim Cook’s praying gesture during the iPhone 4S launch was touching.
Scale to me means opportunity. So, what we are focused on now is no different from before: building the best products in the world. We believe that if we maintain this level of focus and continue to build ecosystems around iPhone, we will have a great chance to benefit from this huge market.
Perhaps many of you know that at our request, the Fair Labor Association (FLA) has begun large-scale audits of our product assembly manufacturers. We started cooperating with FLA on audit projects last year, and in January this year, we became the first tech company allowed to join their association. The audits currently being conducted by FLA may be the most detailed factory audits in the history of large-scale manufacturing, whether in terms of scale, scope, or transparency. I look forward to the final results.
I think the launch of Siri and iCloud by Apple is very significant. If you use iCloud; if you rewind to 10 years ago, 12 years ago, Steve Jobs announced a strategy of positioning Mac or PC as the hub of people's digital lives. Apple developed a suite of applications called iLife. You could connect any device, sync all your music and photos, edit your photos, edit movies, etc. Our concept was that the Mac or PC would be the repository.
Apple TV and the future living room market
Now, I won't predict the demise of the PC industry. I also disagree with this point. I am sure, considering the current environment, that the iPad offsets some Mac sales, and offsets even more Windows PC sales. The iPad offsets other products more than the Mac does, which is a plus for us. I think tablets will eventually replace PCs.
It has been proven that everyone in every country wants the best product. They don't seek a cheap version of the best product, but rather the real best product. So, this is a consistent theme.
We do not allow anyone to take chances on safety issues. If we can make the production process safer, we will hire the most renowned authorities and experts in the world, set new standards and implement them throughout the supply chain.
When talking about Apple's cash holdings, let me first address the word "frugal" you used, because I do not agree with that point, at least I wouldn't use it in the same context. We have already spent billions of dollars on the supply chain, billions on acquisitions, including intellectual property. We have also spent billions on retail, infrastructure, companies, data centers, the Apple App Store, and iCloud. But yes, you're right, we still have a lot of cash left. But I think we have clear minds, and we need to think carefully. Every dollar we spend is treated as if it were our last, and I think shareholders expect us to do that. They don't want us to act rich, frankly speaking, we've never felt that way either. It might sound incredible, but it's true.
I think the iPad offsets some Mac sales, and we are more willing than other manufacturers to recognize this way. We will not suppress any team within Apple from developing the greatest product, even if it affects the sales of products in other areas. Our highest priority is customer satisfaction, we hope they buy Apple products.
Clearly, we started using iPads internally long before the tablet's release. Of course, all our development work had to be kept secret so no one would find out. When I began noticing my own behavior, it quickly took up 80-90% of my attention, and the iPad development was complete.
Many of these workers will also earn an associate’s degree. So, for those seeking to improve their lives and achieve higher aspirations, this is a very good stepping stone. As for the problems we are solving, you can find relevant details on our website. I want to tell everyone that in our industry, no company pays as much attention to improving worker conditions as Apple does.
So we have always focused on culture, we don't sit down and think about yesterday's great products. I like this quality because it drives us forward. So this is our firmly held belief, becoming a privileged part of our strategy. (Saint Oak, Xiao Ming)
To date, more than 60,000 people have participated in this training, which is quite an impressive number. If you gathered all these trained employees in one place, the size of their campus would exceed that of Arizona State University, which is the largest public university in the United States.
We will continuously audit each factory, delve into the frontlines of the supply chain, identify problems, address issues, and solve problems. We will disclose everything because we firmly believe transparency is crucial in this field. I am incredibly proud of the achievements our team has made in this area. They focus on solving the toughest problems, they are meticulous until the problems are resolved. They are role models in our industry.
Below, I will give you a few examples because I think it is very important and is something everyone is concerned about now.
Apple is a unique company with a one-of-a-kind culture that cannot be replicated, and I will not witness or allow its slow decline because I firmly believe:
But the halo effect iPod brought to Mac was created in developed countries. It was created in the U.S., in Western Europe, in Japan, in Australia and Canada, not in Eastern Europe, the Middle East, Latin America, not in Africa, China, or other Asian countries. Because people already get music content from their phones.
Seeing people use iPhones, or use iPods in the gym, or use iPads in Starbucks, there is nothing more exciting than this. These things delight me, and nothing can replace them.
Firstly, these markets are very important to us. As I mentioned earlier, the smartphone market is expected to reach one billion units by 2015, and in the next three years, 25% of this forecasted number will come from China and Brazil. In these two markets alone, 250 million smartphones will be sold. Clearly, Brazil and China are two very important markets, but other markets are equally important.
If today we hold a meeting in this hotel and ask all developers creating the coolest PC applications to attend, you probably won't find a single person. But if you invite iOS or other system developers to attend, including all those involved in the project, this hotel won't be able to accommodate so many developers, every square inch of the hotel will be filled with people. This is the power of innovation. This doesn't mean PCs are going away, I love Macs, and they are still growing. I think they will continue to grow.
I think both Siri and iCloud have profound significance, we don't need to consider their profitability or losses because we are not worried about that. We want to provide a great user experience, measuring it by profit or loss would not lead to such a great product. They are not products with a lifespan of one or two years, but products you will discuss with future generations. This is indeed a profound change.
This is what happened last year, everyone in the PC and mobile phone fields felt it. Everyone decided they must have a tablet. An incomplete statistic shows that 100 tablets hit the market last year. Every manufacturer targeted iPad 1, while we aimed to innovate and launch iPad 2 as soon as possible. By the time they thought they could compete with iPad 1, we had already launched iPad 2. We were excited to have launched 170,000 apps, and I'm not sure if other platforms have even launched 100 apps.
We understand that people have high expectations for Apple. Actually, we have even higher expectations for ourselves. Our customers expect Apple to remain a leader in the industry, and we will continue striving toward that goal. We are fortunate to have the most innovative and smartest talents on Earth. In terms of supply chain responsibility, we invest as much effort in this area as we do in new product development. This is Apple's corporate mission.
We believe that using child labor is extremely reprehensible. In our supply chain, this situation is extremely rare, but our top priority is to completely eliminate it. We have been focusing on solving this problem in the assembly phase, and now we will expand it to the entire supply chain. If we find a supplier intentionally hiring child labor, we will consider it a blatant offense.
So these concepts, along with maintaining excellence as the expectation from outside for Apple, are what we focus on because I think they make Apple a magical company that attracts truly wise people wanting to work here. What they do is not just work in life, but the best work in their lives.
The following is the full text of the speech:
We also firmly believe that education can greatly promote fairness. If people have skills and knowledge, they can improve their living conditions. We have invested a lot of effort in providing educational resources for workers across our entire supply chain. We offer free classes in many factories in the supply chain, and we collaborate with local universities to provide training in English, entrepreneurship, and computer skills.
China contract factory working conditions
But as I said, the most important thing is product quality, that's the key. Of course, there is also distribution. We have recognized these differences. We recognize the difference in consumer purchasing power. Just a side note, unlike many others, I do not agree with some statements about the prepaid market.
Sina Tech News (February 15, evening Beijing Time) - Apple CEO Tim Cook delivered a speech at Goldman Sachs' Technology and Internet Summit on Tuesday and was interviewed by Goldman Sachs IT hardware analyst Bill Shope. Cook discussed topics of concern to the outside world, including the working conditions in Chinese contract factories, Apple's corporate culture, and the growth opportunities for iPhone.
Last quarter we sold 1.4 million, not a high number. But the reality is, we call it a hobby because we don't want to convey a message to you and our shareholders that we think the TV market is equal in scale to our other businesses, which include cellphones, Macs, iPads, and iPods. We don't want to send a signal that the TV market is equal in scale to our other businesses, hence why we refer to Apple TV as a hobby.
Frankly speaking, since the first day iPad shipments began, not only me but most people at Apple believed that the tablet market size will eventually surpass the PC market, it's just a matter of time. Today, I am even more convinced of this view. Because I notice the incredible number of people using iPads and the incredible pace of innovation among developers.
55 million, a number no one would have guessed, including us. It took us 22 years to sell 55 million Macs, five years to sell 22 million iPods, and three years to sell as many iPhones. The trajectory of iPad is indeed extraordinary.
For the use of cash, since I became CEO, I have consistently stated that I will not be superstitious about holding or spending it. We are having very active discussions at the board level about how to use this money, but I think everyone hopes we think carefully, and that's what we are doing now. We will not make strange decisions, so you don't have to worry about losing money on us.
But I deeply feel that the product volume in the tablet market will surpass that of the PC market, it's just a matter of rate, speed, and time. There has been too deep a transformation in the industry. To sum up, this is my view, people can express different views, if you can't convince me, I will stick to it.
I know that last quarter's sales of 37 million units accounted for a 24% share of the smartphone market. That means, among four people, three bought other brands of smartphones. In the entire mobile phone market, iPhone's share is less than 9%, meaning nine out of ten people will buy other brands of smartphones. The smartphone market was 500 million units last year and is expected to reach 1 billion units by 2015, while the entire mobile phone market is expected to reach 1.5 to 2 billion units. Given this, it is a surprising industry with broad development opportunities. Comparing it with the overall market size, 37 million units is not actually that much.
There is also Siri. Over the years, if you are a PC or Mac user, you need to use a physical keyboard, use a mouse for input. You've been doing this for a long time, this field has evolved but there hasn't been much real revolution.
As time goes by, tablets will largely replace PCs. I don't know much about politics, but I think it forces you to suppress your information and tells you who you really are. So, I think it benefits the PC industry because they already have strong competitors; it benefits the tablet market because they will undergo crazy innovation. Consumers will ultimately choose the products they buy. I also think the scale of the PC industry will become stronger, but the tablet market will be even stronger.
Apple culture and strategy
iPad impact on Mac sales
iPhone and emerging markets
Now, I realize the supply chain is quite complex, I believe you all understand that. Issues related to the supply chain are very complex, but our commitment is very simple: we believe every worker has the right to a fair and safe working environment, free from discrimination, earning competitive wages, and freely expressing their concerns. Apple suppliers must adhere to these principles to maintain a partnership with us.
iPhone growth opportunities
We focus on details. If a restaurant doesn't have a fire extinguisher, then this factory cannot pass inspection until the fire extinguisher is installed."
Our product prices
Competition and the future of the tablet market
Surprisingly, the iPad has been favored by so many people - everyone is using it, my mother uses it, my seven-year-old nephew has one. This morning when I went to the gym, I saw my trainer using an iPad. At Starbucks, I looked around and everyone had one, reading newspapers or doing other activities. It is also used in education and business. I think the iPad is the fastest-spreading product I've ever seen.
I don't want to discuss future details or comment because you might misinterpret what I say. From existing products, we sold less than 3 million Apple TV set-top boxes last year. If you don't have an Apple TV, you should buy one. It's a cool product, I can't live without it, just like not getting enough rest during promotions.
Generally speaking, Apple doesn't do hobbies, we are very focused, making only a few products. However, with Apple TV, although there are still some obstacles in the market, there is always opportunity for us who use Apple TV. If we continue to follow this inspiration and develop further, we may discover a larger market. For those who already have an Apple TV, consumer satisfaction can be seen from charts, but we still need to work hard to bring it into more major markets and make it a serious product. If you don't have an Apple TV, you should buy one because it's a cool product.
People have been discussing our cash flow levels, which is not a new thing. Now there is just more discussion, more detailed. I think everyone knows very clearly, I admit first, that Apple now has more cash than needed for daily operations, I believe everyone here agrees with that point, so we are actively discussing its use. I just ask for more patience from you so we can use this money in a more thoughtful way, making the best decision for shareholders.
iTunes Store and App Store have played huge roles, people understand multi-touch through iPhone. So, when someone starts using a tablet, everything becomes so intuitive. I mean, I bought my mother an iPad, and she knew how to watch ads like that.
It has been proven that after Apple launched the iPod in 2001 and introduced it to Windows, and after launching the iTunes Music Store and introducing it to Windows, the iPod created a halo effect for Mac. This brought Mac back to recovery, our Mac business grew more than the industry average for 23 consecutive quarters, that's six years.
We did not regard iCloud as a product with a lifespan of one or two years, but as a strategy for the next decade or more, I think this is really significant,
It turns out that when Apple launched the iPod in 2001 and introduced it to Windows, and after launching the iTunes Music Store and introducing it to Windows, the iPod created a halo effect for Mac. This brought Mac back to recovery, our Mac business grew more than the industry average for 23 consecutive quarters, that's six years.
However, when the iPhone was launched, the world changed in many ways due to us. Because of the iPhone, hundreds of millions of people learned about Apple, some bought iPhones, some didn't, and some desired an iPhone. The iPhone introduced our brand to people who had never used Apple products before.
Then Apple suddenly introduced multi-touch on the MacBook Pro, which was cool, and expanded it to phones and tablets, completely transforming the industry. But Siri is another script change with profound implications, it's the input method we've always dreamed of. People definitely want to bring it into their work. It's incredible that Siri is still in beta, I've never felt that I couldn't live without a test product, but I do now.
iCloud first transformed people's lives. For years, especially the past 20 or 30 years, we lived in an environment with multiple devices. Syncing iPad information to Mac, syncing iPhone information to Mac, and then to iPad, is no longer a great user experience. We now have 100 million iCloud users, remember we launched this service in October last year, and we already have 100 million users, which is incredible, obviously we can do more.
Below, I will illustrate this with data: In 2007, the revenue from iPhone in Greater China, India and other Asian countries, Latin America, Eastern Europe, the Middle East, and Africa totaled $1.4 billion. I chose this year as an example because we did not launch the iPhone outside the U.S. before 2008. Last year, these countries contributed $22 billion in revenue to Apple. Moreover, we have only scratched the surface of these markets. This is indeed my true feeling because we mainly focus on the Chinese market, and last year we slightly shifted the balance towards Brazil and Russia. These markets have more opportunities, so I think it is significant for Apple's future development.
Because in China, one thing we did was persuade China Unicom to try the prepaid model, this operator did not adopt this model in most parts of China before, surprisingly, they achieved the transition to the prepaid model through the iPhone. This is good news for consumers because they can buy phones at lower prices; it is also good news for operators because they can keep consumers using their services for a long time, so everyone wins. I'm not saying this rule will work in every market, but we should look at this issue from a different perspective, this model has certainly succeeded in China.
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