The next is the unofficial transcript of a CNBC EXCLUSIVE interview with Apple Inc. (NASDAQ:AAPL) CEO Tim Cook Speaks and CNBC’s Josh Lipton on CNBC’s “Fast Money” (M-F 5PM – 6PM) immediately, Wednesday, January 2nd.
Full video and transcript under
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SCOTT WAPNER: We do begin with that huge breaking story. Moments in the past, Apple warning on its first quarter outcomes. The inventory is falling sharply after hours. Our Josh Lipton is at Apple headquarters the place he simply sat down with CEO Tim Cook in an unique interview. Beautiful information to say the least, Josh.
JOSH LIPTON: Yeah, pay attention, Scott. Apple popping out, revising that Q1 steerage. As you famous, the inventory dropping onerous. They’re now calling for income of about 84 billion, Scott. Keep in mind that they had beforehand guided to 89 to 93 billion. I did have the prospect to talk solely to CEO Tim Cook concerning the quarter, the steerage. Take a pay attention.
JOSH LIPTON: Tim, thanks a lot for taking the time to talk. We recognize it.
TIM COOK: Thanks for coming.
JOSH LIPTON: I need to dig proper into the outcomes, Tim, and iPhone income particularly. As a result of as you talked about, that was decrease than anticipated and that accounted for the income shortfall right here. And I need to dig in particularly to the development you’re seeing in China. Since you say one thing fascinating, which it isn’t simply the financial system there, it’s additionally these rising commerce tensions. What did you imply by that, Tim?
TIM COOK: Yeah. Should you take a look at our outcomes, our shortfall is over 100% from iPhone and it’s primarily in higher China. And in order we take a look at what’s happening in China — it’s clear that the financial system begins to sluggish there for the second half. And what I consider to be the case is the commerce tensions between the USA and China put further strain on their financial system. And so we noticed, because the quarter went on, issues like visitors in our retail shops, visitors in our channel companion shops, the stories of the smartphone business contracting, notably dangerous in November — I haven’t seen the December quantity but, however I might guess that wouldn not be good both. And in order that’s what we’ve seen. And now there are lots of issues we will do to show our — to type of flip our enterprise round when it comes to the, each in China and extra usually throughout. We’re specializing in — when you take a look at iPhone extra at a macro degree, the story on iPhone is along with the rising market weak spot, which is primarily in China, it’s that there’s not as many subsidies as there was from a service perspective. And the place that didn’t all occur yesterday, for — when you’ve been out of the marketplace for two or three years and also you come again, it seems like that to you. FX was an enormous problem within the quarter. As rate of interest hikes have began in america, there’s extra overseas capital coming in, that makes the greenback a lot stronger and the interpretation, we knew that was going to be an element. It affected us by about 200 foundation factors. After which kind of along with these two issues, we’ve began a program worldwide the place we dramatically lowered the battery alternative worth. And so we’ve kind of a set of things happening, some which might be macroeconomic and a few which are Apple particular and we’re not going to take a seat round ready for the macro to vary. I hope that it does, and I’m truly optimistic, however we’re going to focus actually deeply on the issues we will management.
JOSH LIPTON: And let me — when it comes to issues which are maybe which might be slightly bit out of your management although, Tim.
TIM COOK: Yeah.
JOSH LIPTON: I need to contact on China particularly, and return to that. As a result of the commerce tensions are having an impact you’re seeing on the financial system there. However do you see proof that maybe Apple can also be getting caught within the crossfire, when it comes to is there proof that Chinese language shoppers say, “You know what there’s a dispute, there’s tension and they’re taking it out on Apple in some way as well”?
TIM COOK: Nicely, Definitely apple has not been focused by the federal government so let me take away any sort of doubt of that proper up prime. There are stories, kind of sporadic studies, about someone speaking about not shopping for our merchandise as a result of we’re American, perhaps just a little bit on social media, perhaps a man standing in entrance of a retailer or one thing. My private sense is that that is small. Remember that China’s not monolithic. Identical to America’s not monolithic. You’ve individuals with totally different views and totally different concepts. And so do I feel anyone elected to not purchase due to that? I’m positive some individuals did. However my sense is the a lot bigger challenge is the slowing of the financial system after which this — the commerce pressure that’s additional pressured.
JOSH LIPTON: And also you speak — provided that this was a headwind and greater than you anticipated, have you ever talked, I’m , to President Trump or members of the administration? This can be a massive, essential American financial system. And also you’re saying pay attention, this commerce dispute is actually impacting our enterprise. Have you ever just lately talked to the members of the administration and conveyed that?
TIM COOK: You already know, I’m telling our buyers first about what we noticed final quarter, and that’s the means it must be. However I’ve had clearly many, many discussions over the course of many months to be constructed and to offer kind of my perspective on commerce and the significance of it to the American financial system as properly. And I really feel like I’m — that I’m being listened to in that respect. And so I’m truly inspired by what I’ve heard most just lately coming from the U.S. and from China and hopefully we’ll see some modifications.
JOSH LIPTON: However provided that these commerce tensions, Tim, they do stay heated, given the strain you’re seeing, you’re chatting with merchants, buyers, and enterprise individuals now, within the quarters forward, how do you then navigate this?
TIM COOK: Nicely, you concentrate on what you’ll be able to management. And so once I take a look at this I say, you realize, there’s some weak spot outdoors of China as nicely. I might have favored to have accomplished higher in a few of our developed markets. And so how can we do this? Nicely, the subsidies are fewer lately, that’s true. However we will begin or we have now began a trade-in program. And we began it primarily as a result of it’s nice for the setting. You realize, it retains a unit with somebody that desires it and the one that needs a brand new one will get one as properly, and it’s nice for builders and so forth as properly. However we haven’t actually marketed it very a lot. And the reality is to a shopper the trade-in seems like a subsidy as a result of it lowers the worth of the telephone that you really want. And so simply let me offer you an instance of that. And so the retail worth of the iPhone 10R in america is $749. However in the event you occurred to commerce in a 7+ which many individuals are in an effort to get that, the worth goes all the best way right down to $449 or much less. And so there’s a considerable profit, financial and environmental from trade-in. We’re additionally engaged on putting means to do month-to-month costs in. And so it begins to appear to be extra the normal method of paying for it via the service by, you already know, taking the charges out for 24 months or so and so that you wind up getting an extremely new telephone that’s so a lot better than what you’ve had for $20, $30 a month or so. And so we’re doing that. We’re additionally placing a whole lot of concentrate on the service aspect. Our shops are unbelievable at service, and the power — individuals are very frightened about transferring their knowledge. You understand, they’re very apprehensive that this new telephone, there can be one thing that they misplaced within the course of, and so we’re placing a number of emphasis on doing that and doing that nicely. And so these are just a few issues. The opposite issues, which aren’t totally different than we thought however did have an effect on our income within the quarter, are issues like we had some provide constraints, we had an unprecedented variety of new merchandise in the course of the quarter, we had new watches, we had new iPad execs. Each of those have been constrained for all or a lot of the quarter.
JOSH LIPTON: Did you assume — I imply, wanting again did you assume – do you assume you tried to introduce an excessive amount of new too quick?
TIM COOK: No. I feel you — you realize, our fashion, Josh, is we launch issues once they’re prepared. And I feel that’s the best way it ought to be. For those who ever begin worrying about cannibalizing your self, you possibly can speak your self into not doing each issues. And so all of our merchandise have been prepared over that interval. Now would I’ve appreciated a few of them to be prepared a number of months earlier? In fact. I might all the time like that, however usually we’re nonetheless going to march down the street of delivery issues once they’re prepared.
JOSH LIPTON: And let me ask you, Tim, with this launch, buyers get lots of info and metrics.
TIM COOK: Sure.
JOSH LIPTON: However as you guys spelled out, pay attention, there’s going be modifications in disclosure. You’re not going to get the variety of iPhones shipped anymore. You guys don’t see that as a related metric a lot up to now. If that isn’t the info level that buyers must be targeted on, what are the info factors that buyers ought to give attention to?
TIM COOK: Yeah, that’s a great query. Look, what we did years in the past, truly with Apple Watch, we’ve by no means disclosed models bought. Why? It’s not that we have been secretive individuals. It’s that we checked out that is and the watches have been wide selection when it comes to pricing. We knew that ultimately we might have a mobile watch, there’s a stainless-steel versus aluminum, there’s even an addition. And so you start to say, what worth is there in including this stuff up? I’ve made the comparability — it’s type of such as you and I going to the grocery retailer and placing issues in our cart and coming as much as the register and the individual saying, “How many you got?” It doesn’t add collectively anymore as a result of the worth ranges are so large. So we didn’t do it on Watch from the start. We’ve by no means executed it on iPod. As we now step again from the telephone, we have now telephones being bought within the rising markets, like an iPhone 6s for round $300. And so that you’ve acquired a variety from 300 to 1,000 or in some instances over 1,000 relying upon your choice of flash and so forth. And so this factor has misplaced its which means. And so we felt that on the finish of the day we have been giving buyers and kind of pointing them to one thing as if it had this unimaginable significance to it properly past what it does. That doesn’t imply we’re by no means going to touch upon the models once more. If we expect that we will higher clarify outcomes with speaking about models, I’d be glad to say one thing about it, however usually to have it on a, you recognize, each 90 day clock of releasing this, I feel it does the investor a disservice frankly. However now we’re making further disclosures as nicely. Like, for instance, we’re going to offer the gross margin or providers enterprise. You understand, we’ve by no means carried out that earlier than. Providers has grown, you understand, unimaginable quantity. We’re over — we’re going to have — report over 10.eight billion and once we report later this month for final quarter. That’s a brand new report.
JOSH LIPTON: And what drove that, Tim? Any shade given? Was it the app retailer? Was it music?
TIM COOK: That is extremely thrilling for us as a result of so many issues hit data in there. The app retailer did. Apple music hit a brand new document. Apple Pay hit a brand new report. Our search advert product from the app retailer hit a brand new document. iCloud hit a brand new report. And so, you recognize, it’s very large and every of the geography — geographies hit a quarterly document. So even in China the app retailer hit a quarterly report. Why is that? It’s as a result of it’s pushed by the put in base and our put in base grew, you recognize, properly yr over yr in China as nicely. And as I say within the letter, we’ve picked up 100 extra million lively units during the last 12 months alone. So that is an unimaginable quantity. And we’ll have — we’ve obtained some fascinating issues within the pipeline on providers that, in fact, we do on merchandise as properly. And in order that’s type of one other strategy to develop the corporate.
JOSH LIPTON: Ultimate query right here, Tim.
TIM COOK: Yeah.
JOSH LIPTON: You say you’re going to finish the quarter 130 billion in internet money.
TIM COOK: That’s proper.
JOSH LIPTON: You already know, Apple has a historical past, you do numerous acquisitions. They are typically although smaller. Largest was three billion for Beats. Do you assume perhaps provided that money place, would Apple be open to perhaps shifting the way it thinks about acquisitions and doing acquisitions that perhaps buyers would assume are greater, extra significant?
TIM COOK: You already know, for us, we’ve by no means modified our view on acquisitions. We’ve by no means stated ‘Thou shall not buy a big company,’ or ‘Thou shall not buy a medium company,’ or it needs to be solely on this nation or that nation. We’ve requested from a strategic perspective and requested, what does it do for the client, what does it do for the consumer? And so a overwhelming majority has been know-how and folks that we expect would deliver a greater consumer expertise, that there’s a function or one thing that we might do sooner or later and that they might assistance on doing that. However that doesn’t — I’ve all the time been very clear. It’s — we take a look at many, many corporations together with very giant corporations. We’ve elected to date to not do these as a result of we haven’t discovered one which we stated, “wow, that’s a nice intersection of Apple.” However I’d by no means rule it out. We do have a whole lot of internet money, and I consider the corporate’s inventory is an unimaginable worth and so you’ll be able to guess that we’re going to be shopping for some inventory beneath the plan that we’ve had on the market for fairly a while.
JOSH LIPTON: Alright, Tim. Thanks a lot in your time as we speak. You have been beneficiant. Recognize it.
TIM COOK: Thanks. It’s good to speak to you, Josh. All the time a pleasure.
JOSH LIPTON: Thanks a lot.
JOSH LIPTON: So Scott, listening to a few of the backside line right here for Tim Cook, pay attention, there have been some huge themes that they only didn’t see coming. They miscalculated. You heard it there speaking about China, the financial system slowing in China perhaps greater than they thought. The rising commerce tensions. Cook saying they’re feeling the strain from that too. Not simply China although. He additionally talked, you heard there, about these developed markets. iPhone upgrades developed markets not as robust as they thought. A number of causes they rattled off: fewer service subsidies, U.S. greenback pressure. They did additionally, and also you heard Cook there point out it, providers — they referred to as it a “positive result” within the quarter, their phrases. Providers is an all-time document income, $10.eight billion. One factor to consider although is the connection between iPhone and providers. You realize, there’s loads of analysts who argue that the iPhone franchise no less than has to remain secure and by secure I imply flat, simply barely up. Should you’re going to see that continued momentum in providers in order that relationship now, additionally a query that buyers should have, Scott.
SCOTT WAPNER: Sure. Josh, thanks. Josh Lipton with that nice interview with Tim Cook.