After delivering record breaking earnings, some people are wondering how Apple can keep growing.
After all, $US18 billion in net income on $US74.6 billion in revenue thanks to 74.5 million iPhones sold seems like it’s going to be hard to beat.
Apple CEO Tim Cook has a message for anyone that thinks Apple can’t top its numbers: You’re nuts.
Speaking at a Goldman Sachs technology conference on Tuesday, Cook coolly dissected just about every major argument against Apple.
Many people think Apple will bump into the “law of large numbers,” which means Apple will struggle to beat its gigantic numbers.
“We don’t believe in such laws as laws of large numbers,” said Cook, via a transcript at iMore. “This is sort of, uh, old dogma I think that was cooked up by somebody and Steve [Jobs] did a lot of things for us for many years, but one of the things he ingrained in us, that putting limits on your thinking are never good.”
(For what it’s worth, the law of large numbers is actually about probability. Mark Millan at Bloomberg explains: “There’s a real maths theory called the law of large numbers, which explains probability. It means that if you perform the same experiment a large number of times, you should get a predictable outcome.”
Anyway, it doesn’t matter if people use it the right way or the wrong way. This is how it’s used, so it now has a new definition. And, Cook is rejecting the law as it relates to Apple.)
This wasn’t the first time Cook was asked about the law of large numbers by Goldman Sachs. In 2012, he was asked the same thing. At that point, Apple had just sold 37 million iPhones.
Here’s what he said then:
As I see it, that 37 million for last quarter represented 24% of the smartphone market. There’s 3 out of 4 people buying something else. 9 out of 10 phone buyers are buying something else.
Handset market is projected to go from 1.5 to 2 billion units. Take it in the context of these numbers, the truth is that this is a jaw-dropping industry with enormous opportunity. Up against those numbers, the numbers don’t seem so large anymore. What seems so large to me is the opportunity.
Cook was right. iPhone sales have more than doubled in the past four years.
But still, people are sceptical! How can Apple grow?
Tim Cook talked about two major markets where he thinks Apple has potential to sell many more iPhones.
The first is China. Apple is already doing well in China, but Cook thinks there is opportunity to do even more. Cook explained how Apple has managed to succeed in China:
Maybe more than anything, we’ve put our personal energy into it, and tried to deeply understand the market, and respect it, and it, over time, it begins to work.
Five years ago, we were at less than a billion dollars in revenue. In the last twelve months, we were at 38 billion. But I still think that when I really back up from it, I think we’re still kind of not too far from the surface. That country has enormous opportunity. There’s such an amazing number of people that are moving into the middle class. It’s something like I’ve never seen in my lifetime before. And so we just put, we opened four new stores in the last few weeks. And these four stores are in cities that have about, give or take, nine million people into the city, larger, much larger in a metropolitan area, and you think about nine million people — this is the size of New York City, in calculation!
So, China remains a giant opportunity for Apple. Some people think that upstart Chinese smartphone makers like Xiaomi are a threat to Apple, but Cook says Apple has always had tough competition, and it has always succeeded. Could this time be different? Sure. But, Apple makes something that no other company makes: The iPhone, which is a combination of hardware, software, and services that no Android phone maker can compete with. An Android phone maker is ultimately relying on Android, just like all the other Android phone makers, which makes it tough to stand out.
The next major market for Apple to attack, says Cook, is India:
But there are other countries, though, where we haven’t put as much energy, don’t understand as well, but on the flip side of that, we have enormous opportunity. And India is one of those. We’ve started making investments in India, we’re growing rapidly in India, but we’re on a very small base there. But in some number of years, you could envision India being really significant, too, and should be.
Some people will say that Apple’s phones are too expensive for India. Those people also said iPhones were too expensive for China.
Cook says the idea that people won’t pay for iPhones is “bull.”
And we’ve found that all throughout the world, there were so many people advising us that we had to do something different in China, that we had to do something different in this country, or that country, that people weren’t going to pay for a great product there. Well, let me tell you, it’s a bunch of bull! It’s not true! People everywhere in this world want a great product. And that doesn’t mean that everyone, every single person in the world can afford one yet. But everyone wants one. And so, if we do our jobs right, and keep making great products, I think there’s a pretty good business there for us.
For Cook, the Goldman Sachs interview was a rightfully earned victory lap. He had to deal with a lot of sceptics when Apple’s stock price was cratering, and iPhone sales growth was slowing. Now that the stock is at an all-time high, and iPhone sales are going through the roof, he can tell everyone why they are wrong to doubt Apple’s strategy. And this time, maybe, they will listen.