Tim Cook on the "Law of Large Numbers"

Q: 37 million units of iPhones shipped. When do we run into the Law of Large Numbers? What are the growth opportunities coming up?

A: 37 million is a big number. It was a decent quarter. It was 37 million — more than we’d ever done before. We were pretty happy with that, but let me give you the way I look at the numbers. 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.

What we’re focusing on is the same thing we’ve always focused on. Making the world’s best products.

We think if we stay laser-focused on that, and continue to develop the ecosystem around the iPhone, that we have a pretty good opportunity to take advantage of this enormous market.

Q: The biggest opportunity is the emerging markets. Large portion of that is the prepaid market. Apple has done very well but the wholesale iPhone price point is nowhere near what we would expect in the prepaid market. How do you make it more affordable to those markets?

A: Those markets are critical. The smartphone market is projected to be 1 billion units in 2015, 3 years from now. 25% of that is projected to come from China and Brazil. Just two of those markets — 25% — obviously those are very critical markets, but there are others as well.

We’ve been very focused on China. We’ve had incredible success with iPhone — we’ve gone from a few hundred million in revenue to last year with $13 billion. We’ve been really focused on trying to understand the market there and taking those learnings to other markets. As it turns out, not very many people agree with me on this, probably.

What I see is that there is a lot of commonality in what people around the world want. Everyone in every country wants the best product as it turns out. They’re not looking for a cheap version of the best product — they’re looking for the best product.

In the emerging markets there are very big differences in go-to-market. In most of the developed market, the carrier owns most of the distribution. In emerging markets, the retailer has most of the distribution. The whole go-to-market has to be changed significantly. Last year, we covered price points in the subsidized markets from $0 on up. That doesn’t translate to zero in the prepaid market, but we’re covering more price points there.

The paramount thing is the product. It is the focus. Of course distribution, we’ve recognized the difference there and in purchasing power. Unlike many people, I don’t subscribe to the premise that prepay is prepay is prepay. We convinced China Unicom to try to postpay. It wasn’t big there but they tried it and it’s working really well. It’s great for everyone because customer gets cheaper phone and carrier locks in a customer. It’s a different way to look at the issue and it’s been successful in China.

When Apple introduced the iPod in 2001, when we launched the iTunes Music Store and launched that on Windows, the iPod created a halo for the Mac. For 23 straight quarters we’ve outgrown the market on the Mac.

The halo that was created by iPod for the Mac, was created in developed markets. It was created in the US, Western Europe, Japan, Australia, Canada. It didn’t work nearly to the same level in Eastern Europe, Middle East, Africa, China, Latin America. People were already getting music from their phones. The world changed for us when the iPhone was launched.

The iPhone introduced Apple to millions of people — our brand — to people who had never met Apple before. Now, it’s interesting to look — take China as an example — last year the Macintosh grew more than 100% in China, year-over-year. Not on a big base, but 100% is pretty good. The market grew 10%, so we outgrew the market 10x.

The iPhone is creating a halo for the Macintosh. iPhone has also created a halo for iPad. You can definitely see the synergistic effect of these products, not only in developed markets, but also in emerging markets where Apple wasn’t resonant for most of its life.

Via: Apple CEO Tim Cook Speaks at Goldman Sachs Technology Conference – Mac Rumors

  • 2 point deduction for use of the term “synergistic”.

    • Anonymous

      Yeah, but +4 for using it correctly.

  • eric hwang

    As I was listening to this conference call, I saw Apple’s stock price rise from about 505 to 511 in the after hours market, which translates into almost a five billion dollar increase in market capitalization. Like a tortoise, it’s risen 1-2% almost everyday for the past 2 weeks while analysts have been buzzing about its being oversold and its movements being parabolic. Since becoming the largest company in the world, has Apple entered the realm of science fiction with regard to its stock?

    • The significant but gradual increase in price on high volume with no significant news must mean some shift in perception is happening. Perhaps there are new buyers taking large positions.

      • Anonymous

        I think it’s the effect of being relentlessly pounded with good news over many months. Sort of like the complement of what happened through about 2005.

      • eric hwang

        I agree with Horace and Boltar. My hypothesis is this is a phenomenon of “Price Discovery,” as investors and analysts conclude that Apple’s true valuation is closer to $500 (or even $600) than $400. As @deemery pointed out, some of this is due to dividend speculation. I’d imagine that a recurring dividend is more likely than a one-time dump, which would deplete a significant amount of their cash hoard. 

      • Anonymous

        I read somewhere that funds with a focus on dividend stocks are buying AAPL in anticipation of a dividend (or by implication, that others are buying the stock in speculation of a rush on it when AAPL does announce a dividend and suddenly becomes eligible for dividend mutual funds to purchase.)

        Horace, if we assume a dividend is coming, do you think it (a) will be or (b) should be a recurring dividend (vs a one time distribution)?

      • Oak

        We finally found the P/E floor. Last earnings compressed it too far, now we’re roughly back where we were pre-earnings.

  • Luis Berumen

    “They’re not looking for a cheap version of the best product — they’re looking for the best product.”
    That should answer all the rumors about Apple making a stripped down version of the iPhone, or, for that matter, of any of their products.

    • Anonymous

      Apple makes a couple of stripped down iPhones. One is called the 3GS, the other is called the iPod Touch. The first represents less than 10% of units sold, and the second seems to be in decline (difficult to know for sure without a breakdown of iPod models).

      There are some people in the market for a stripped down product, but as Tim says, the overwhelming majority will pay more to get the best product.

      • Anonymous

        The 3GS is not a stripped down iPhone. It’s an old iPhone. The 3GS was the 

        “best” at its time, not 2+ years later. They just happen to be still selling it. 

      • Anonymous

        The only functional difference between an “old device” and a “stripped down” device is that you have to wait to sell the old one but you dont need to pay the development and tooling costs. How would you go about making a stripped down 4S and not end up with something much like a 3GS?

      • Anonymous

        The only way I can think of to sell a “stripped down iphone 4S” at a lower price (without destroying what makes it the 4S) – would be to take the storage amount down to 4 or 8GB. 

      • Anonymous

        Of course the issue there is that it would have an outsized impact on margin. At Apple’s cost, there is MAJOR markup in the memory. If Apple chose to discount the devices in line with the current retail placement ($100 for each doubling in storage capacity), they would quickly kill their own golden goose. If they drop the prices by less, the savings to customers would be minimal.

      • Anonymous

        We’re arguing over word usage. I’m not against your point, merely your word usage. I believe it’s incorrect.

        Apple is not stripping down the iPhone4. We know that the 3GS was its predecessor. 

        Stripping down means, Apple making a conscious decision to build a product with inferior design, quality and materials concurrently with the iPhone4. When clearly this isn’t the case, 

        The 3GS was designed and built with the best in materials TWO years ago, not now.

        A better example of stripping down are Nokia’s Lumia devices. The 800 and the 710. Both were designed concurrently and priced at different price points. The 710 is new and not 2 plus years old like the 3GS. 

        We can see a difference between two companies. Nokia is willing to sell and design an inferior product to meet a lower price point. 

        Apple does this by selling its best designed products, but from years ago. I think it’s an important distinction to make, especially when Tim Cook is saying Apple wants to make the best products possible, not merely grabbing market share. 

      • Yeah — why get the new low end when you can get the old high end? It’s quite a concept — why get an HTC wildfire when you can get a Nexus S? Why a new Walmart HP over an older Thinkpad?

      • disposableidentity

        This is a really important point, and a critical distinction.

        Companies like Nokia, Motorola and Samsung have MOST of their engineers working on the B and C products (the “stripped down” models). A very large number of their brightest minds are working on making products that are by definition not “the best products”.

        Keeping an older iPhone on the market is a much better use of scarce design and engineering talent. Plus the development costs and tooling are paid-for, the parts are cheaper, and the assembly plant is just sitting there (and already optimized).

        Of course you can only keep selling an older model in this market if it was good enough to be called the best at the time it was new.

      • Adrian Constantin

        Stripped down does not necessarily mean inferior quality. Google designs stripped down servers that provide superior quality in their context. If you find people who have a specific need and you can address it with a stripped down version, then your customers might actually perceive it as a superior design.

      • Anonymous

        Not sure how important a point it is, but to say the 3GS & iPhone 4 are simply old high end models is not 100% correct.

        Apple does make one small change to its existing high end phone every time it releases it’s successor – it reduces its storage capacity from 16 & 32 Gb down to a single model at 8Gb.

        It makes a difference to product posisitionng in its lineup. If 16gb & 32gb iPhone 3GS & iPhone 4 units were still available it would confuse the product lineup and possibly cannibalize a tiny amount of iPhone 4S sales.

      • Anonymous

        “Stripped down” and. “old” Are just two very different ways of getting to the desired goal: a cheaper model to sell which won’t significantly cannibalize the high-end model.

        But the two strategies aren’t at all interchangeable. And a stripped down phone and an old phone aren’t remotely the same, except that each can be used to access the low end of the market.

    • Yes, everyone knows that when Apple’s CEO derides a product category, it’s a sure sign that Apple will never make such a product.


  • Anonymous

    Dang! Tim is letting the cat out of the bag! If Apple keeps telling investors how big the opportunity is, the “analysts” may finally raise their AAPL price targets to appropriate levels.

    It sure sounds like Tim is the perfect CEO to lead Apple into this new frontier of mobile computing. He fully appreciates the opportunities that are ahead of Apple. And I have to give Horace credit. He’s a very smart man. He saw this new mobile frontier opening up long before I did. It really is fascinating and entertaining to observe the changing technology landscape.

    I think Tim answers the question perfectly. “Large numbers? What large numbers? Our numbers are still very small.” Perfect!

  • This, to me, is the beginning of how Apple will change under Tim Cook’s leadership. He was open and frank with the people at this conference and in the world. I can’t imagine Steve Jobs ever saying so much to a group of investors and the general public.

    Also, if you listened live you heard how excited and passionate Mr. Cook was about the company. Good to hear it.

    • Tatil

      I am not sure if Tim Cook was more open or honest than Steve Jobs in the conference call. In any case, SJ was a good product guy. He knew what would excite customers and he knew how to market those products. He could also be quite stubborn and irrational. It is possible he was holding Apple back in some respects. If Tim Cook succeeds in combining the best of Steve Jobs with a more level headed managerial style, Apple’s future could be quite bright. 

      Of course, having a reputation for being irrational, unpredictable and stubborn may actually be helpful when you are negotiating with other large corporate behemoths. 

  • Jeff

    The law of large numbers is in fact, not a law. It is a theory. And that theory has to do with mathematical probability. The larger the sample size of repeated trials the closer actual result should be to the expected value etc.

    Can anyone point me to any meaningful data that suggests there is any science, or math behind relating to investments? I could be wrong, but the argument seems to be anecdotal and qualitative…”A bunch of other companies stopped growing quickly when they hit a certain size so all companies must stop growing quickly when they hit that size”.

    And by the way…what is that mythical size? Or should I say what WAS it, since the myth appears to be be solidly busted now

    • Anonymous

      In finance, the RULE of large numbers refers to the fact that as a companies earnings and revenue grows, it becomes increasingly more difficult to grow at the same rate.

      Apple makes a great example.  Just consider this:  If Apple released a product with the same revenue and earnings as the iPod, it would add only a tiny amount to their overall numbers.

      At the rate at which they have been growing, in ten years they’d be earning about $35,000 per share for the year and would have a share price of (at a P/E of 3) over $100,000.  

      Now multiply that by roughly 1 billion shares (allowing for dilution).
      That’s $35 trillion in earnings and a market cap of $105 trillion.

      That, my friend, is the rule of large numbers.

      Exponential growth is impossible over the long term.

    • Anonymous

      In finance, the RULE of large numbers refers to the fact that as a companys earnings and revenue grow, it becomes increasingly more difficult to grow at the same rate.

      Apple makes a great example.  Just consider this:  If Apple released a product with the same revenue and earnings and growth rate as the iPod, it would add only a tiny amount to their overall numbers.

      At the rate at which they have been growing, in ten years they’d be earning about $35,000 per share for the year and would have a share price of (at a P/E of 3) over $100,000.  

      Now multiply that by roughly 1 billion shares (allowing for dilution).
      That’s $35 trillion in earnings and a market cap of $105 trillion.

      That means revenue (at about 4 times earnings) would be about 18,000 for every man, woman and child on the planet.

      That, my friend, is the rule of large numbers.

      Exponential growth is impossible over the long term.

      • Anonymous

        And what Mr. Cook emphezised is that at the moment Apple, in relation to the market, is not as big as some try to portray. It is sucking most of the profit of the market which, will eventually will expand this market by eliminating other companies. So, at crtain point in the future they might reach that deminiting expantion–on existing products. What about new products? New markets they are only now moving in? More efficiant? New technologies?

      • Anonymous

        I agree with you, and I’m heavily invested in Apple.  I believe that they could grow at the current rate for another 3 years, 4 if they can create another huge hit.

        This rule isn’t some sort of stupid and arbitrary limit set by wall street.  Markets are finite, resources are finite.  There is an absolute limit to growth.  

        Apple has gotten itself into a position where it can grow at rates never before seen, but eventually, the growth has to slow and then stop.

      • Anonymous

        It isn’t asymptotal; there is no magic number at which growth becomes terminal. You’re right that it takes increasingly large opportunities to move the needle, but that is why Apple focuses exclusively on massive markets. Size is the reason they consider ATV to be a hobby while most companies would proudly promote the success of a line bringing in hundreds of millions of dollars per year. Size is the reason Apple considers the App Store a “break even” proposition, while Amazon is willing to subsidize the Fire in order to sell the same type of content at the same type of margin.

        To me, Apple’s size makes the company vulnerable to disruption in its existing markets. It makes growth through product diversification difficult.

      • Anonymous


        At the same time, the company is conservatively valued. They have a lot of runway over the next couple of years in iPhone, and nobody has any idea yet what the iPad can become. With these two products, Tim Cook is calmly and methodically laying out the case that Apple is not anywhere near hitting a long as the company has the ability to grow while maintaining ASP, there is almost no sustained down side risk to AAPL stock.the iPhone is a two year refresh product, so once the market is fully realized Apple will be able to maintain its volume and grow at a typical mature market rate. The “rule” of large numbers is only relevant to us as investors for the sake of price/market cap, and it’s apparent that there is significantly more long term upside than downside from here given the valuation and business fundamentals.

      • Anonymous

        LTMP, you express a very common misunderstanding about the so called Law Of Large Numbers when you say: “In finance, the RULE of large numbers refers to the fact that as a companys earnings and revenue grow, it becomes increasingly more difficult to grow at the same rate.”

        It is NOT the OVERALL SIZE of a company which causes growth to slow. WHAT MATTERS is the size of a company’s MARKET SHARE in the sectors in which it operates. Although Apple is a huge company, now the largest quoted company in the world, it has a tiny market share in most of the product sectors it competes in. This leaves huge headroom and opportunities to grow in each of these sectors. Apple enjoys numerous, sustainable competitive advantages allowing it to gain market share:-

        * The iPhone has less than 9% of unit market share in mobile phones. As Tim Cook explained, overall the handset market is set to grow from 1.5 to 2 billion units a year. Smartphones still only make up a small percent of that market, but is growing at over 50% a year so that by 2020, smartphones are expected to make up 90% of a market of around 2 billion units a year. Apple is growing, and will continue to grow, market share because it it by far the most desirable brand.

        * The tablet market is still at a very early stage and is growing very fast, so much so that tablets unit sales are expected to overtake those of PCs in the next few years. The iPad is by far and away the leading brand band sales are growing even faster than the iPhone.

        * Macs still have only single digit market share of PC sales, despite being by far the fastest growing brand during the past 5 years. Apart from being widely acknowledged as the best and most desirable notebooks, Macs enjoy the massive advantage of the Halo effect from the iPhone and iPad. Again there is huge headroom to grow.

         * The only area where Apple is reaching saturation and hence suffering from reduced opportunities to grow is with iPods and iTunes market sales, because in these sectors Apple has won over 70% market share. But these two product sectors make up a tiny proportion of Apple sales and profits.

          * On the other hand, Apple’s ecosystem of Apps and media is still tiny compared to its potential market share. Apple “only” has around 318 million account holders signed up with their credit cards compared to the total potential market size of over 6 billion users in the mobile phone and tablet markets. So again huge headroom to grow.

      • The problem with the usefulness of this rule is that large is undefined.

      • Anonymous

        Try looking at it as an exponential slope.  The higher up that slope you go, the harder it is to continue.

        Apple has gotten itself into a unique position where it is already very far up the hill, and the resistance is very strong, yet they have proven themselves able to continue for some time.  

        They are running into supply constraints every quarter.  I submit that the biggest challenge they face isn’t increasing sales, it is meeting demand.

      • Kizedek

        I think we all agree with this. As many here have said, this is a great “problem” to have?

        Unfortunately those typically talking about “the Law of Large Numbers” are not looking at it in these terms, they are saying Apple can’t keep growing, because there is no where to grow, as though there is a imminent saturation issue.

        Yet, there IS growing demand, demonstrably, for all of Apple’s products. Of course production must grow with the growing demand. That’s a given.

        Obviously, Apple doesn’t start off with infinite ability to meet demand. They grow production as they go along (see Horace’s discussions of capital expenditures). They add production lines. They partner with new production facilities in new countries, such as Brazil.

        It should be obvious to anyone who is complaining about “large numbers” to see how this works: One launch sees 2 million units at launch. The next year they are producing 8 million of those per quarter, PLUS the launch of a new product with 4 million units on hand. The next year, the first product has ramped to 30 million units per quarter, the second to 15 million units per quarter, and they prepare a third with, say, 12 million units on hand.

        This can go on for a very long time.

      • MarkS

         Of course, in all of the post paid market, contracts will run out in 2 years, providing a floor in sales for the newest model.  Samsung had better be available in all of these markets in the fall, because the demand for the i5 will be pretty astronomical, and especially if there is no competition.

      • Jeff

         That rule has been touted as a reason not to buy APPL for many years now.  Adhering to an arbitrary qualitative idea is a wealth destroyer. 

        The Value of an idea lies in the using of it – Thomas Edison

        I will be a lot more interested in how this theoretical rule works when it can be demonstrated to make, or avoid losing money.

        So far its followers have missed out on a wealth-transformative-event based on a cliche

      • How long would it take, at Apple’s current rate of growth, for all available matter to be converted into iPhones and iPads? I’m kidding, of course, but it’s a fun question.

      • Anonymous

        It is a fun exercise, and I might just do it soon.
        In the mean time, here’s a great article that does a nice job of explaining the factual limits to growth.  

        One of the most salient points in it is that at the current rate of growth in energy usage (2.9% per year), we will be using all of the energy output of the Milky Way galaxy in 2500 years.


        Here’s the link, its a great read, and the comments are excellent as well:

    • This is why I used quotes in the headline. The so-called law is a fancy sounding rephrasing of “growth can’t go on forever” which itself is only true in a subset of closed-system analyses.

      • Jeff

         Horace,  You and Steve W.  have said it accurately in my view.  Although the “truism” is so meaningless, it falls apart under scrutiny.  Yes, a lot of things stop growing when they reach some sort of resistance.  But a lot of things don’t.  The Universe is thought to be expanding.  The human population is growing exponentially (although I have found research going back a century claiming that the carrying capacity of the planet would not support more than X amount of people…and of course X keeps changing).

             The other “truism” or generality I CONSTANTLY encounter, even from people who I think should know better, is that AAPL is “expensive”.  They are judging that based purely on hearing or seeing the nominal share price in $/share.   In my opinion, they experiencing something akin to what behavioral economists call an “anchoring” bias.  It’s a little different but the premise is similar.  Their mind is focused on some other number, in APPL’s case they are focused on comparing it to the universe of stocks they are familiar with that are and mostly have been …. all sub-$100.  Think about BRK.A (Berkshire Hathaway)  $525/share doesn’t seems so expensive now does it?  

        It doesn’t seem real to people that AAPL might be worth $5,000/share in our life-time (I’m in my 40’s), but if it reaches that level in 20 years for example, that would represent a tremendous slowing of its growth compared to the last 10 years.

        I believe in large numbers.  I like them.  They fascinate me.   The power of compounding is truly an amazing phenomena.  I think Apple Inc.s growth rate will slow (magnitude and timing being unpredictable), but that when it does as long as it can keep compounding in effect for decades the stock price will head higher.

        If they drop in a 4% dividend, and/or people begin to realize that Steve Jobs dies, not his vision, not his company qualities, peers and disciples, not his board of directors his products and his spirit of innovation… then the stock will head much higher, sooner.

        Yes, nothing can go on forever.  But that is not a good reason to predict the timing of the end.  I think the Mayan Calander demonstrates that pretty well, or will soon:)


    • What people usually mean by the “law of large numbers” is the truism that when something that is growing fast gets big enough, its growth rate must eventually decline. This, of course, has nothing to do with the Law of Large Numbers as understood in mathematics and statistics, which, as you say, states that for a large number of samples drawn from a population, the central tendency of the samples will approach the expected value for the population. This is not just a theory, in the sense of a hypothesis, but may be regarded as the fundamental theorem of inferential statistics. But it has nothing to do with growth rates. 

  • Brant Arthur

    A quote I came across recently, “Surprises occur when organizations try to exceed the limits of their capabilities.” I think this is what the question about law of big numbers is trying to get at – whether or not Apple is exceeding the limits of their capability. Growth can be very a very dangerous event for many companies and investors want to know if Apple is indeed “lazer focused” as Tim Cook says. I, for one, believe him.

    • Jeff


      Although I agree with your comment, that doesn’t seem to be the context I usually hear it in.

      • Brant Arthur

        Technically the question was about the statistical accuracy of forecasts (in which case I don’t understand what the questioner was getting at), but Tim answered by putting 37 million in proportion to the sizable opportunity for growth instead of seeing 37 million as a potential high water mark.

      • Anonymous

        Seems pretty clear that the Law of Large Numbers is not what the questioner thinks it is. It appears he was more concerned about saturating the market. Sounds like Tim Cook handled it quite graciously.

    • Flabingo

      I read the Jobs biography, and concluded that Tim Cook brings a new level of skill to the organization that will flourish greatly with the absence of Jobs. Particularly since the last two years Jobs was not close to 100%. But it seems that since they only earn .7% on their cash of almost 100 billion dollars, buying back their stock would be better for the company and the stockholders. Also note that management owns .02% of the company, but Cook seems to accept the responsibility to serve the short and long term interests of the company as if they owned a great deal more. He may become the Jack Welsh of GE for this century. Timsanity may be the new reality in Cupertino

      • twilightmoon

        It seems obvious to me that Apple will far exceed the success of GE, maybe not in terms of broad diversity of businesses, but in terms of overall success.

  • alberth

    The line that I remember from the call was around the high prices of Apple tablets and the cheaper competitors. “You feel good taking your wallet out to pay for it. But when you get it home and you use it, you don’t remember, Oh! I got a good deal! Because you hate it.” As long as Apple uses its economies of scale to get the absolute best products out at the absolute best prices, they will be very tough to beat.

    • twilightmoon

      It’s hilarious hearing people say “the high price of Apple’s tablets” given that people were literally shocked when it was introduced at 500 instead of 1000, and even to this day nearly 2 years later, no one has come up with a quality competitive product that is any cheaper.

      • Anonymous

        I never understood the critique that the iPad was expensive. Considering all that it contains and how thin and light and durable it is it is amazing that it is so cheap.

        Maybe if some of the parts didn’t have to actually work it could be cheaper. I recall reading a review for a device that included a USB port in the sales specifications, but the user manual pointed out that the USB port wasn’t actually functional. That will lower the selling price.

      • twilightmoon

        Motorolla’s XOOM (pronounced ex ume?) Came out with a variety of non functional parts, including the card reader, a terribly buggy Google-beta “honeycomb OS” that was cobbled together rapidly, and I believe there was one or two other nonfunctional or unusable parts on it. The PlayBook has no messaging built in and can only communicate with others via a hack-job hook up to a Blackberry phone. Amazon’s Kindle has been described by many as “frustrating to use” and clunky. At least in Amazon’s defense it’s only $200. Not sure if it is worth all of those $200 tho.

        Half-ass seems to be the soup du jour for iPad “competitors”.

  • Anonymous

    The more I see and hear Tim Cook, the more impressive he is. I am beginning to come to the conclusion that he will make a brilliant CEO, an organisational genius, just what Apple now needs, with many qualities which Steve Jobs lacked.

    Steve Jobs was a creative, innovative genius and an inspirational leader but he was also erratic, eccentric, unpredictable and intimidating, not qualities needed to run a huge organisation. Tim Cook was the self-effacing organiser behind this genius who provided the steady leadership, planning and administration, who created perhaps the best production, supply infrastructure, sales and marketing organisation in the world.

    Now Tim Cook is coming out of Steve Jobs shadow, into his own. We can begin to see just how brilliant he really might be: 

       *  It is admirable the way he has taken the bull by the horns with the accusations of exploitation and mistreatment of Chinese workers, by pledging full cooperation with the FLA (Fair Labor Association), making Apple the first technology company admitted to the FLA and recruited the FLA to carry out an audit of labour conditions.

      * Steve Jobs was notoriously off hand with enterprise customers, whereas Tim Cook appears to be making enterprise service a priority. This a potentially huge market for Apple and we can already see significant headway. Forestal’s have done a 180 degree turn and now recommend Macs. The iPhone will soon have more than 50% market share in enterprise. The iPad has 96% market share. More and more Government organisations are deploying Apple products. Now we have this new initiative in Education.

       * Unlike Jobs he is taking Investor Relations relations seriously with event like his presentation and Q&A to the Goldman Sachs Technology Conference . He is countering this nonsense of the so called Law Of Large Numbers, explaining just how much head room there still is for Apple to grow the iPhone and iPad. We PIs know this, thanks to people like Horace, but Wall Street just does not understand Apple’s growth potential , and Tim Cook is enlightening and informing them.
       * Tim Cook also appears to be preparing the way for Apple to distribute some of Apple’s spare cash to shareholders. Hopefully this will be by paying a regular dividend which will attract a lot of new institutional investors who cannot invest in non-dividend paying companies.

    • I don’t want to take away from Tim Cook’s organizational genius.  There’s no doubt he’s extremely smart at his craft.  But he still has yet to prove if he has Steve Jobs’ product vision and design sense.  Jobs always had a good sense of where he wanted to steer Apple into the future and what truly went into making great products.

      As for enterprise penetration, there’s no doubt at the moment the iPad is getting rapid enterprise penetration.  But remember Windows 8 is just around the corner and it will pose a big challenge in the enterprise.  The Windows ecosystem has a massive enterprise developer base that can transfer their coding skills to Windows 8 plus the fact that Windows 8 will be designed to integrate into MS’ back-end servers such Exchange, Sharepoint, SQL Server, etc..  On top of that, the Windows on ARM tablets will come pre-loaded with Office 15 which will have full document compatibility with previous versions of Office.  This will be a big selling feature for enterprises considering purchasing tablets.

    • twilightmoon

      You had me until the dividend. Given that the stock price has been tracking the growing cash pile, I would rather they keep building the cash and securities pile and let people who want a “dividend” cash out their stock.

      Dividends are wasteful of cash that is needed to keep fueling the hyper-growth engine, and they are also dangerous from the standpoint of giving Apple less cash to use as leverage and security. If you were looking at a bank, you would see a large cash reserve as security, which gives investors and account holders a level of trust in the bank. If a bank paid out dividends and had barely more cash on hand than they needed for day-to-day operations, you would not invest in that bank or open an account in it.

      Apple can be thought of the same way, except the cash and securities are fuel for growth that is far ahead of any other large company on earth.

      • MarkS

         I am not, myself, interested in Apple giving me a dividend; but I can’t think of a single bank that I own that would be useful to my retirement without a dividend.  (Does Google go through this same split/dividend debate or is this restricted to Apple?)

      • twilightmoon

        Couple things. First thank you for your reply. Second if Apple was growing at the rate of an investment bank then a dividend discussion would make sense.

        I do not believe any large banks have ever existed that grew at 100% yoy.

        You bring up Google. They have one single product and have only expanded by purchasing other smaller products, none of which have given them significant new businesses. They have only helped lock more people into their search-advertise products. So a discussion about them giving a dividend vs Apple is not a great 1:1 comparison.

      • Apple could pay a dividend and still maintain a relatively large cash pile.  It’s not an all or nothing question.

  • r.d

    “Cook: More than 60k employees have taken courses at Apple University.”

    Correct quote.
    ” We supply free classes in many place thoroughout our supply chain. More than 60,000 employees have attended these classes, which is pretty amazing when you think about it. “

    • I don’t think Apple has officially revealed that Apple University exists hence the possible omission. I would be surprised that they maintain two separate internal teaching facilities. What this says to me is that they are using Apple U with suppliers as well.

      • Anonymous

        Horace, what would be very interesting would be to disaggregate each of the Apple products as if they were truly each a “separate” company.  Then looking at the market opportunity, the rate of growth, and other valuation perspectives for each product- give a market valuation for each product as if it were a public company.  This may help people see just how poorly the world understands Apple’s dominance and that not only is innovation “worth nothing” but the “halo effect” is worth nothing.  Not to mention the SGA savings from centralization that aids GM.  Just an idea- you’re the man to pull it off.

    • Tim Cook was talking about working conditions for factory workers and the fact that Apple provides classes to these people. This was in the context of him responding to the questions about working conditions in factories. People should go back and listen carefully or read the transcript.

  • zato

    Interesting comments. Thanks to all.

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  • Advill

    Large number is the biggest danger for Apple, because a “breakthrough”  company can not have a product with half billion users,  there was a Spanish Philosopher  (José Ortega y Gasset) , who said in 1928 ..” Minorities are  condemn to become majorities” …that´s the biggest risk for Apple in my point of view.


  • Rocko

    Regarding the Law Of Large Numbers, one commenter used climbing a hill as an example.

    What has set Apple apart so far is that they have been able to discover new hills to climb so they are always starting at the bottom with no where to go but up.

    As long as Apple keeps discovering new hills they should be fine, the problem will be if and when they stop discovering these new hills.

  • Anonymous

    Growth and Large Numbers:

    “death is very likely the single best invention of Life….. It clears out the old to make way for the new…. ” – Steve Jobs, Stanford, 2005

    Thus all life forms are born and grow, and eventually die. The implication for corporations is that, like humans, they get bigger and grow, until they get older and die. In this context, “Large Numbers” means eventually the company will get too big and won’t be able to grow anymore, and once it stops growing it will soon die.

    Apple has already shown it can survive after losing its founder, not once but twice. So maybe it’s more like “the human race” than “a human” in corporate terms. There are surely limits to the growth of the human race, such as when we run out of petroleum or food, but we have seen that individuals can grow and be replaced by others many times over while humankind survives. 

    I believe that Apple has a long and prosperous future ahead ………

  • “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.”

    This is a great counterargument to the notion that Apple’s growth has “peaked.” I see analysts claiming this every day, but it just doesn’t make any sense – the Mac, iPhone, and iPad have *plenty* of room to grow. The Mac and iPhone are still minority players in the market, and the iPad, although the top player right now, is dominating a *brand new* category that didn’t exist 2 years ago and is growing exponentially.

    The only way the growth of one of their products can “peak” is if the market it’s being sold into stops growing itself AND they dominate that market so there’s no one new to sell to. The only product they have that fits both those qualifications is the iPod, and that’s very quickly being replaced by the more-profitable iPhone, so that isn’t exactly a problem.

     So as successful as Apple has been, they really have nowhere to go but up.

  • Joe

    I don’t have strong feelings about whether Mr Cook is right that Apple will have trouble sustaining its growth as it gets larger. I suspect he’s right, but seems to me that his assertion about Apple is akin to saying that Jeremy Lin will not be able to maintain the record-breaking output of his first 5 games. It misses the point. Apple stock price doesn’t need to maintain 20% growth for its investor to make money, just as Lin doesn’t need to score 25 pts/game for him to be the best option at guard for the Knicks. It just needs to outperform alternative investments.

    But I’m compelled to write in to dispel the notion that Mr. Cook’s view on apple has anything to do with the law of large numbers (LLN). The LLN says says that the average of a series of draws from a probability distribution (e.g., the outcome of a repeated experiment) approaches the expected value as the number in the series grows. If you want to apply this to stock picking, the LLN says you will tend to avoid extreme outcomes (really high growth or really big losses of any individual stock) by investing in an a broad-based index fund. The LLN does not say that any individual firm’s stock price will revert to the mean as it gets big.

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