Apple chief executive Tim Cook. Photo / Andrew Burton
Apple chief executive Tim Cook. Photo / Andrew Burton
On a sleek white coffee table in Apple CEO Tim Cook's fourth-floor office in late July, beneath framed posters of Robert F. Kennedy, the Rev. Martin Luther King Jr. and Jackie Robinson, a rose-gold iPhone 6s sits in its original box.
Earlier that morning, Cook had stood in front of employees at Apple headquarters and held up the phone, which a staffer had hand-delivered from a store in Beijing to commemorate a notable occasion: Apple had sold its billionth iPhone.
That celebratory milestone - Cook laughs when asked by a reporter if he'll stop counting, as McDonald's did with its hamburgers - aptly coincides with another big moment for the technology giant's chief executive.
A few weeks later, Cook would mark the fifth anniversary of what has been the most closely watched transition of power in corporate history: On Aug 24, 2011, just six weeks before his death, Apple's iconic founder, Steve Jobs, permanently handed his chief operating officer the reins. "It's been a blur in a lot of ways," says Cook, who had filled in for Jobs during medical leaves. "It feels like it was yesterday in some respects."
It is fitting that these two milestones arrive so close together.
That's because the iPhone, launched by Jobs, has been the biggest driver of Apple's massive growth during Cook's tenure. It led the company to soaring valuations and accounted for nearly two-thirds of Apple's revenue in the past year.
Just the tally on iPhone sales, almost $141 billion over the past four quarters, is more than the annual sales figures of Cisco, Disney and Nike - combined.
But the iPhone has been a source of recent disappointment, too.
In its most recent quarter, iPhone sales fell 23 per cent from a year ago, contributing to a 14.6 per cent drop in overall revenue. It was Apple's second consecutive quarterly drop in sales after 13 years of growth.
Just after Apple disclosed those results, Cook sat down with The Washington Post to discuss his first five years in one of corporate America's most glaring spotlights.
WATCH: 'The job itself is a lonely job'
In two sprawling and self-reflective interviews - one in his office and another by phone just before he left for vacation in Yellowstone and Grand Teton national parks - Cook described why the visibility of the job has been "shocking," how he's learned to deal with the scrutiny, and who he's turned to for advice at pivotal moments (Warren Buffett, on his decision to return cash to shareholders, and Anderson Cooper about publicly disclosing he is gay).
He spoke in candid terms about the mistakes he's made on the way, such as his first hire to run Apple's retail stores ("that was clearly a screw-up"). He fiercely defended Apple's tax policies. He touched on succession planning and the importance of grooming internal candidates.
He was at his most spirited when talking about privacy and the long-term future of Apple and the iPhone - calling Apple's big presence in the smartphone industry "a privilege, not a problem" - and quieted considerably when talking about Jobs's memory. "I know this sounds probably bizarre at this point," he said, "but I had convinced myself that he would bounce."
I'm not looking for sympathy. CEOs don't need any sympathy.
Cook, 55, chooses his words carefully, taking long pauses and speaking with a slight Alabama drawl. Though he has favorite phrases - many things are "deep," and Apple's mission is always its "North Star" - he eschews the jargon many CEOs use.
And while he's quick to trumpet Apple, he is also unassuming, quickly noting, after saying his job can be "lonely," that "I'm not looking for any sympathy. CEOs don't need any sympathy."
That reflects how Cook's imprint on Apple has often been described - making it more systematic, more transparent, more team-oriented, more humble. He has engaged on social issues more than most CEOs, writing op-eds on legislation that limits gay rights and making the extraordinary decision earlier this year to oppose the FBI's request to unlock the San Bernardino, California, killer's phone.
As CEO, he gets high marks for managing the company's growth, keeping margins high and expanding further into markets such as China (Apple had four retail stores in China five years ago. Today it has 41.)
WATCH: Tim Cook says Steve Jobs was 'heat shield' for Apple
He has pushed into the enterprise market, grown Apple's product lineup and positioned Apple to make more money off the devices it's already sold: Its services business, which includes things like iTunes, iCloud and a mobile payments service, is projected to be the size of a Fortune 100 business next year - all on its own.
Apple remains the most valuable and most profitable company in the S&P 500 index.
Yet as the company deals with declining sales in its major device categories and in markets like China, critics and some investors have fretted about Apple's innovation mojo under Cook. The first all-new device during his tenure, the Apple Watch, is not yet a mega hit.
The iPhone juggernaut faces a saturated smartphone market, growing competition from low-cost startups and longer upgrade windows from consumers. Rumored big concepts behind the curtain - such as a reported car project - appear to be years away.
Some analysts say such impatience is shortsighted, and that the long-term potential for things like services, augmented reality and even a possible car could ultimately transform the way Cook's tenure is viewed.
"Investors are so finicky that they lose track of the big picture," says Gene Munster, an analyst at Piper Jaffray who covers Apple. "I think the wisdom and legacy of Tim Cook is going to be determined by what happens in the next five years."
In the conversation below, Cook looks back as well as ahead at those next five years - hinting at augmented reality but refusing to comment about a car project, saying Apple believes people love a surprise. It has been edited for length and clarity.
Q. Your first day in this job, you sent a memo to employees that said, "I want you to be confident that Apple is not going to change." Five years later, it has to have changed. What qualities of Apple are immutable, in your view?
A. The DNA of the company is really what I was talking about there. The North Star has always been the same, which for us, is about making insanely great products that really change the world in some way - enrich people's lives. And so our reason for being hasn't changed.
Other things do change. But that's the thread that ties everyone together.
Q. And what has changed?
A. The obvious things are we have more employees. The company is four times larger [by revenue since 2010]. We've broadened the iPhone lineup. That was a really key decision and I think a very good one. We've gone into the Apple Watch business, which has gotten us into wellness and in health. We keep pulling that string to see where that takes us. Lots of core technology work has been done.
Q. You've said you don't want to be a traditional CEO. What do you mean by that?
A. I think of a traditional CEO as being divorced from customers. A lot of consumer company CEOs - they're not really interacting with consumers.
I also think that the traditional CEO believes his or her job is the profit and loss, is the revenue statement, the income and expense, the balance sheet. Those are important, but I don't think they're all that's important.
There's an incredible responsibility to the employees of the company, to the communities and the countries that the company operates in, to people who assemble its products, to developers, to the whole ecosystem of the company. And so I have a maybe nontraditional view there. I get criticized for it some, I recognize.
But I've never wanted to be the stereotypical CEO. I don't think I'd be very good at it, honestly. And I don't think for Apple that would in the long run be good for the company. If you care about long-term shareholder return, all of these other things are really critical.
Q. You've got the billionth iPhone on the table here. One thing that has changed is that in 2011 about 44 percent of the company's sales came from iPhone. Now it's close to two-thirds. How can Apple move forward when so much of its business is tied up in the iPhone and an industry that's cooling off?
A. This is actually a privilege, not a problem. Think about this: What other products do you know where the ratio of people to the product, for a consumer electronics product, will be one-to-one over the long haul? I don't think there is another one.
A. The global sales of PCs each year are about 275 million right now. That number's been declining. The global market for smartphones is 1.4 billion. Over time, I'm convinced every person in the world will have a smartphone. That may take a while, and they won't all have iPhones. But it is the greatest market on Earth from a consumer electronics point of view.
Look at the core technologies that make up the smartphone today and look at the ones that will be dominant in smartphones of the future - like AI. AI will make this product even more essential to you. It will become even a better assistant than it is today. So where you probably aren't leaving home without it today - you're really going to be connected to it in the future.
Look at the core technologies that make up the smartphone today and look at the ones that will be dominant in smartphones of the future - like AI.
That level of performance is going to skyrocket. And there is nothing that's going to replace it in the short term or in the intermediate term, either.
I realize that the people who are focused on this 90-day clock say, "Oh, my God, the smartphone industry only grew by 1 percent or decreased by 6 percent." You know, the global economy's not that great right now. But if you're in it for the long haul, this is the best market on earth.
Q. So to those who ask where's the next big, world-changing category for Apple - it's sitting on this $231.5 billion pile of cash - are you saying there's nothing like the smartphone?
A. Technology is one of these industries where every week there's a new shiny object that people are skating to. Netbooks - look back, everybody was writing like netbooks were this unbelievable thing, everyone was asking us, "Why aren't you making one?" Same thing with the PDA. Remember what happened with the PDA?
Up and down. It was like the hula hoop. Technology is full of those.
I'm not saying we're not going to do anything else. I'm saying this is still an unbelievable product category to be in, and not just for this quarter, year or for years. So I would not want anybody to think this, oh, this "better days are behind us" thing.
Q. Some analysts have said that.
A. And it doesn't bother me. Because honestly, they were saying that about Apple in 2001. They were saying it in 2005. They were saying it in 2007 - this stupid iPhone, whoever dreamed up this thing?
Then they were saying that we peaked in 2010, then it was 2011. We got to $60 billion [in revenue], and they said you can't grow any more from this. Well, last year we were $230 billion. And, yes, we're coming down some this year. Every year isn't an up, you know. I've heard all of it before. And I don't subscribe to it because it's traditional thinking in a lot of ways: You can't get large because you are large.
Q. How do you make the case that Apple is still a long-term growth company?
A. In today's products we have services [iCloud, App Store, Apple Pay and the like], which over the last 12 months grew about $4 billion to over $23 billion [in sales].
Next year we've said it's going to be a Fortune 100 company in size.
What else? The iPad Pro. What we saw in this past quarter is that about half of the people who are buying one are using it at work. We have an enormous opportunity in enterprise. Last year we did $25 billion or so in it around the world.
We're collaborating much better with key partners because it's important, if you're making a decision to use our products or anybody's products in the enterprise, that they work well together. And so we're working with Cisco because they're incredible with the network infrastructure. We're working with IBM, who's written a number of apps. We're working with SAP because they own the back of the house, in terms of the processing.
They own three-quarters of the world's transactions, in terms of it running on their products.
Tim Cook attends the annual Allen & Company Sun Valley Conference in the US. Photo / Andrew Burton
And then, of course, the markets. We have done fairly well in China. India is fast-growing, but our base there is smaller. One of the big things that has held India back is the cellular infrastructure. They have two major carriers putting in a lot of investment to bring 4G. You can imagine if you didn't have 4G today. You can't enjoy video on a 3G. Periodically you can, but not consistently. This is a game changer.
And so I look at it and say: markets? Enterprise - huge. Geographies? India is one I've talked about, but there are others. Products? We purposely don't talk about that one. But you can imagine. Step back and say what's Apple so great at?
Apple is the only company that can take hardware, software and services and integrate those into an experience that's an "aha" for the customer. You can take that and apply to markets that we're not in today. There's not a limitation that we can only do that in the smartphone area or in the tablet or Mac or watch area.
Q. You succeeded one of the icons of American business. What does it feel like to step into those shoes?
A. To me, Steve's not replaceable. By anyone. [Voice softens] He was an original of a species. I never viewed that as my role. I think it would have been a treacherous thing if I would have tried to do it.
When I first took the job as CEO, I actually thought that Steve would be here for a long time. Because he was going to be chairman, work a bit less after he came back up the health curve. So I went into it with one thought, and then weeks later - six weeks later, whatever.
A. It was very quickly. [The day he died] was sort of the worst day ever. I just - I had really convinced myself. I know this sounds probably bizarre at this point, but I had convinced myself that he would bounce, because he always did.
Q. What did you think you knew about leading Apple that turned out to be wrong?
A: There's nothing like sitting in the chair, so to speak. I was reminded that customers have a really deep love for the company. I started just getting an avalanche of customer mail. I don't mean complaints. Email. Positive. Negative.
Points of view. Not the 'hey, this broke, I'm mad.' Largely not that kind of stuff.
Things much deeper than that. Moved by how they were treated in a store. Lots of people have written me about FaceTime and how they could be near their mother's or father's bedside before they died only because of it.
Q. But what about in terms of running the company?
A. I learned that the scrutiny was much higher than I thought. Media interest and scrutiny - social networking was taking off at that time - and so a lot of the "love," so to speak, and interest from customers, I think, transfers to media interest as well. And so there's a lot of visibility on the company. We can do very few things without it being reported somewhere.
Q. You and Alan Greenspan or Janet Yellen would probably have a lot to talk about. It seems like every word you say is scrutinized. How do you get used to that?
A. You don't. You're both praised and criticized, and the extremes are wide - very wide. And that can happen all in a day. You build up - my skin got materially thicker after August 2011. And I don't mean in a bad way. I don't mean that I'm callous and don't care. I think I'm a bit better today about compartmentalizing things and not taking everything so personally.
Apple is the only company that can take hardware, software and services and integrate those into an experience that's an "aha" for the customer.
That was just downright shocking to me, honestly. I thought the visibility went with Steve, not the company. And so I thought with a different CEO, with me, that would instantly change. It didn't.
Q. You've been more outspoken on social issues than any other CEO of a company your size. Do you think companies have a responsibility to publicly take on such issues as civil rights and climate change?
A. I think everybody has to make their own decision about it. Maybe there are compelling reasons why some people want to be silent.
I think for us, though - for a company that's all about empowering people through our products, and being a collection of people whose goal in life is to change the world for the better - it doesn't sit right with me that you have that kind of focus, but you're not making sure your carbon footprint isn't poisoning the place. Or that you're not evangelizing moving human rights forward. I think every generation has the responsibility to enlarge the meaning of human rights.
I do view that a CEO today of Apple should participate in the national discussion on these type of issues.
Q. Who were you thinking about when you decided to write the op-ed where you publicly came out as gay?
A. I was thinking about kids. I was getting notes from kids who knew I was gay, or assumed I was, because of something they had read on the Web. And they were kids who were distraught. Some had been pushed out by their families.
They thought they couldn't achieve anything. They couldn't do anything. They were seeing the national discourse around it and feeling isolated and depressed. And I just thought - I've got to do something.
A. I thought it would minimally say you can do pretty good in this world and be gay. That it's not a limiter. It's okay to be. That it's okay to be honest about it. I figured if I could help one person, it would be worth it.
It had been planned for quite a long time. It was not something that was done in a moment, by any means. It was probably a year. Just thinking through what to say, how to say it, where to say it, how to do that in a way that advanced what I was trying to do.
I wanted it to be in a business [publication]. That's what I know, that's who I am. There was a lot of work there. I visited people. I talked to Anderson Cooper at length - multiple times. Because I thought that the way that he handled his announcement was really classy. I was getting advice from people who I thought were really great people who had really deeply thought about it.
Q. There are few jobs in corporate America that have the same scope, breadth and size as yours. Geopolitics. National security. Consumer retail. Global supply chains. The entertainment industry. It's mind-boggling. Where do you turn to for advice?
A. Whoever I think can help me. When I was going through [the question of] what should we do on returning cash to shareholders, I thought who could really give us great advice here? Who wouldn't have a bias? So I called up Warren Buffett.
I thought he's the natural person, and so I try to go through that process on everyone. That doesn't mean I always do what they say. But I think it's incumbent on a CEO to not just listen to points of view but to actually solicit them. Because I think, if not, you quickly become insular. And you're sort of living in the echo chamber.
Q. Who else?
A. For the hearing [in 2013 before the U.S. Senate's Permanent Subcommittee on Investigations about Apple's tax practices], I've never testified in front of Congress before. So I called up [Goldman Sachs CEO] Lloyd Blankfein, because I looked back to say who's done this before? I knew Lloyd and thought he'd be honest with me.
He gave me great advice. I called up President [Bill] Clinton. He knows a lot about the politics. I'd not met him through a political connection. I'd met him through the foundation. And he was great. I went to Laurene, Steve's wife. Laurene has the lens of knowing me and deeply understanding Apple.
And so, obviously, I get a lot of advice internal to Apple. But I think it's important on these things that are also new to the company to solicit some people outside, even if you conclude to not do what they say.
Q. With the fight with the FBI, did you have any idea what you were getting into?
A. We knew it was going to be very, very difficult. And that the cards were stacked against us. But we spent a lot of time on "what is right here?" People who were really key on this decision are folks like [senior vice president of software engineering] Craig Federighi. This at its heart is a deep, deep technical question. You first have to understand that to do anything else.
The lightbulb went off, and it became clear what was right when we did the first piece of work: Could we create a tool to unlock the phone? After a few days, we had determined yes, we could. Then the question was, ethically, should we? We thought, you know, that depends on whether we could contain it or not. Other people were involved in this, too - deep security experts and so forth, and it was apparent from those discussions that we couldn't be assured.
Photo / Getty Images
The risk of what happens if it got out, we felt, could be incredibly terrible for public safety.
We knew the positioning on the outside would not be public safety. It would be security vs. privacy - security should win. But we went through the deep, deep, deep discussions on that. It became clear that the trade-off, so to speak, was essentially putting hundreds of millions of people at risk for a phone that may or may not have anything on it, and that likely didn't, because of other things that we knew about.
We thought this actually is a clear decision. A hard one, but a clear one. Then it became more of a matter of how do we explain this. Because this is not easy. You can imagine. You just hear: locked phone. Terrorist. People dead. Why aren't you unlocking this?
Q. Did the FBI fight change how you view the mandate of your job?
A. Customers should have an expectation that they shouldn't need a PhD in computer science to protect themselves. So I think they depend on us to do some things on their behalf. So with that responsibility comes an obligation to stand up.
And, in this case, it was unbelievably uncomfortable and not something that we wished for, wanted - we didn't even think it was right. Honestly? I was shocked that they would even ask for this. That was the thing that was so disappointing that I think everybody lost in the whole thing. There are 200-plus other countries in the world. Zero of them had ever asked this.
Q. You've talked about privacy being part of Apple's values. How personal is it for you? You're known as a very private person. You grew up gay in a red state. Did those early years have an impact on how you lead Apple and on your public stances about privacy?
A. Undoubtedly, your childhood and your upbringing is a constant across your life in terms of the things you learn and your point of view.
But in terms of privacy, I wouldn't link the two. There's a broader thing in play. Privacy, in my point of view, is a civil liberty that our Founding Fathers thought of a long time ago and concluded it was an essential part of what it was to be an American. Sort of on the level, if you will, with freedom of speech, freedom of the press. The other thing is how all this data sits out there in different places. I do worry about people not really understanding deeply about what kinds of things are out there about them. So it's really both of those - not really the growing up in the South.
Q. Back in 2009, you said, "We believe in saying no to thousands of projects." Name one product or project in the past five years you have put on the shelf.
A. [Laughs]. I don't know if I want to do that, because it gives competition some heads-up about things. But be assured that we have. More than one. Because the wonderful thing about Apple is there are many ideas about doing things. We have resources to do a few, but you can only do a few things deep and well, and so you have to say no and have debates about what things are in versus out. So more than one big thing has left the page.
Q. When you look back, are there mistakes you've made that you've learned something from?
A. Maps was a mistake. Today we have a product we're proud of. But we had the self-honesty to admit this wasn't our finest hour and the courage to choose another way of doing it. That's important. It's the only way an organization learns.
The classic big-company mistake is to not admit their mistake. They double down on them. Their pride or ego is so large that they can't say we did something wrong. And I think the faster you do that, the better - change gears to something else. If you're honest, people will give you the benefit of the doubt. But if you have your head stuck in the sand and you just keep doing it, I think you lose your employees and your customers as well.
Q. What else?
A. I hired the wrong person for retail [former Dixons CEO John Browett] initially. That was clearly a screw-up. I'm not saying anything bad about him. He didn't fit here culturally is a good way to describe it. We all talked to him, and I made the final decision, and it was wrong. We fairly quickly recognized it and made a change.
And I'm proud we did that. A lot of companies would have said, "Oh, he hasn't been here very long." But when you're looking at more time with [then] 50,000 people in retail - that's a lot of people that you're affecting in the wrong way. That was a mistake. I probably have a long list.
We clearly are capable of doing it both from a management-depth point of view and a financial point of view.
It's sort of a lonely job.
The adage that it's lonely - the CEO job is lonely - is accurate in a lot of ways. I'm not looking for any sympathy. You have to recognize that you have blind spots. We all do. Blind spots move, and you want to not just have really bright people around you, but people who will push on you and people to bring out the best in you.
People that amplify whatever you're good at. And then also the people who plug the parts that you're not and may never be.
Q. What are you reading?
A. I have two books going right now: One is the Bobby Kennedy book ["Bobby Kennedy: The Making of a Liberal Icon," by Larry Tye] that just came out. The other is quite an old book. It's a Gandhi book ["Mohandas K. Gandhi, Autobiography: The Story of My Experiments With Truth"] that I got interested in because we went to the Gandhi museum when we were in India recently.
I tend to like nonfiction and particularly reading about people and how they lived and how they fought, and what motivated them and their philosophy and so forth.
Q. When Steve handed you the reins, he said Apple had never had an orderly transition of CEO, and he wanted that to happen. What are you doing now to make sure the next transition, whenever it happens, is orderly?
A. At the end of every board meeting, I discuss succession with the board because I might step off the wrong curb or something. We have the good discipline to do that.
Then my role is to make sure that the board has great candidates to pick from internally. And I take that role extremely seriously. Look around at the great people I get to work with - there's some really just superb talent in the company.
Q. You've made more acquisitions at Apple, including the purchase of Beats, which was its largest ever, at $3 billion. At its current size, does Apple need big acquisitions like that to grow?
A. Do we need them? No. But we always are looking for companies that have really talented people and great intellectual property, and when we find them we do acquire them. To put that into context, we've acquired 15 to 20 companies a year for the last four years.
Q. Do you think there will be more at that size going forward?
A. I think we'll continue to acquire companies. If you're asking me would we do another one the size of Beats -
Q. Or bigger? You certainly could.
A. We clearly are capable of doing it both from a management-depth point of view and a financial point of view. But we'd only do it if it were great for Apple strategically. We don't acquire for revenue. So the essential for us is the talent and/or [intellectual property]. Those are the things that we optimize around. Now with Beats, we also got revenue. But it wasn't the purpose of it. The purpose was that we were going into streaming - we'd already made a decision to do that. And we looked around at people who might be able to help us.
I think we got Apple Music out probably a little sooner than we would have otherwise. It's infused some great talent on the team.
Q. Sales in greater China were down 33 percent in the most recent quarter. Low-cost competitors like Huawei are getting into building premium phones. Let's talk about China. How much are you worried about competitive and regulatory threats there?
A. We make our investment decisions based on long term. We have to report every 90 days because that's the rules, but it's not how we run the company. So as I look in the long term, I think China is an unbelievable market - not only from a demand point of view and the revenue potential there, but also as a great source of talent.
We have over a million and a half developers there. The reach is unbelievable. There are, sort of, speed bumps now with the economy. In a year-ago quarter, we were up 112 percent. So I think you have to back up and put it in perspective. If you look at it over a two-year basis, we were up over 50 percent in the quarter.
Q. We were talking about getting advice from people before your first testimony on Capitol Hill. That hearing focused on the corporate taxes Apple pays. Apple is now awaiting a European Union ruling on whether you owe billions in back taxes, and corporate tax reform is a big election-year issue. Does either a Trump or a Clinton campaign give you or the company any hope that there could be corporate tax reform anytime soon?
A. I think it's in the best interest of the US to have corporate tax reform, regardless of which political party is in charge of the White House. Because if you look at it, the US rules today are that international companies like us and many others can keep their earnings that they earn overseas overseas, and then when they bring them back it triggers the tax liability.
What I've always felt should happen is that every dollar should be taxed immediately with no deferral. But as a consequence of doing that, you should have free flow of capital. What would happen is if a system like that were put in place, it should have more investment going into the United States. We're the only major country in the world that has a system like this. It's not good for the US, it's not good for the economy, it's not good for jobs, it's not good for investments.
I think there's wide agreement to that in both parties, by the way. There's a difference of view with different people about how to fix it, but I think everybody agrees the current system isn't working. So I'm optimistic that, in 2017, there will be some sort of corporate tax reform.
The US needs to invest more in infrastructure - so what would be great is, if they take the tax proceeds of a corporate tax reform and invest it in infrastructure and roads and bridges and airports.
Q. What do you say in response to Nobel economist Joseph Stiglitz's comments on Bloomberg [television], where he called Apple's profit reporting in Ireland a "fraud"?
A. I didn't hear it. But if anybody said that, they don't know what they're talking about. Let me explain what goes on with our international taxes. The money that's in Ireland that he's probably referring to is money that is subject to US taxes.
The tax law right now says we can keep that in Ireland or we can bring it back. And when we bring it back, we will pay 35 per cent federal tax and then a weighted average across the states that we're in, which is about 5 per cent, so think of it as 40 per cent.
We've said at 40 per cent, we're not going to bring it back until there's a fair rate. There's no debate about it. Is that legal to do or not legal to do? It is legal to do. It is the current tax law. It's not a matter of being patriotic or not patriotic. It doesn't go that the more you pay, the more patriotic you are.
And so what we've said - we think it's fine for us to pay more, because right now we're paying nothing on that and we leave it over there. But we - like many, many other companies do - wait for the money to come back.
In the meantime, it's important to look at what we do pay. Our marginal rate, our effective rate in the US is over 30 per cent. We are the largest taxpayer in the United States. And so we're not a tax dodger. We pay our share and then some. We don't have these big loopholes that other people talk about. The only kind of major tax credit that we get is the R&D tax credit, which is available to all companies in the United States. That's important to know. The second thing I would point out is we have money internationally because we have two-thirds of our business there. So we earn money internationally.
Q. Do you feel picked on by the EU?
A. You know, they haven't ruled yet. I don't know how they will rule. I hope that we get a fair hearing. If we don't, then we would obviously appeal it.
It's important for everyone to understand that the allegation made in the EU is that Ireland gave us a special deal. Ireland denies that. The structure we have was applicable to everybody - it wasn't something that was done unique to Apple. It was their law.
And the basic controversy at the root of this is, people really aren't arguing that Apple should pay more taxes. They're arguing about who they should be paid to. And so there's a tug of war going on between the countries of how you allocate profits.
Q. Let's jump to Apple's future. You made some statements in the earnings call about artificial intelligence that got a lot of attention. Can Apple catch up with the AI efforts from companies like Facebook, Google and Amazon?
A. Let me take exception to your question. Your question seems to imply that we're behind.
Let's take a look at that. We've been shipping Siri since 2011, and Siri is with you all of the time. Which I think most people would want an assistant with them all the time, whether they're at work or at home or in between or on the soccer field. You don't think of your to-do list, so to speak, only when you're in your kitchen. And the breadth of Siri is unbelievable.
Increasingly, Siri understands things obviously without having to memorize certain ways to say things. The prediction of Siri is going way up. What we've done with AI is focus on things that will help the customer. And we announced in June that we're opening Siri to third parties, so third-party developers can now use Siri. So a simple example with that, whatever kind of ride-sharing app you might use, Uber or Lyft in the United States, you could just - using your voice - order the car. So third-party developers are writing tons of those that will be available to the public in the fall. And that's how we're broadening Siri in a huge way.
But there are other things in there, like if you're typing in mail, the prediction capability of the next word or next phrase that you will use has just - Siri has gotten a lot smarter about that. The simple things, like do you drive to the airport? I haven't done that in a little while, but when I did, I always forgot where I put my car.
Q. I just take a picture of the sign on the wall.
A. But you don't even have to do that anymore because Siri will know where you parked. And so things like this really make a difference to people - we do all of that while protecting your privacy. Instead of passing all that information to the cloud, where we're maintaining it all, we do a lot of it on the device itself. So you're in control of your own data.
Q. Do you have a concern about privacy as you push into AI?
A. No. I think that talented people can come up with fantastic ways of using AI without violating privacy. There's a new technology called differential privacy which essentially looks at large data sets to predict user behaviors and requests without going to the precise individual, which might violate privacy.
Now there are some things that we do look at - like if you buy songs, it's a reasonable expectation that we know what songs you buy because you buy them from us. And we use that information with machine learning to recommend other songs you might like.
Q. What about augmented or virtual reality?
A. I think AR [augmented reality] is extremely interesting and sort of a core technology. So, yes, it's something we're doing a lot of things on behind that curtain that we talked about. [Laughs.]
Q. You mentioned earlier about how much more difficult it is to keep things secret. There's been a number of reports about Apple's car project - the people who are being hired or moved into place to lead it. It gets enough attention that it almost seems like an open secret. Why not say something about it?
A. I can't answer a question about something we haven't announced. [Laughs.]
Q. But there's just constant attention about it. Is it tempting to share any kind of details?
A. We've always viewed that people love surprises. We don't have enough anymore in our lives.
Q. Sometimes it seems like Silicon Valley companies are all blending together - everyone's converging on the same big race. Self-driving cars, AI, Google is reportedly building a smartphone. In a tech industry where companies are trying to be "all things to all people," how does Apple's longtime philosophy of simplicity, and being very focused, move it forward?
A. It's as important as it ever was. We're a bit larger today, so we can do a bit more than we could do 10 years ago or even five years ago. But we still have, for our size, an extremely focused product line. You can literally put every product we make on this table. That really is an indication of how focused it is. I think that's a good thing. Regardless of who you are, there's only so many things that you can do at a very high-quality and deep, deep level - personally and in business. And so we're not going to change that. That's core to our model and way of thinking.
Q. Apple has really ramped up spending in research and development. One analyst noted your [incremental] R&D is now greater than the 14 largest automakers, combined. What's the most exciting technology out there to you right now?
A. That one I don't want to answer, because it would give too much of an insight into the things we're doing. But we have ramped up R&D because we are heavily investing in the future - both in current product lines and things that aren't visible as well, including in services. In due time, some of those things will be visible. But there will always be other things that will replace those things that are invisible.
Q. Any final reflections on your tenure? Moments that stuck out at you?
A. I've got the best job in the world. I think about my day and weeks and months and years - I put them in three buckets: people, strategy and execution. I sort of move between those on a daily basis as to where I put my time. I always think the most important one of those is people. If you don't get that one right, it doesn't matter what kind of energy you have in the other two - it's not enough.
