Exclusive Q&A: Apple CEO Tim Cook
In an interview on Feb. 12 at Apple’s headquarters in Cupertino, Calif., CEO Tim Cook spoke expansively about the state of Apple (AAPL), Fortune’s most admired company for nine consecutive years. He talked about how Apple behaves in a down cycle, how the company’s once-sacrosanct only-in-Cupertino mind-set is evolving, and the importance of services to Apple’s product mix. Without acknowledging its existence, Cook also shed possibly contradictory light on Apple’s widely rumored efforts to build an iCar: He suggested that Apple ultimately may decide not to make a car at all, yet he implied that if it did, it could utilize contract manufacturers to do so, just as it does with computers and phones.
Fortune: Critics slammed Apple for its flat fiscal-first-quarter performance, despite selling 74 million iPhones and making $18 billion in profit. What is your reaction?
Tim Cook: I’m good at blocking out the noise. I come back to, Are we doing the right things? Are we remembering our North Star? Are we focused on making the best products that really help people enrich their lives in some way? And we’re doing all those things. People really love our products. Customers are happy. And that’s what drives us. Over time I’m sure that everything else will catch up.
Do you communicate that Apple has been through this before, or do you avoid the topic altogether?
It helps internally to remind people that Apple has been through cycles: “This too shall pass.” And I think, in sort of a bizarre way, cycles can be really great. They have been for Apple because we tend to steadfastly continue to invest in innovation. And what other companies tend to do is retreat. Some of our greatest innovations and products were born in a period of challenge. Also, assets get cheaper, so you can double down on innovation through the downturn.
You mention cheaper assets, but Apple has not historically been a big acquirer.
Well, assets come in different forms. You can build more stores for the same amount of money. You can go into geographies like India in a big way and things are cheaper. And we’ve been acquiring companies every three to four weeks, on average, for a while. So yes, it’s also true that companies get cheaper in both the private markets and the public markets. And your own stock gets cheaper too. So it’s a glass half full for me, not empty.
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Apple’s mentality has been that everything important from the perspective of intellectual property happens in Cupertino. Is that changing?
The vast majority of the IP is created here and continues to be created here. We have a presence in Israel, and so we also have IP being created there. And generally speaking, what’s happened is that we’ve acquired some companies that are located somewhere else. And as we’ve done that, once we’ve gotten familiar with the location, we’ve hired more people in those areas.
I’m sure there was a time when Macs were 75% of revenue, as iPhones are today. Do you think about an ideal approach to product revenue mix?
Well, Macs at one time were 100%. And then iPod came along, and that mix changed. So now the way I look at it is that our focus is on making the best products. And that produces a mix of whatever it is. The result of doing that is that we now have a billion active devices out there. We’ve been increasingly adding services that our customers want, and the true size of the services business was almost $9 billion last quarter.
To ask it a slightly different way, the conventional wisdom for a long time was that Apple offered services primarily as a means to the end of selling devices.
That was never the way we looked at it. The way we look at it goes back to the building of great products. And services—we think of services as a product as well. And so whether it’s offering Apple Pay or Apple Music or a huge number of apps in the App Store, these are all things that are driven by the installed base [of devices] itself. And so financially it provides a great potential opportunity.
I love Apple Pay, but I wish it were available more places.
You can bet we’re working on that. In the last couple of quarters we’ve seen a dramatic uptick as more merchants accept it. But over the next few months you’ll see it going into places that people use daily.
I want to turn to the subject of innovation.
The most important thing for last.
Indeed. You’ve talked generally about autos, but you haven’t commented on Apple’s widely reported car project. Wikipedia has a long list of prominent auto industry people who have joined Apple. Why not take this opportunity to say, “You know what? It’s basically all there, and this is why we’re doing it”?
Yeah, I’m probably not going to do that. The great thing about being here is we’re curious people. We explore technologies, and we explore products. And we’re always thinking about ways that Apple can make great products that people love, that help them in some way. And we don’t go into very many categories, as you know. We edit very much. We talk about a lot of things and do fewer. We debate many things and do a lot fewer.
Can you afford to spend relatively large amounts of money on things you don’t end up commercializing?
Well, could we? Yes. But would we? We don’t have to spend large amounts to explore. So I can’t talk about this certain area that you’re talking about. But when we start spending large amounts of money, we’re committed at that point. But we explore things with teams of people. And that’s a part of being curious. Part of exploring technologies and picking the right one is becoming so familiar with it you can see ways that it can be used. And for us, we’ve never been about being first. We’ve been about being best. So we explore many different things, many different technologies. And at first we might not know what product it might wind up in. And then later we’ll see that that really cool technology enables maybe things that we’re doing today to take on something bigger, maybe something new. But once we start spending gobs of money—like when we start spending on tooling and things like that—we’re committed.
Apple’s new headquarters under construction in Cupertino, Calif., in September 2015.Photo: Steve Proehl—Proehl Studios/Corbis
So you differentiate between spending gobs of money on tooling and having groups that may number in the hundreds of people? The latter would not necessarily constitute gobs of money?
No. I wouldn’t call it gobs of money.
Do you foresee a day when a manufacturer would make an automobile on a contract basis for someone else?
I think it does exist today, but I don’t think it’s the model for the [auto] industry. It’s not how it was born. That industry was born much like the industry that we’re in, the electronics industry: People began doing their own manufacturing, and then over time it became clear that specializing would probably be a better way to go from the supply-chain point of view. And so most companies begin to go in that way, at different levels and maybe in different ways.
And so can you envision it for automobiles?
Yeah, I could. Sure. I don’t think that there’s a fundamental reason why that couldn’t be done.
Okay, one more thing: Is there a date for the new headquarters to open?
We haven’t set a date. But I’d like to be moving in in about a year, to start the moving process. Think of it as early ’17. There’s lots of excitement about it. It gets a lot of people back together again, which is, I think, really important. We’re in so many buildings right now. It would be nice to get everybody back.
Have you made a decision on the naming of the campus? Have you settled on the way that you’ll pay homage to Steve Jobs?
We’re talking about it. We will definitely honor him in the right kind of way. We’re working with Laurene [Powell Jobs, Steve’s widow] and the family.
Editor’s Note: This interview occurred before the recent dispute between Apple and the Federal Bureau of Investigation became public. For more on that topic click here.
A version of this article appears in the March 1, 2016 issue of Fortune.