Apple’s Cook: It means more to get it right than to be first

What does Apple CEO Tim Cook have up his sleeve?
Apple CEO Tim Cook has promised great things are in store for the company.
Josh Lowensohn/CNET

Apple CEO Tim Cook on Wednesday again promised that exciting new products are ahead for Apple and that investors should be patient as the company perfects all the details.

He noted that it takes longer for Apple to make products because it cares about getting every detail right.

“The key thing that for us … is to stay focused on things that we can do best and that we can perform at a really high level of quality that our customers have come to expect,” Cook said. “And so we currently feel comfortable in expanding the number of things we’re working on. So we’ve been doing that in the background and we’re not ready yet to pull the string on the curtain. But we’ve got some great things there that we’re working on that I’m very, very proud of and very, very excited about.”

Cook also took a veiled dig at Samsung, saying”it means much more to us to get it right than to be first.” Samsung has made a big push to be viewed as an innovator, rather than a “fast follower.” The Korean company hopes its Gear line of wearables will help with that effort, but the products have faced some criticism in the market for their design and functionality.

“I think you can see so many examples out in the marketplace where it’s clear that the objective has been to be first,” Cook said. “But customers at the end of the day don’t care about that or that’s not what they look for from Apple. They want great, insanely great, and that’s what we want to deliver and so that’s the way we look at it.”

Samsung declined to comment.

Apple on Wednesday reported better-than-expected financial results for the fiscal second quarter. Its profit, revenue, and iPhone unit sales topped analysts’ expectations, but iPad sales fell short. Apple attributed its results to strength across various regions — including China — as well as various products. The company also said it would return more cash to shareholders and announced a seven-for-one stock split.

The news — which helped assuage some recent fears about at the company — sent shares jumping 7.6 percent to $564.80 in after-hours trading.

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The results come as Apple battles Samsung in a patent-infringement trial in San Jose, Calif. They also come as Apple faces more questions about its momentum and future. The company has promised exciting new products but has had little to show consumers. The pressure has been on for the company to enter new product categories — such as smart TVs and wearables — instead of incrementally updating its existing devices.

Apple’s results have been fueled by the iPhone for the past several years, but the company is facing more competition than ever before. Samsung and others are pressuring the company at the high end, while Apple is largely missing out on the low end of the market. That’s a big concern as more and more mobile sales come from emerging markets like China, where inexpensive phones from companies such as Huawei and ZTE are popular. It also faces changes in smartphone upgrade policies and a push by carriers to sell full-price devices.

Apple earlier this year started selling the iPhone through China Mobile, the world’s biggest wireless carrier. And in September, it introduced two new versions of the iPhone for the first time ever, including the less-expensive but more colorful iPhone 5C. Apple also rolled out the new iPad Air and iPad Mini with Retina Display the following month. The company hoped the new products would keep the momentum going, despite ongoing concerns that the iPhone 5C isn’t selling well and that China Mobile demand may be sluggish.

Another worry has also plagued Apple of late — that consumers are holding off on buying the current 4-inch iPhone models in hopes a new version will hit the market soon. The company is believed to be prepping two new iPhone 6 models with display sizes of 4.7 and 5.5 inches for later this year.

For the second fiscal quarter, Apple reported earnings of $10.2 billion, or $11.62 a share, compared with $9.55 billion, or $10.09 a share, in the year-earlier period. Per-share earnings were better than the $10.19 projected by analysts.

Apple's iPhone 5S and 5C.Apple's iPhone 5S and 5C.
Apple’s iPhone 5S and 5C.
Apple

Sales for the period ended March 29 rose 4.7 percent to $45.6 billion, better than what Apple and analysts had estimated. Apple in January had projected second-quarter revenue of $42 billion to $44 billion. Analysts, meanwhile, estimated revenue would total $43.5 billion.

Apple reported a gross margin of 39.3 percent, better than its estimate of 37 percent to 38 percent. Apple’s gross margin, a measure of sales after removing costs like manufacturing, has fallen since its high of 47.4 percent in early 2012 as customers opt for lower-cost devices.

The Cupertino, Calif., tech giant said it sold 43.7 million iPhones, much higher than the expected 38 million. Apple also sold 16.4 million iPads, lower than analysts’ estimates for 19 million. The figures mark a sharp decline from the 55 million iPhones and 26 million iPads sold during the holiday quarter — an Apple record for that time of year but figures that disappointed analysts at the time. The better-than-expected rise in iPhone sales in the most recent quarter alleviated some worries that people are holding off on smartphone purchases.

For its next quarter, which runs through June, Apple expects to generate $36 billion to $38 billion in sales, with a gross margin between 37 percent and 38 percent. The midpoint of revenue is lower than the $38 billion Wall Street expected ahead of the report.

Apple also said it would buy back up to $30 billion in shares on top of the $60 billion it already committed to repurchase by 2015. The company was pressured earlier this year by activist investor Carl Icahn, who wanted Apple to buy back $50 billion worth of shares this year. He dropped his proposal in February after saying Apple was close to fulfilling his requested repurchase target.

Apple also declared a dividend of $3.29 per share, an increase of 8 percent, payable on May 15. The company said it will tap the debt markets to fund the cash return.

The board also announced a seven-for-one stock split. Each Apple shareholder of record at the close of business on June 2 will receive six additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on June 9.

Apple split its stock three times in the past, with payable dates of June 15, 1987; June 21, 2000; and February 28, 2005. Those splits came after Apple’s shares crossed $100. In 2007, Steve Jobs was asked whether Apple was planning another stock split when the shares once again gained. He said no, citing Google and Berkshire Hathaway, whose shares hadn’t been split.

Cook, however, has taken a more investor-friendly approach, instituting the company’s first dividend and buying back millions in stock. From August 2012 through March 2014, Apple has spent $66 billion in cash on its capital return program. The dividend and repurchase bring Apple’s current capital-return program to over $130 billion.

Apple said on its investor relations website that it decided to split its stock “to be more accessible to a larger number of investors.”

Updated at 6:15 p.m. PT with Samsung declining to comment.

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