Apple Computer Inc. on Thursday held its annual shareholders meeting at the company’s Cupertino, Calif. headquarters, which saw the nominees for the Board of Directors pass by a huge margin. Apple CEO Steve Jobs and members of the Executive Committee answered questions for almost 45 minutes ranging from overall company strategy to its plans on expanding its overall marketshare.
Jobs fielded many questions from shareholders including one that many Apple customers have had for several years: What steps are being taken so products are shipped in a timely manner?
“Sometimes it’s better to announce a product before it can ship in a timely manner, and sometimes it’s not,” said Jobs. “On occasion, we have large events where we are going to get lots of press, but the product isn’t going to be ready. Often times, it’s better to announce it at that event, get the press and ship it a month or later — hopefully not too much later.”
Jobs explained that sometimes when the announcements are made they believe the product will ship on time, but due to production difficulties, it doesn’t always work out that way.
“Engineering — if you’re innovating and not just shipping the same product everyone else is — isn’t just a science, it’s an art,” said Jobs. “Sometimes art happens on a schedule and sometimes it doesn’t. Part of what you pay us for is to optimize the decisions as best as we know how, when the world isn’t perfect.”
“We have 25 million loyal customers on the Mac. Our number one concern is, are they happy,” said Jobs. “The number two thing we are concerned about is growing that number of customers and the number three thing is marketshare.”
Jobs said that if Apple is growing its customer base but the market is growing faster, it is cause for concern, but it’s not their primary two concerns.
Tim Cook, Apple’s Executive Vice President of Worldwide Sales and Operations, asked shareholders to take into account the markets Apple was targeting in its business. Cook said the company’s education marketshare has gone up year-over-year from calendar 2003 to 2004.
Another important growth market for Apple has been the iPod. Cook indicated that Apple made a conscious decision to focus on growing iPod sales instead of reaching into the entry-level desktop computer market.
“We decided as a company that instead of going into the low-end desktop market, we would invest in the iPod business,” said Cook. “If you look at the marketshare on the iPod, it’s enormous.”
Jobs also pointed out that Apple doesn’t compete in the corporate desktop market, so when the overall market goes up, Apple doesn’t see the same amount of growth.
“Apple makes money selling personal computers; Dell makes money selling personal computers, but it’s hard to tell if anyone else in the entire industry makes any money,” said Apple Senior Vice President, Phil Schiller. “So you can ask yourself: would you rather Apple have Apple’s share of the personal computer market or Gateway’s? I would rather have Apple’s.”
Marketshare also caused a shareholder to criticize Jobs’ comparison of Apple and BMW: When marketshare numbers are released, the perception is that Apple has a small percentage of the market, even though they may have a large percentage of particular markets, like education.
People don’t avoid buying a BMW because they are worried about BMW’s marketshare, suggested Jobs. “Ultimately what we have to do is be successful,” said Jobs.
Jobs asked the shareholder, “What kind of car do you drive?”
“A BMW,” she said to loud applause and laughter.
Plant closing and international concerns
Apple recently closed its Elk Grove manufacturing facility in Sacramento, Calif. Cook said that most of the jobs went to other facilities in Southern California, and explained that the Sacramento facility was only making one product. By closing it down, Apple was able to save $3 million per quarter.
When a shareholder took Apple to task for what he perceived as a lack of focus when it came to growing its international business, Jobs said, “Your comment about [Apple] just worrying about the U.S. is just dead wrong.”
Apple ships localized versions of its products at the same time as the U.S. version in most cases, said Jobs, who added that Apple has online stores in many international markets. Jobs also pointed to Apple’s retail store in Tokyo Japan, as well as plans to open a second in Osaka and in London, England later this year.
“We pay a lot of attention to our international market because it accounts for a large percentage of our sales,” said Jobs. “I don’t know where your conclusion comes from, but it’s just wrong.”
Independent dealers remain very important
Thomas Armes, a shareholder and former owner of Cupertino-based Elite Computers, asked why Apple was putting independent resellers out of business.
In answering the question, Tim Cook said that 58 percent of Apple’s revenue came from the indirect market. “The indirect channel is very important to us and I don’t see that changing,” said Cook.
Jobs agreed with one shareholder that the Power Mac G5 has not met the sales expectations of the company. Jobs and Schiller said the company would have some “very intense marketing” initiatives in the coming months.
To more applause and laughter, one shareholder asked if Apple would put its innovation to work and make a voting machine for the state of California.
“We have no plans to do that,” said a laughing Jobs. “Hopefully they won’t base it on Windows when they do make one.”
Jobs responds to RealNetworks overture
Recent news about Real Networks proposal to Apple drew a question from the crowd asking why Apple would not consider it.
Jobs said that one of Real Networks business was a music download business that competes with iTunes. Looking at the weekly sales, Jobs said it wasn’t worth it because of the ongoing development it would take to make the iPod support their store.
“Their music store has been less than a success, so far,” said Jobs. “To be honest, it’s just not worth it. This is not the first request Rob [RealNetworks CEO Rob Glaser] has made, he has made many, but it doesn’t make any business sense.”
Jobs went on to talk about Apple’s retail stores and their success in the market. Apple is investigating whether they have the fastest growth in retail history, going from $0 to $1 billion. The old record was held by Gap Inc. subsidiary Old Navy, but Jobs said even Millard “Mickey” Drexler, retired Gap Inc. CEO and current Apple Board member, believes Apple beat Old Navy.
The business of the shareholders meeting
There were three proposals put before shareholders on Thursday. The first was to elect Apple’s Board of Directors including William V. Campbell; Millard S. Drexler; Albert A. Gore; Steven P. Jobs; Arthur D. Levinson; and Jerome B. York. According to early proxy tabulation, all members of the Board of Directors were approved by 82 percent of voting shareholders.
The second motion, which was to ratify KPMG LLP as independent auditors for the fiscal year 2004, passed with the required number of votes, according to Nancy Heinen, Senior Vice President, General Counsel and Secretary at Apple, told shareholders.
The third and last proposal was put forth by a shareholder group asking that the Board of Directors and the Executive Compensation Committee replace the current system of compensation for senior executives with a Commonsense Executive Compensation program.
“As long-term shareholders, we are concerned that compensation paid to senior executives at most companies, including this one, is often excessive,” said Michael D. Lacy of the United Brotherhood of Carpenters Pension Fund. Lacy revealed during the proposal that his organization currently owned 807,000 shares of Apple.
“We believe it is long past time for shareholders to speak out on what they consider to be reasonable and fair executive compensation,” said Lacy.
Ultimately, Heinen revealed that the proposal did not receive the required number of votes to pass.
Final counts of the shareholders’ votes would be released in due time, said Heinen.