Tim Cook to Apple investors: Keep calm and stop listening to rumors

Times are changing at Apple: its margins are down, its profits are not blowing away expectations anymore, and it’s also going to stop sandbagging its earnings forecasts. So Apple (s aapl) CEO Cook had to work harder than usual to comfort the legions of freaked-out Apple shareholders Wednesday, despite posting record revenue, iPhone and iPad sales.
He used his time on Wednesday’s earnings call a bit differently than in the past. First he started off the call offering a full-throated defense of Apple’s future and its “incredible product pipeline.” But most interestingly, he used the time to bat down the barrage of rumors about sinking iPhone demand and the conventional wisdom surrounding Apple’s need for larger-screened and lower-priced devices.

Ignore rumors

Cook likes the mystery that the Apple rumor machine brings to his company’s brand, but it’s starting to come back to bite them. Very rarely does Apple address specific rumors, but Cook did just that on Wednesday, in an attempt to swat down the idea that demand for the iPhone during the current quarter has decreased. He said:

“I want to take a moment and make a comment. I don’t want to comment on any particular rumor, but I’d question the accuracy of any kind of rumor about our plans. I’d stress that even if a particular data point were factual, it would be impossible to interpret [the meaning] for our overall business. Yields can vary, supplier performance can vary … there’s an inordinately long list of things that would make any single data point not a great proxy for what’s going on.”

Don’t get too excited about a 5-inch iPhone

When asked if he felt Apple had its bases covered on variety of screen sizes available for iPhone buyers, Cook appeared to put the kibosh on Apple making its own “phablet,” which has also been rumored. The iPhone 5 with its 4-inch display “has a larger screen size without sacrificing one-handed ease of use,” said Cook. “We put a lot of thinking into screen sizes and we believe we’ve picked the right one.”

We’re not focused on market share

“We’re not interested in revenue for revenues’ sake,” Cook said, when asked if Apple needed more price points to attract more iPhone buyers. “We could put the Apple brand on a lot more stuff, but we don’t want to do that.”
However, in what could be read as a hint of what’s to come, he allowed that Apple has used different price tiers before successfully. “We have a great track record here, of the iPod doing different products at different price points and getting reasonable share for doing that. I wouldn’t view those things as mutually exclusive as some might,” he said.
Does this mean Apple will consider applying the same strategy it uses for iPods, Macs and even the iPad mini for the iPhone? Cook left that very much up in the air.

China, China, China

Cook’s argument about the company’s potential for future growth revolves a lot around China. So he made liberal mention of the region. Apple very clearly wants investors to focus on the possibilities that Greater China (China, Hong Kong and Taiwan) provides. With “triple-digit” growth, it was Apple’s fastest growing region by far, Cook said. Not only are the company’s revenues in the region up (70 percent from the previous quarter), it’s opening more stores: five this year for a total of 11, with more to come. And the company is now breaking out Greater China revenue on its balance sheet specifically, to highlight its importance.
So how Apple is thinking about pricing, screen size and overall demand has a lot to do with how it sees China. As for whether Apple needs a lower-priced iPhone to compete with cheap Android manufacturers, particularly in emerging markets like China, it doesn’t sound like Apple is feeling the pressure just yet. Cook said he was “extremely pleased” with the response to the current iPhones available in the country.
Despite the attempts to convince Wall Street analysts that Apple’s future remains bright, Cook’s explanations appear to have fallen on mostly deaf ears. As of the time of this posting, Apple investors have sent shares down more than 10 percent in afterhours trading to around $457.
Apple’s been on an incredible run but its investors are very nervous that boom years are coming to an end. It’s becoming clear that Apple can’t just go quietly about its business of selling iPhones, and this isn’t going to be the last time we hear Apple’s leaders have to make the case for the company’s success beyond what’s on the balance sheet.