CFO Luca Maestri discusses Apple R&D, potential of 'Spaceship' HQ as tourism draw
In an interview this week, Apple's Chief Financial Luca Maestri addressed questions regarding Apple's research spending, a possible import tax as part of a larger reform package, and the new Apple Headquarters as tourist attraction.
Maestri spoke at the Goldman Sachs Technology and Internet Conference on Tuesday, where he commented at some length about Apple research and development, saying that with a wider product portfolio, comes a larger R&D obligation to support those products. However, a good portion of the budget comes from developing solutions that other companies might have to buy elsewhere.
"Today, we do much more in-house development of some fundamental technologies than we used to do a few years ago, when we did more of that in the supplier base -- the work we do around processors or sensors," Maestri said, regarding Apple's research and development budget. "It's very important for us because we can push the envelope on innovation, we can better control timing, cost, quality. We look at that as a great strategic investment."
"Very hard for us to imagine that a border tax would be good for the US economy, because it would burden the consumer and the dollar would appreciate versus where it is today, which is already too strong," Maestri said about a potential import tax suggested by the Trump administration. "It doesn't yield a positive outcome."
As proposed by the Trump administration, the effective taxation on a $700 iPhone manufactured in China rises from a current $98 to $140. Minus an expected dramatic increase in manufacturing cost if production shifts to the U.S., the same phone's taxes built in the U.S. would drop to $56.
"When you combine our download model with our streaming service, which comes from Beats acquisition, [Apple Music] is clearly gaining traction. With thecombination of these two businesses, we are clearly the number one in music," Maestri said. "We've got a long association with music and it's oneof the most importantuse cases for customers on our devices. We really want to provide the best popular offering and we think we're actually doing that."
"We feel very good, it was the best quarter we ever had," Maestri said, reiterating previous remarks made during the most recent quarterly investor's report conference call. "We could have sold more, to be honest. We think it's a great platform to innovate on. It's early stages, but we feel very very good about the momentum."
"The new campus I really think is going to be come a national landmark. I think there's going to be a lot of interest from tourists, and we need to figure out how to manage that," Maestri said. "This is really Steve's vision for the employees. We think it's going to be a great place for our employees to innovate for many, many years to come."
Maestri declined to give a date for the shift, but noted that the recent rains in California were responsible for a delay of a few weeks.
Apple is hosting a replay of the entire interview.
Maestri spoke at the Goldman Sachs Technology and Internet Conference on Tuesday, where he commented at some length about Apple research and development, saying that with a wider product portfolio, comes a larger R&D obligation to support those products. However, a good portion of the budget comes from developing solutions that other companies might have to buy elsewhere.
"Today, we do much more in-house development of some fundamental technologies than we used to do a few years ago, when we did more of that in the supplier base -- the work we do around processors or sensors," Maestri said, regarding Apple's research and development budget. "It's very important for us because we can push the envelope on innovation, we can better control timing, cost, quality. We look at that as a great strategic investment."
Cash repatriation, and tax reform
Apple is also possibly facing a big decision, regarding if it wants to manufacture future products in the U.S., and if so, how many. As part of a cohesive tax reform package including cash hoard repatriation regulations, President Donald Trump is proposing new tariffs, attempting to encourage businesses to migrate manufacturing back to the U.S."Very hard for us to imagine that a border tax would be good for the US economy, because it would burden the consumer and the dollar would appreciate versus where it is today, which is already too strong," Maestri said about a potential import tax suggested by the Trump administration. "It doesn't yield a positive outcome."
As proposed by the Trump administration, the effective taxation on a $700 iPhone manufactured in China rises from a current $98 to $140. Minus an expected dramatic increase in manufacturing cost if production shifts to the U.S., the same phone's taxes built in the U.S. would drop to $56.
Apple Music as part of the whole
A big driver of Apple's profits is the new Services category, spanning not only the App Stores, but Apple Music as well."When you combine our download model with our streaming service, which comes from Beats acquisition, [Apple Music] is clearly gaining traction. With thecombination of these two businesses, we are clearly the number one in music," Maestri said. "We've got a long association with music and it's oneof the most importantuse cases for customers on our devices. We really want to provide the best popular offering and we think we're actually doing that."
Wearables as the future
Maestri spoke bullishly on Apple's wearables segment, and grouped in the AirPods, Beats, and Apple Watch in amongst them. The CFO feels that wearable technology will see a lot of interest from Apple in the future."We feel very good, it was the best quarter we ever had," Maestri said, reiterating previous remarks made during the most recent quarterly investor's report conference call. "We could have sold more, to be honest. We think it's a great platform to innovate on. It's early stages, but we feel very very good about the momentum."
Apple HQ as tourist attraction
Concluding the interview, Maestri was asked about the new Apple Headquarters, and when the company was expected to move to the new buildings."The new campus I really think is going to be come a national landmark. I think there's going to be a lot of interest from tourists, and we need to figure out how to manage that," Maestri said. "This is really Steve's vision for the employees. We think it's going to be a great place for our employees to innovate for many, many years to come."
Maestri declined to give a date for the shift, but noted that the recent rains in California were responsible for a delay of a few weeks.
Apple is hosting a replay of the entire interview.
Comments
While yes I think Apple's Campus 2 is primarily for its employees and I think it will greatly benefit Apple to have a large majority of its team in one building, I think it would also be really nice if they could find a way to somehow have the public visit. I fully realize people may not be able to visit the entire building and certain parts of the campus should be off-grounds to the general public, but I just think it would be really cool to see.
If they cared about tourists, they could have built an "Apple Museum" in some corner of the campus and included some state-of-the-art VR experience about Apple's history or design/manufacturing process, but even Jobs used to put down the idea of an Apple Museum because he said he never wanted to look back - he only wanted to look forward.
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While I have no insight into who is moving to the new campus and who isn't, my understanding is that the intention is for Apple to give up all the external leased space around Cupertino and consolidate everyone into either Campus 1 or Campus 2. And my experience has been is that sometimes it's better to be "living" far away from senior management, so some people may prefer to stay in Campus 1. Also, since Campus 1 is smaller, I bet it's more accessible and easier to do things like go out for lunch. I bet that's near impossible on the new campus - by the time you get to your car, it would be time to come back. I still predict big traffic jams in and out of Campus 2, but I guess we'll see the reality soon enough. It will be interesting to see how employees feel about the new campus once they arrive and begin working there. Sometimes, it's the subtle things that can make or break a workplace experience.