U.S. senators have accused Apple, the world’s most valuable company, of also being the world’s biggest tax avoider, as congressional investigators yesterday laid out how the technology giant has jumped through tax loophole after loophole in order to save some $44 billion of otherwise taxable income. Today they’ll follow up by grilling Apple CEO Tim Cook on Capitol Hill. Aside from the fact that Apple clearly has amazing tax lawyers, what does all this mean? Here are the four key things you need to know: 1. Corporate tax reform will be the big issue in Washington now that the deficit is off the front burner. As I wrote in back in January, American firms have some $2 trillion in cash on their balance sheets stashed abroad, in large part because they don’t want to bring that money home and pay America’s 35% corporate tax rate. (Ireland, where Apple apparently stashed much of its cash, has a 12.5% rate — though it appears Apple was able to negotiate an even lower one than that.) With unemployment still high, and wages still flat, the government wants companies to bring that cash back to the U.S. and put it work creating jobs at home – and the investigation into Apple’s finances is clearly a warning shot to other major U.S. multinationals. Tax reform is coming, not just in the U.S., but also in other major developed countries (more about that below). (MORE: Senate Panel Says Apple Uses Firms Outside the U.S. to Avoid Taxes) 2. Cash rich tech firms are replacing bankers as the new corporate bad guys. A year ago, I wrote a column called Learning To Hate Big Tech, which led with the investigation into Apple’s tax avoidance, but also laid out other Big Tech v. Government battles, like the push to get Amazon to pay local sales tax (which the government won) and the FTC’s anti-trust investigations into Google. The bottom line is that when you have a lot of cash and can move much of it abroad easily, as the biggest tech companies
Apple CEO Tim Cook gave a lengthy interview with Politico which was published yesterday, shedding some light on what he plans to say in his upcoming congressional appearance on Apple’s tax practices. There’s a hidden gem at the end of the piece, however:
And Cook is also promoting a $100 million investment in domestic manufacturing, where the company will begin producing a new version of a current Mac product later this year.
“We’re going very deep in this project,” Cook said, noting that not only will the final product be manufactured in the US, but so will many of its components. Arizona, Texas, Illinois, Florida and Kentucky are among the states he mentioned as having parts and assembly located.
Apple has made noise for some time now about moving part of its manufacturing back to the United States. Indeed, when our newly minted Senior Product Specialist Andrew Cunningham reviewed the latest 21.5″ iMac back in December, the computer sported an “Assembled in USA” badge on its foot. However, the 27″ iMac I purchased and reviewed the same month still claimed to be “Assembled in China.”
We first formally heard about Apple’s domestic Mac manufacturing at the end of 2012 when Cook talked about the endeavor with NBC News and Bloomberg. As Apple Editor Emeritus Jacqui Cheng noted at the time, built-to-order iMacs have occasionally been assembled in the USA, but the “Assembled in USA” iMacs marked the first time that “US-assembled, standard-configuration machines have begun appearing in people’s homes.”
Unlike his predecessor, Apple CEO Tim Cook doesn’t appear reluctant to face down a Senate subcommittee. He’s due to appear in Washington DC next week to testify at a Senate hearing on offshore profit shifting and he plans to directly address the concerns Congress is raising:
The Subcommittee will continue its examination of the structures and methods employed by multinational corporations to shift profits offshore and how such activities are affected by the Internal Revenue Code and related regulations. Witnesses will include representatives from the Department of the Treasury, the Internal Revenue Service, representatives of a multinational corporation, and tax experts.
The roles of “representatives of a multinational corporation” will be filled by Cook along with Apple CFO Peter Oppenheimer and Apple Head of Tax Operations Phillip Bullock.
The Senate subcommittee will be grilling Apple on exactly why the company keeps more than $100 billion of its infamous cash hoard in non-US banks. The accusatory undertone is that Apple is engaging in what the subcommittee will almost certainly characterize as tax avoidance (and Apple’s issuing of bonds last month to generate additional cash certainly isn’t going to help). But in a string of preemptive interviews with publications various and sundry, including the Washington Post and Politico, Cook appears unconcerned. Instead it sounds like he is viewing the congressional summons as a teaching opportunity.
It’s nice to see people in a power position in the valley give up their time for charitable causes. Apple’s CEO, Tim Cook, recently offered up his time for probably the most expensive cup of coffee ever, to benefit The RFK Center for Justice and Human Rights. The current top bid is a whopping $605K, and the auction ends in two days if you’ve got the cash to donate.
If the “Cook Experience” is a bit too rich for your blood, then you might be interested in hanging out with Twitter co-founder and Square CEO, Jack Dorsey. His recent auction, benefitting BUILD.org, gets you a full-on lunch with the man at Square’s office in San Francisco.
Whereas Cook’s auction took off with huge bids immediately, Dorsey’s hasn’t quite gotten off to the same start. There’s only one bid right now, and it’s for $5K. Sure, Apple is a company with more mainstream appeal, and a visit to the offices in Cupertino does sound fun, but Dorsey came up with Twitter. That’s worth at least $100K, right?
All kidding aside, the BUILD organization is doing great things for entrepreneurs, stating their mission as: “…to use entrepreneurship to excite and propel disadvantaged and disengaged students through high school to college and career success.” Here’s the pitch for Dorsey, whose auction ends in four days:
Learn from one of the most successful entrepreneurs of our time, Jack Dorsey, as you and seven of your closest friends sit down to lunch with him at his newest business, Square, headquartered in San Francisco.
At the end of the day, this is a great way to raise money for charities, but the winning bidders probably have a plan as to what they’d like to get out of the meetings. It would be interesting to get to talk to the person who meets either Cook or Dorsey, so if you’re that person, definitely reach out to us. Even if it’s under strict NDA…which would be nice to know, too.
If you score the Dorsey lunch, you can even bring seven of your friends. Maybe you’ll even get invited to cameo in one of his infamous Vine selfies:
Apple has published a letter to Chinese customers—signed by CEO Tim Cook—that addresses the building controversy over the company’s warranty policies. Posted to the Chinese version of Apple’s website on Monday, the letter (Google translation) discusses changes that Apple plans in China to offer better customer service. In addition to a clear statement on Apple’s website regarding its repair and warranty policies, Apple also plans to increase training for its staff and authorized resellers and plans to improve how it handles iPhone 4 and 4S repairs.
“We are aware that, due to the lack of external communication in this process, [it has led] to the speculation that Apple [is arrogant or does] not care or [does] not attach importance to consumer feedback. We express our sincere apologies for any concerns or misunderstandings this gives consumers,” reads a Google translation version of Cook’s letter.
The letter comes about a week after Chinese state media began its open criticism of Apple and its response—or lack thereof—to warranty complaints. The People’s Daily even ran a front-page piece calling Apple “arrogant” in dealing with Chinese consumers, saying Apple ignored customers and offered sub-par customer service. But China is such an important market to Apple—Cook won’t stop talking about Apple’s growth in China during every quarter’s fiscal call—that it’s no surprise Apple issued a public response.
Apple has reportedly engaged in talks over a “potential music service partnership” with Beats Electronics, according to Reuters. The report, published Wednesday, claims Beats CEO Jimmy Iovine met with Apple CEO Tim Cook and head of Internet services Eddy Cue in February to talk about Beats’ new music subscription service.
While it has long been rumored that Apple is considering its own subscription music service, it doesn’t appear that Apple is trying to partner with Beats. Rather, the meeting was reportedly “informational,” with the Apple executives interested in learning about the rollout plans and business model. According to Reuters, no deal was discussed during the February meeting.
So what, exactly, is the fuss if the two companies aren’t working together yet? Iovine claims to have pitched Steve Jobs on a subscription music service 10 years ago, but Apple wasn’t ready to pay enough to the music labels at that time. Apple executives Cook and Cue may be picking Iovine’s brain in preparation for a future offering from Apple.
Discussion of Mac sales may have been a bit of a yawner during Apple’s earnings call last month, but sales have reportedly picked up significantly since then. Piper Jaffray analyst Gene Munster obtained NPD’s retail data for January 2013 (hat tip to MacRumors) and said Mac sales were up 31 percent year over year—an increase he calls a “significant improvement.” The reason for the increase? Apple actually caught up (a bit) on its iMac supply during the month of January.
Apple announced its new, thinner iMac during a media event in late October, but didn’t make the first new iMacs available until the end of November. That was just the 21.5″ model, too—the 27″ model didn’t begin shipping until close to the end of December. At the time, it was mostly those who placed preorders who were receiving their machines; it was near impossible for regular Apple Store shoppers to find one for weeks after they began shipping.
Apple’s executives cited these constraints repeatedly during the company’s first quarter 2013 earnings announcement (Apple’s first fiscal quarter encompasses the holiday season and ends in January). Overall Mac sales were down by 1.2 million from the same quarter in 2012—partially due to a 13-week quarter instead of the previous year’s 14-week quarter—but the iMac alone was down by 700,000 units year over year. “As we projected a year ago, we were significantly constrained with iMacs,” said CFO Peter Oppenheimer during January’s earnings call. “We believe our Mac sales would have been higher absent those constraints.”
Running Apple’s board of directors without Steve Jobs around has been “weird” for its chairman, Arthur Levinson, according to an interview he gave at the Stanford Graduate School of Business Tuesday reported by CNN. Levinson stated that the Jobs the public knew was “not, for the most part, the Steve Jobs that I knew,” and that he feels Apple’s short-term earnings are not cause for concern.
Levinson called Jobs a “one of a kind guy.” Of attending board of director meetings since Jobs passed away in October 2011, Levinson said, “ I’m still not to the point where I walk into that board room and don’t miss Steve.” Levinson was a member of the board when Steve Jobs stepped down as CEO and recommended Tim Cook as his successor, per a plan that the board had previously established.
Levinson further stated that he didn’t feel Apple’s recent quarter was an appropriate indicator regarding the company’s long-term performance. He stated that there are “long-term signs of how a company is doing… whether or not Apple sells 47 or 48 million iPhones—let somebody else worry about that.”