Apple CEO Transition: Hardware, AI, China

21:59Caroline Hyde:Yeah, to John Ternus, a hardware guy, an engineering guy, Apple may be going for continuity in its choice of new CEO. But Tim Cook's left a lasting legacy and impression on the company that he ran for 15 years. Bloomberg's senior executive editor for tech, Tom Giles, is with us. And that's what we've been reflecting on, Tom. You know, you can measure it in a number of ways. One, when Tim Cook became CEO, Apple had a market cap of$350 billion. It's breached the$4 trillion market cap mark. How else would we measure the era that was Tim Cook as CEO of Apple? So many ways. He oversaw such a massive expansion in terms of their footprint, in terms of where they operate and how deeply they penetrate markets like China, for example, based on a foundation that he really laid in terms of bringing Apple into China and expanding it there in terms of the number of stores, the number of products.

22:57And it's just its reach at a time when other U.S. companies, most other U.S. big tech companies, save Tesla, could not make any headway in that country. Massive legacy. Other numbers to think about. 8x increase in profits over his 10-year. A massive increase in the number of stores to 540,$3.66 trillion in market cap, as you alluded to earlier. And that's just a testament to the ways that he really made Apple so much more interwoven into our everyday lives. jam-packing the iPhone with more features, and then adding peripheral devices like the watch and like the AirPods, not to mention expansions in things like the Mac and the iPad.

23:50It was just a matter of really expanding Apple's reach geographically and deeper and deeper into the lives of consumers around the world. Tom, like more than two and a half billion active devices, but not many of them are the VR headsets. And certainly none of them ended up being a car. There have been a couple of missteps along the way. Absolutely. There were things that Apple spent a lot of time and money on. The car you mentioned,$10 billion over 10 years. They gave it a college try and it never quite came together. The Vision Pro, as you pointed out, has not taken off. And that's one that will not go down in the annals of his great success stories.

24:36But so many other things did take off, like the watch, like the AirPods. My own personal view on the AirPods, I remember the early versions. They looked like earrings. They weren't my cup of tea, but now I am completely hooked on them, left the cords completely behind. That's just one small personal example of the ways that, you know, the expansion and the ways that Tim Cook introduced products that won over even the skeptics. like me. But have your kids, the Gen Zers, left the cords behind? That's the question, Tom Giles. We so appreciate it. We're glad you took one of the AirPods out to join us today.

25:10Now, in choosing Ternus as Cook's successor, the iPhone maker is stressing that its future remains in that hardware like the AirPods. But according to Bloomberg opinion economist Dave Lee, that means the incoming CEO is inheriting a big gamble. Dave, pleased to say, sits next to us here. Why is it the gamble in this age of AI?

25:27Caroline Hyde:Well, look, when you put Apple alongside the other big tech rivals, Google, Amazon, Meta, their spending on the AI revolution, in Apple's case, is very, very small, magnitude smaller. And, you know, depending on how you look at it, either Tim Cook's been pretty restrained there, quite shrewd and saying, you know what, maybe we don't have to invest so much in that just yet, or Apple's hopelessly behind. And when all these data centers start coming online, Apple's going to be more vulnerable for it, particularly if some of these AI applications get put in the phones that aren't the iPhone and other devices that aren't Apple.

26:04Caroline Hyde:I see it personally, you know, the hiring, the promotion of John Turnus, it's Apple saying, look, the thing we do best is hardware. And, you know, I think if you'd have asked analysts two years ago whether or not Apple hadn't much AI by now, they'd have said that would have been a disaster. But look, the iPhone's never been stronger. When people use the latest AI tools like Vibe Coding, They use a MacBook to do it. Mac minis were running on shortages because people were using that for authentic AI. Apple is still the device of choice. And I think that's what Apple is saying here. They're saying we need to carry on being that company whilst working in some of these new technologies as well.

26:40Caroline Hyde:The other kind of peripheral piece of your column that's so interesting is you capture the kind of role that he's played in development. and so you talk about ambient computing i'm talking john that is he you know he's kind of like gone through the development cycle of products that are the new way people interact with software not necessarily the iphone but then you talk about chronology june we have wwdc tim cook will still be there september and into the fall that's iphone season and and you are basically billing this as his on stage moment yes all around the iphone explain the thesis i suppose yeah i I mean, look, one of the questions about Tim Cook moving on was going to be the timing, right?

27:23Caroline Hyde:If you see Apple as vulnerable in some ways, the timing could have been difficult. By announcing this now and saying that John Turner's will take over in September, his first real public introduction to the wider world, I mean, he's well known in technology but to the wider world, he's going to be standing on stage saying, here's the new cycle of iPhones. And around that time, we're expecting if Bloomberg, as Bloomberg's already reported, that there'll be a folding iPhone as well. So John Turnbull is going to have this great moment where he can say the new era of iPhone is here and I'm the guy in charge that's going to be ushering it in.

27:56Caroline Hyde:I think that's very, very important for Apple investors to associate John Turnbull with this new era. One of the things that Tim Cook is going to continue to do, which I also think is very important, is that he seems to be retaining this role as the kind of chief diplomat. We saw Donald Trump talking about some of that in his social media posts. It would be quite smart for Apple to separate those two functions. John Turnus is the man. He's running the company. He's fully focused on doing that. Tim Cook can deflect some of that attention and be the man who turns up with Tim Cook in the Oval Office, doing all those things that Apple, I think, would prefer not to be doing at all, frankly.

28:30Oh, Tim Apple. We haven't said that line yet. And you call it John Apple in your piece. And how is it in this uncharted territory of supply chain? And when you think about some of the new innovations that Mark Gurman so well spells out for us that are likely on their line, I mean, we've got, you know, maybe a robotic future, maybe at least a video TV that moves around with you that you're able to do the calls on. This is going to be AI integration. How much is John going to be at the heart of that supply chain chain?

28:55Caroline Hyde:Well, that's his entire resume, right? It's in building some of these new products. We know that he's been across every major product line. I think AirPods, as Tom was mentioning just a moment ago, you know, if ambient computing is the new interface, if screens play less of a role in our life, The product that's already in millions of years around the world is the AirPods. And so, you know, I do think there is this perhaps overstatement of how vulnerable Apple is to AI because it's hardware, it's just got such an incredible reputation. And whereas Steve Jobs' innovation was perhaps an individual product, particularly the iPhone, Tim Cook's innovation was in building those products and getting as many of them built as quickly and to the incredibly high standard.

29:33Caroline Hyde:When you have a company like OpenAI saying, we're going to make an AI device. Got Johnny Ive. It's going to be designed by Johnny Ive. And doing that in small numbers, sure, that's a doable task. I think making hundreds of millions of them and competing with Apple, I think it's much more difficult to do that than it is for Apple to learn how to add AI to its devices. Dave Lee, Bloomberg Opinion columnist, thank you very much. As Apple enters a new chapter under CEO John Ternus from September 1st, all eyes are focused on what that means for Apple's future hardware cycle. Nabila Popal is Senior Research Director at IDC and joins us now.

30:07Caroline Hyde:Now, when you come on this program and we talk about the outlook for handset sales and we're zeroed in on the iPhone, the only question for you is whether a change in CEO from Tim Cook to John Ternus changed your outlook for how the iPhone and future generations of the iPhone will do this year and beyond. Thank you for having me. No, that's a great question. And, you know, I would say, and I think as many others, right, that John Turner is the perfect choice to take Apple into the next era. I mean, like you said yourself, he's a products guy. He's a hardware guy. And, you know, I think it's just taking Apple full circle, right?

30:46When Tim Cook took the reins from Steve Jobs, he was taking the reins from a products innovation, like legend, right? And everyone questioned that choice, right? that, okay, how will Apple survive? And, you know, Tim Cook being a supply chain operation guy, and we know what Tim Cook has accomplished at the U. You know, we've all discussed in terms of how much he added, you know, growing market capitalization tenfold, growing Apple iPhone ASP by 30 % from$700 to$1 ,000 plus, and tons of other, you know, accomplishments, expanding especially Apple's ecosystem. But he couldn't have done all of that, you know, much more, of course, without really having those range.

31:24You can't become a global company. without controlling supply chain operations. So now that that all has been accomplished and kind of in smooth play, it's just coming with John Ternus' appointment. It's bringing Apple back full circle, back to the products guy, right? Who will leverage his engineering and hardware expertise. And he's already had his hands on being the chief architect or being involved in many of these products. But taking Apple to the next level, the next big iPhone-like innovative product into the next era. So I'm really excited.

31:55Caroline Hyde:We're looking at the image that Apple published of John Ternus with Tim Cook taking a walk on Apple Park Campus Cupertino. What's the environment that this transition takes place in? You give an annual forecast. You talk about the macro factors that are impacting the smartphone market right now. What is it that John Ternus is taking on? definitely he's got big shoes to fill right given everything that tim cook has accomplished in his tenure you know but but he's young he's at 50 he's got a long you know runway ahead of him and i think the most prominent challenge right now aside from coming up with that big innovative product is to navigate apple through this uh memory shortage and supply you know crisis which is again, you know, a very kind of up the alley of Tim Cook, right?

32:47So that might be the question that, okay, how is John Turner's going to navigate that? And Apple's already proved to investors, to consumers, to anyone in the industry that despite what's already happening, because this is, you know, this is not memory crisis, it's something we're in today. And wherefore, Apple had, was one of the few companies in the top five to show positive year on year growth in Q1. And And we expect Apple to be probably best positioned this year to gain share. But you wonder if this changes leadership will impact that stronghold. But having, and the other concern I had earlier when we were talking about John Turnus as the heir apparent, is how will he navigate geopolitics, right?

33:29How will he do play that balancing act that Tim Cook has done so perfectly over the years, taking Apple through the pandemic or the terrorist crisis, getting so many exceptions for Apple, if not the entire smartphone and consumer devices category, right? So how will any other CEO manage that? So I think they solved that puzzle perfectly with keeping Tim Cook on as executive chairman to still balance that and handle that. Can I jump in on, give us how much John Turnus has already shown that sophistication when it comes to its own supply chain. It was through his navigation that, while Apple's still in control of their own chips.

34:05He had to make that move, right, and help weave and navigate from Intel to homegrown. Absolutely. And that not only helped in terms of bringing, you know, excellent products with better performance and efficiency, but also really helped, you know, margins, right? When you were, as a company, having access to your own supply chipset, it's just, he has already proven himself, which is why he's won the confidence of the board, which gave him a unanimous vote to put him in this new leadership position. And also investors, right? And we've already seen Apple put him in the leadership seat with leading the launch of the MacBook Neo, which again, I think he had a chief role in, right?

34:52Bringing, using, leveraging smartphone chip into that and bringing that in the price point that no one ever thought that a premium, you know, Mac, premium-like MacBook would be available. And they're going to break another few records in that category as well this year. And he was integral in design of iPad, for example. Nabila, push us forward. 15 years, that's too hard probably. Five years. Does market share remain the same for Apple if guided well? Absolutely. If not, I think Apple is already well-positioned to grow. They will see a few points share growth, both in the PC category, thanks to the MacBook Neo, as well as in the smartphone category, because of its continued push and premiumization and really perfect timing.

35:33I think the memory crisis is probably, it's bad news for everyone, but it just miraculously, again, works out in Apple's favor. So I think five years down the line, especially with the new products that are on the table, right? We've talked about what the rumors around Apple, the glasses, whatever they're going to be called, with an iPhone fold that is coming out as soon as the reins are handed over and that's going to fall in John's tenure, right? and other products and robotics and tabletop robotics, whatever those products entail. So definitely in the old consumer devices space, Apple is very likely to continue to gain share and be a market leader.

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38:34Caroline Hyde:Welcome back to a special edition of Bloomberg Tech. We are near session lows on Apple. Last night when news broke that Tim Cook would be stepping down as CEO on September 1st, becoming executive chair, and that John Ternus, the hardware chief, would be taking on the CEO role, there was this muted reaction. Apple hardly moved. Its suppliers hardly moved. We are three hours or more into the session. And with time, investors are digesting this. The stock underperforming. It is down almost 3 % while major indices are flat. But people have had time to read Bloomberg's reporting, read the analysis and make up their mind on what this means, Cara.

39:12Yeah. And meanwhile, we delve more into what it means because Apple's post Tim Kukira signals a strategic continuity over disruption. Bloomberg Intelligence analysts say they expect Apple to focus on its core ecosystem. For a look at the road ahead and the massive shoes Ternus now has to fill, especially in China, BI's Anurag Rana joins us now, who's one of the first out the gate with this take. And Anurag, consistency, what does that mean in terms of Ternus being able to drive the supply chain that in many ways Tim Cook has still navigated and will do as exec chair? Yeah, I think this has been his legacy, the supply chain.

39:48It is really remarkable for a company to maintain margins this high, despite everything that's going on from tariffs to memory prices, etc. I mean, he's done a phenomenal job. Last night, I started to look at returns and look at them from the day he took on until yesterday. Compounded annual growth rate of over 24 percent and S &P over that time period is at 15 percent. So massive outperformance on that end. It's done a phenomenal job of creating an ecosystem. Some will say that services is the future of Apple, but in our view, the services is nowhere unless you have the devices that drives the ecosystem.

40:28So from our side, I think this basically says Apple at the heart is a hardware company

40:33Caroline Hyde:and will remain one of those. So let's be more specific about that. You write in your research that Apple could even sharpen its hardware strategy. What do you mean by that? What would that look like to you? See, one of the biggest complaints that we have heard for almost a decade now is that there is no real innovation in the iPhone, for example. It is still the same. We haven't even seen a foldable device come out at this point compared to Samsung, who's launched it several years ago. So you can anticipate that if your heart is really in hardware, you're going to have a lot more focus in that area.

41:04We saw that with Microsoft and Satya. When Satya came on, cloud was at the center of his older job, and that really made the biggest difference. And in fact, that has been the primary growth driver for Microsoft. So we anticipate a lot more work to be done on the hardware side and see what he does with it. Talk about a foldable phone. We talk about how AI is going to be adopted. In many ways, it's a black eye that they're having to turn to a key rival to Google for the underpinnings of Siri. But how do you think John Ternus really thinks about that integration and becoming more self-sufficient in the future?

41:39Yeah, but they turn to Google for search. I mean, why not go to the provider that has the best technology? So right now they think Google, Gemini has the best model. They're going to use it in their own models. On top of that, they're going to allow Siri to tap into any AI network that's out there. I think at this point, with models changing so dramatically, you don't want to be basically bound by one ecosystem, whether that's Anthropic, Gemini, or OpenAI. You do want to have the flexibility for your users to tap into any LLM of what they want. And I think that's what Apple's done. Look at their capex.

42:13I mean, it's 3 % of revenues compared to Microsoft, which is now over 40%.

42:18Caroline Hyde:Bloomberg Intelligence is Anoreg Rana with the key React research on the Bloomberg terminal. You should read it. Anoreg's been at this a long time. Thank you for joining us on the special show.

42:33Caroline Hyde:What a day, what a story. Apple shares, after a few hours of the world digesting the news that Tim Cook is stepping down as CEO and John Turner steps in as CEO effective September 1st, the stock is down more significantly. But it took a while. It took a while for the digestion to go on. And really, the optimism is still among the analyst community. We've got 40 buys on this stock, just two sells, and many still thinking that this is a continuity play. But there is an element of risk here. is we see Tim Cook go up to more of a political role, more of that diplomatic role. We're up by 2.5 % is the worst day of the month.

43:06Caroline Hyde:The big headline is that after 15 years, he steps back as CEO. But the other big story is that he has a new role, executive chairman, where he is focused on policymakers. And the president of the United States posting on True Social in response to this news is pretty telling, right? There's a lot of love for this guy. An amazing career, he says. An incredible guy. I mean, there is a lot more to this post. Some of it's what makes light of the fact that he once called him Tim Apple, of course, which many will forever remember. But here is someone who's managed over two administrations of Trump to really navigate what are some really difficult headwinds.

43:42He's managed to expand out supply chain, India, Vietnam, but still very dependent on China and still something he has to work upon as executive.

43:49Caroline Hyde:And the net result was Apple committing$600 billion to the United States over four years. Let's bring up the image of outgoing CEO Tim Cook and incoming CEO John Ternis. The timing was a surprise. Same, same, but different. This is what Apple published, by the way, this photo. But it's a surprise because Apple just celebrated 50 years. And in a number of interviews, Tim Cook kind of indicated he wasn't going anywhere. But the fact that John Ternus was heir apparent, not a surprise as it was detailed in detail by Bloomberg News. Yeah, a month ago, March 22nd, Mark Gurman puts out the thought leadership piece about how John Ternus is now having his time in the spotlight, introducing new categories of product and a man who's going to be developing and giving us all to the world a lot more of them to come.

44:32Caroline Hyde:He's a hardware guy. He's an engineering guy. And he's the continuity candidate. And we're still trying to work out what happens in the next era of Apple. That does it for this special edition of Bloomberg Tech. Check out the podcast. You know where to find it online on the terminal. From New York City, this is Bloomberg Tech. If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But even the best strategies can't prevent every bad day. For more than 75 years, Cincinnati Insurance has helped individuals and businesses navigate tough moments with expertise, personal attention, and independent agents who focus on relationships, not transactions.

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