Tim Cook Sat Out the AI Race — Will the New CEO Pay the Price?

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2:02Welcome to Prof. G Markets. I'm Ed Elson. It is April 22nd. Let's check in on yesterday's market vitals. The major indices declined as Iran talks stalled around market close. Trump announced the ceasefire was extended indefinitely and the blockade would be maintained. Brent crude rose and treasury yields climbed as Federal Reserve Chair nominee Kevin Walsh testified before the Senate Banking Committee. During the hearing, Walsh called for reforms at the Fed, suggesting he'd make changes to the agency's inflation models and communication style. He also dodged questions about Lisa Cook and the Jerome Powell probe and declined to acknowledge that President Trump lost the 2020 election.

2:45Still, regarding Fed independence, he said, quote, the president never asked me to predetermine, commit, fix, decide on any interest rate decision in any of our discussions, nor would I ever agree to do so. Okay, what else is happening? After 15 years as CEO of Apple, Tim Cook is officially stepping down. During Cook's tenure, Apple's revenue almost quadrupled and its market value increased by about$3.6 trillion. On September 1st, Cook will be transitioning to the role of executive chairman and he'll hand the CEO reins to John Ternus, Apple's head of hardware engineering. Ternus has spent 25 years, half his life at the company, overseeing the hardware behind every major Apple product.

3:34The transition marks the start of a new era for Apple, with plenty of unanswered questions about what comes next. So, here to discuss what this moment means for Apple and for the future of this company, we are joined by a panel of experts, Patrick McGee, award-winning journalist and author of Apple in China, the capture of the world's greatest company, and also Tripp Mikkel, tech reporter for the New York Times and author of After Steve, How Apple Became a Trillion Dollar Company and Lost Its Soul. Patrick, Tripp, thank you very much for joining us on Prof G Markets. So Cook is departing, Ternus is taking over.

4:15I want to start with a look at Tim Cook and his career. Patrick, I'll start with you. Tim was CEO for 15 years. I mean, when we look back at this, what will we say about what he did for the company? What will the history books of business say about his legacy at Apple? Well, you're already thinking about it the way I think about it. I mean, look, I think if you're looking at it from 2026, it is hard to fault this guy. As you said, $3.6 trillion added to Apple's market cap. You know, he clearly fulfilled whatever tasks Steve Jobs set him out to do. His role was not necessarily to come up with breakthrough products.

4:53It was to iterate what Steve Jobs had already come up with on a global scale. He squeezed every penny that was really available in the supply chain. He built up services. He put Apple into new areas like Apple TV and a host of things like that. He's getting$20 billion of profit per year just out of the Google relationship, right? Just sort of using the user base in Apple's favor. So, I mean, all kinds of things. But what you're pointing to is where will we see this 10 years from now? And that to me is the most interesting question because, you know, Ben Thompson of Stratechery has put this with a nice metaphor.

5:27He sort of laid time bombs for the next CEO, which is to say the China risk could really blow up. And we can go into more detail there. And he's not invested really much at all into data centers for AI. That might be the right move, but if it turns out to be the wrong move, Apple would be years behind the companies that people have been fawning over the last few years with appropriate acclaim. Yeah, we will definitely get to China and we'll definitely get to AI. Trip, I just want to get your initial reactions. What do you make of Tim Cook stepping down? How do you think he'll be remembered? Patrick's right.

5:58We can make a call today on how he's done over the past 15 years and say, clearly, he'll be remembered today as the most successful successor to an accomplished executive, to a founder. I mean, what Tim Cook did is rare, whether you're talking about the world of business or sports or even politics. If you have somebody who's kind of a figurehead in the same way Steve Jobs was, seldom do you have somebody come along behind them and continue or sustain that success. I mean, you know, if you're a college football fan, nobody followed Bear Bryant for decades until Nick Saban came along, right? Like you skip generations.

6:42And Tim Cook, he wasn't amiss, despite what people thought out of the gate. But there's another question about Tim, and that's based on the lack of new products, right? I mean, Apple is still really living off the iPhone and off the products that it stitched onto the iPhone that have made the iPhone stickier than even it was when it was first release. And the question will be whether or not it runs out of momentum eventually and whether or not his successor can succeed in innovating again and delivering a new product that potentially adds to the company's prospects for the future. I mean, when we look at what he did well, it's easiest to just start with the numbers where he took a$350 billion company and turned it into a$4 trillion company.

7:30He increased revenue 300%. He increased profits 350%. But when we look at, like, the decisions that he made and the things that he actually did to achieve those numbers, Tripp, what do you think he got right? Like, what were his big wins over the course of his career? And then we'll return to what the future will look like. But what do you think he got right? There are two signature things that I think he did that really changed the trajectory for Apple. And the first was striking a China Mobile deal two years after taking over as CEO of the company. He'd spent a long time working on that. It changed Apple's trajectory in China.

8:13It unlocked the iPhone in China and turned China not just from a market that made and produced the iPhone, but it turned Apple into a company that really captured sales from the rising middle class in China. And that's really become a bedrock of their business. And also, to Patrick's point earlier, it's a precarious part of their business as well because of the geopolitical circumstances and the adversarial relationship today between the U.S. and China. And then the second thing he did was he looked at the iPhone and he said, okay, well, how do we make more money off a product that now is in the pockets of a billion people around the world?

8:54And he leaned into services in 2019 and made that a focus of the company's business. He launched new services that drew attention to that, including like TV Plus and, you know, a credit card. He elbowed Apple into new areas so that it can make more money just because of the sheer heft and the number of people who own the iPhone. Yeah. Patrick, I'd be curious to hear if you have anything to add on to that and potentially. But my follow up is what do you think he got wrong? Yeah, no, the getting wrong stuff is obviously more interesting. And I suppose maybe I would point to two things. One, there's just like the clear failure.

9:37So, you know, they worked on an Apple car for 10 years and then abandoned the project. I honestly hem and haw about whether or not one should point that out as a major disaster. Tim Cook's line about it was that we like to fail internally. And honestly, I can respect that. They put a lot of engineering talent into it and at the end of the day decided not to do it. I don't know that we should hold his feet to the fire for that. You know, but it's worth thinking about. The other one is the Vision Pro. I mean, I did the Vision Pro demo and was in awe of this thing. Somehow convinced my spouse to let me get$3 ,500 to spend on the device.

10:09and after six days took it back. I was writing my book at the time. I thought this is going to be the first book ever written in the Vision Pro. And within six days, I realized this thing's useless. You can't have it on your head for more than 45 minutes. It's an engineering marvel, but it's basically a disaster as a product. And, you know, no pun intended, it lacks vision. I mean, that's Tim Cook. The engineering talent in the company can build a great product, but it doesn't have an ecosystem. I don't think Tim Cook's much of a partnerships guy. He's not really a win-win partnerships guy. He's an Apple takes all guy.

10:39And I think that really sort of came home when they tried to build this new platform Envision OS. Companies like YouTube and Netflix had no interest in building for it. So, you know, that's a failure. But the bigger one is I think the failures are more intangible. Trip will know as well as me. If you go find people that worked at Apple for 20 or 30 years, people who really understood the difference between the Steve Jobs era and the Tim Cook era, you know, there's just a lack of inspiration. There's just a lack of hunger. The people leading Apple all are worth hundreds of millions of dollars through their stock options.

11:13You know, they just don't have the appetite to take on major projects like they used to. And you'll have someone that comes out of Caltech with brilliant expertise. And what are they doing? They're doing the iPad magnets for two and a half years before calling it quits or something, right? It's just, it's a huge company. And I don't know, fundamentally, just the honest statement, I don't know if it's just the nature of a company that size or if it's Tim Cook's pedigree and risk aversion that just sort of makes the company a little bit dull, predictable and more like a utility than it ever has been.

11:44Yeah, I mean, I just elaborate on that. Yeah, please. You know, one of the things Patrick's getting at here, too, is that what Tim did over time was turn Apple into a juggernaut, a giant machine, right, where operations had a bigger voice in product development. And some of that was necessity, right? They're making 200 million iPhones a year. You have to make sure that you hit certain deadlines to be able to deliver those iPhones. But the rigidness of those deadlines closed some of the creativity possibilities for people who had once developed these products in a more nimble fashion. And that's locked them into the product lineup they have and, to Patrick's point, made it hard to be as innovative as they once were.

12:29And to people from the outside looking in, it's led to accusations that Apple's more uninspired. Is this part of the AI problem here? I mean, we talked about the fact that Apple is basically the only company that is not investing hundreds of billions of dollars into AI infrastructure. I mean, look at Amazon, its CapEx is expected to reach$200 billion this year. For Google, it's close to that,$175. And then Apple is going to spend only$14 billion. They're actually cutting their spending. is that i mean what what does that say about the company is that because they don't have vision or is it because they have discipline i mean what are we to make of that and and where is tim cook how does he play into that patrick so i think it's pretty nuanced because on the one hand apple would like to say hey we can just be the hardware engineering company someone's going to build out massive data centers, you know, if it's open AI, if it's cloud, fine, but they're going to use the iPhone to access it.

13:34And meanwhile, we'll actually collect 15 to 30 % of every subscription, you know, supporting that ecosystem. I mean, in that sense, it's brilliant. But the nuance there also is that Apple had the first mover advantage with Siri. Siri is pre Alexa, it's pre any of this by a decade, and they completely squandered the potential. So the question is just going to be, what sort of revolution is AI? And if you listen to Demis Asadis and Elon Musk and all these people, I mean, if they are almost like half right about how much potential there is here, that it's the biggest, you know, change to computing since the web, if not much larger than that, then it's a strange place to be for like the world's most iconic company that has this creative, you know, five decade history behind it to basically not be involved and just be a sort of passive vehicle for other people's AI systems.

14:27On the other hand, it's possible that, you know, they do just sort of ride this out, let every other company spend and just take the sort of Google partnership where they have, where like they are literally being paid to be the vehicle. And, you know, nobody really asks these days, why doesn't Apple have their own Google competitor? It's kind of a nonsensical question. And possibly AI is like that. And so I sort of hate to say time will tell, we just don't know. But I think that's the most honest answer. Yeah, Tripp, do you agree? Yeah, certainly. I mean, they took their eye off the ball in Siri, and that was never, you know, part of the business, a product that they prioritized.

15:02And therefore, they weren't really in a position to step into the AI race in a competitive fashion, because it just wasn't a muscle that they built up over time. And as a result, you know, they wound up in this position of getting scared internally about what AI, the threat AI posed to them. The fact that this could be a technological revolution that creates a new operating system that breaks up the kind of the connective tissue between iOS and the iPhone, that kind of software hardware experience that we're all accustomed to that's part of the iPhone's magic. They were scared by that. And so they threw out their best shot at developing AI and it just backfired.

15:45I mean, And they've kind of backed into this position of, you know, waiting and seeing what will happen, in part because they missed out of the gate with what they developed. And as Patrick said, that leaves them in this position of having to wait to see how it will play out rather than actually dictating on their terms what happens to their business in this AI race. Stay tuned for more of this panel after the break. And by the way, we are heading out on tour at the end of May. So for more info and to get tickets to a show near you, head to ProfitGMarketstour.com.

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20:04We're back with Prof G Markets. So, Tripp, let's talk about the new CEO, John Ternus. He's been the head of hardware engineering. He spent 25 years at the company. What do we know about this guy, and what do we think of him? Is he the right pick? I mean, John has been at Apple pretty much since the infancy of his career. He spent four years at a virtual reality company before he landed there, and he landed in an engineering role and quickly showed himself to be a good manager. He was just really good at working with colleagues, with people, and that is part of the reason that over time he was given more and more responsibility.

20:44He was put on a leadership track very early. And he's had staying power there, in part because he learned how to operate in Tim Cook's Apple in a way that helped him really shine. One of the anecdotes we heard about in our reporting was when Apple was looking at bringing facial recognition to the iPhone. And they were debating after they had done that whether or not to bring it to some future devices around 2018. And he argued they should wait in part because he didn't think people who would be buying those devices, it was going to be an augmented reality capability. He didn't think people who were buying those less expensive devices would gravitate to that technology.

21:30They should just wait, provide that to people who wanted early technology at a higher end price point and then provide it to other people downstream later. And that's kind of speaking Tim Cook's language. You know, it's a very tactical decision and approach to the marketplace. And those type of decisions are what helped him emerge as really the obvious candidate to secede, Tim. Yeah, it sounds like maybe he's got kind of a conservative approach, which seems like it was also Tim Cook's approach, too. Patrick, I mean, you wrote a book on Apple's relationship to China, and it seems as though China is a big part of the story now.

22:11I mean, their supply chains are incredibly entrenched in China. They have this huge consumer base in China. It also relates to the company's relationship to the president. I mean, there's all of this geopolitical crap that you have to deal with in that role now. It's not just about making cool products and selling them and talking about them on a stage with a turtleneck. What do you make of what his approach will likely be when it comes to China and also when it comes to politics in general? Like, what's on his plate here? So let me say one thing about John Ternus and then I'll come back to China.

22:48I was talking to someone yesterday who knows Ternus well and worked with them. And he said, you know, Ternus actually has more of an opportunity to be a cowboy here, meaning to shoot from the hip and to be a lot more playful, in part because the other announcement yesterday is that Johnny Shruji is becoming chief hardware officer. So that was a separate press release. Johnny Shruji is the guy who basically since 2008 has has been overseeing Apple Silicon. Apple Silicon is probably the biggest development at Apple in the last five years. So, you know, from I think the iPhone 4 onwards, they had displaced, you know, Samsung.

23:21and were designing their own chips for the iPhone. But since 2019, I think it is, they took over the computers as well. So Intel has been totally taken out. Apple has their own design chip studio that has sort of taken over and really put the competition on the back foot. They've even displaced Qualcomm in some of their chips and built that in-house. So major, major development. Shrooji was reported to be thinking of leaving last year. And so it's interesting that now he's being elevated into this position that didn't exist before because I think it tells you, it tells me, I mean, Tripp, I don't know what your spidey sense is on this or if you have direct reporting on it.

23:56But my sense is that that reporting was probably genuine and that the result of that is that, no, he's not the CEO, but he's now in the C-suite. So he's not just replacing Ternus as the hardware chief, he's getting an elevated role. And so what this person was telling me was that Ternus will have more leeway to be a cowboy with the understanding that Shruji backs him up and brings the rigor, cleans up whatever mess is made and so forth. So they might have this sort of dynamic duo quite element to it. Just to go with that, is that the right move? Does Apple need a cowboy right now? I mean, it sounds from what you're saying and for what Tripp said, I mean, Tripp's book is about Apple losing its soul.

24:35Maybe that's what the company needs. Well, I think Tripp and I are both these people who long for the days of, you know, the Apple just shocked the world with one more thing year after year. Who doesn't want that? And where I sort of get, you know, internally debating just myself on is, is that just pure nostalgia that has no place in today's Apple? Is the company just too big to really have that? And I don't know. I think within the confines of what Apple is, John Ternus sounds like the sort of guy who actually does, can take on a little more risk. Maybe within the Tim Cook organization, he hasn't been known for that.

25:15Certainly, he's not a risk taker in the way that Steve Jobs was, but I don't think he's so averse to it the way that Tim Cook really is. I mean, that's sort of a defining quality of Tim Cook, just how conservative, sort of calm and cool he is about it. So I love the idea. I don't know if this person is right, but they know Ternus and they say that, you know, he's sort of itching to do a lot more. You know, this is someone who plays with go karts and engineers them in his spare time, seeing if a titanium go kart is going to be better than the aluminum one that he has in his garage. That's just not Tim Cook.