What's next for Apple?
The following is a script from "Inside Apple" which aired on Dec. 20, 2015. Charlie Rose is the correspondent. Michael Radutzky, Andrew Bast and Glen Rochkind, producers.
Apple is one of the most interesting business stories in generations and it finds itself at the heart of some of the biggest issues facing American companies today: the way terrorists may be using encrypted technology to plot attacks, the battle over the corporate tax rate, and the challenges of working in China. We talked about all of that with Apple CEO Tim Cook as part of a journey through the world's biggest and richest company.
What is it that makes Apple so innovative and so profitable, and yet so secretive, almost obsessively secretive? Apple agreed to let us in, to an extent, beginning at the annual launch in September of Apple's new products.
[Backstage: Go!
Tim Cook taking stage: Thank you! Thank you! It's really been an incredible year for Apple.]
Tim Cook has been running Apple for the past four years, but for most of the 15 years before that...
[Steve Jobs taking the stage at a product launch event: We've had some real, revolutionary products...]
...the stage belonged to Apple's late cofounder Steve Jobs.
[Steve Jobs: We're going to make some history together today...]
Jobs transformed the computer from a cumbersome machine into perhaps the most personal and sleek consumer product of all time. The iPhone is 12,000 times more powerful than the original Macintosh, and next year it will have sold one billion units. Following Steve Jobs was one of the most challenging successions imaginable, a daunting responsibility for the man he handpicked --- Tim Cook.
Tim Cook: I've never met anyone on the face of the earth like him before. And it was a privilege--
Charlie Rose: "I've never met anyone on the face of the earth--
Tim Cook: No one.
Charlie Rose: --like him?"
Tim Cook: No one.
Charlie Rose: Not one person?
Tim Cook: Not one.
Charlie Rose: Who had?
Tim Cook: Who had this incredible and uncanny ability to see around the corner. Who had this relentless driving force for perfection.
The spirit of Steve Jobs hovers over Apple. He was a founder like no other: a volatile visionary capable of creating products people wanted before they even knew it. Cook is a measured and passionate engineer from Alabama. On the Apple campus, employees still talk about Steve Jobs in the same way that Tim Cook does.
Tim Cook: It's a bar of excellence that merely good isn't good enough. It has to be great. As Steve used to say, "Insanely great."
Charlie Rose: You believe you can do things other companies can't do.
Tim Cook: You do. You do. We all do. And we have. Fortunately.
It begins on the Apple campus at 9 a.m. every Monday morning at the executive team meeting.
Charlie Rose: I'm from 60 Minutes and I'm in search of the brains at Apple, and someone said go in this room and you'll find them.
Tim Cook: No, no, this is not the place.
Attendance is mandatory. If you are in this room you are one of the most important people at Apple. They wouldn't let us attend the meeting, but they were eager to tell us what they like so much about their company. That's Jeff Williams, officially named the new chief operating officer this week. That's Eddy Cue. He is the guy who helped create iTunes.
"This is Steve's company. This is still Steve's company. It was born that way, it's still that way. And so his spirit I think will always be the DNA of this company."
Eddy Cue: It's amazing to be able to work in a place where you're building products that everybody in the world uses. Whether it's a two-year-old or 100-year-old, they get to experience the products that we're building and that's amazing.
Charlie Rose: Is the DNA of Steve Jobs baked deeply into everything just said?
Tim Cook: It is. It is. This is Steve's company. This is still Steve's company. It was born that way, it's still that way. And so his spirit I think will always be the DNA of this company.
And if there was anyone at Apple who comes close to sharing Jobs' DNA it would be this man, Jony Ive, Apple's chief design officer. He's considered by many at Apple to be the most important person at the company. EveryAapple device on the market today was either created or inspired by this reserved and polite son of a British silversmith. We met Ive in his design studio, but Apple's preoccupation with secrecy allowed us to see only so much.
Charlie Rose: What's interesting in this room is that I see these covers over some of these desks. You know, why is that?
Jony Ive: That's so you can't see what's underneath it, Charlie.
Charlie Rose: What? Meaning if I could see what's underneath it, I would know where the future is of Apple?
Jony Ive: You'd know what we're working on next. And so that's one of the reasons that, that, that it's extraordinarily rare that people come into the design studio.
Charlie Rose: And that's why you don't like people in this room, period.
Jony Ive: That's right. We don't like people in this room, period.
Ive's team of 22 designers are a very close group --- in 15 years only two have left the company.
We noticed that Ive's studio is quiet and looks a lot like an Apple store. No coincidence, Ive designed both around his signature wooden tables. Here, Ive and his team create prototypes of future products before the specifications are sent overseas to be manufactured. With the iPhone 6 and 6 Plus, the design team made 10 different-sized models before deciding which worked best.
Jony Ive: And we chose these two because partly they just felt right, they somehow, not from a tactile point of view. But just emotionally they felt like a good size.
Charlie Rose: Do you do this about every product, this amount of dedication to emotional context?
Jony Ive: This is the tip of the iceberg. Because we've found that different textures considerably impact your perception of the object, of the product, what it's like to hold, and what it's like to feel. So the only way that we know how to resolve, and address, and develop all of those issues is to make models is to make prototypes.
Ive also showed us how he prototyped the Apple Watch. It begins with a sketch of the watch casing. Then a computer-aided-design specialist transforms the sketch into a 3-dimensional electronic blueprint. That is sent to this high-precision milling device known as a CNC machine.
Jony Ive: We attach to this fixture in there a block of aluminum. And the cutter that you can see there in this CNC machine is now machining incredibly accurately-- the form-- at the back of the watch--
Charlie Rose: And creating the round edges.
Jony Ive: Yeah. And all of the tiniest details as well.
Once it's been carved, the prototype of the watch casing is sanded and polished by hand by veteran craftsmen. Ive's team oversees every design detail, including testing hundreds of different hues and shades of red, blue, and yellow for the watch bands.
Jony Ive: All of these things I think in aggregate, if we manage to get them right, you sort of sense that it's an authentic, really thoughtfully conceived object.
Ive described the process that comes next --- turning a prototype into a working product requires a high level of complex engineering. When he wanted to make the new Macbook Apple's thinnest and lightest laptop ever, Ive worked with Apple's head of hardware engineering Dan Riccio to create a battery powerful enough to last all day but also small enough to fit into Ive's slim case design.
Dan Riccio: Every tenth of a millimeter in our products is sacred.
Charlie Rose: Every tenth of a millimeter is sacred--
Dan Riccio: With this design, it involved, you know, mechanical designers, toolmakers chemists, and it also involved software engineers to go off and design a pack that would fit within the surfaces with-- of the product, but still work reliably.
One of the most complex engineering challenges at Apple involves the iPhone camera, the most used feature of any Apple product. That's the entire camera you're looking at in my hand.
Charlie Rose: How many parts are in here?
Graham Townsend: There's over 200 separate individual parts in this-- in that one module there.
Graham Townsend is in charge of a team of 800 engineers and other specialists dedicated solely to the camera. He showed us a micro suspension system that steadies the camera when your hand shakes.
Graham Townsend: This whole sus-- autofocus motor here is suspended on four wires. And you'll see them coming in. And here we are. Four-- These are 40-micron wires, less than half a human hair's width. And that holds that whole suspension and moves it in X and Y. So that allows us to stabilize for the hand shake.
In the camera lab, engineers calibrate the camera to perform in any type of lighting.
Graham Townsend: Go to bright bright noon. And there you go. Sunset now. There you go. So, there's very different types of quality of lighting, from a morning, bright sunshine, for instance, the noonday light. And then finally maybe--
Charlie Rose: Sunset, dinner--
Graham Townsend: We can simulate all those here. Believe it or not, to capture one image, 24 billion operations go on.
Charlie Rose: Twenty-four billion operations going on--
Graham Townsend: Just for one picture--
The company is known for focusing as much energy on how products are marketed and sold as it does on the way they're designed and built. We weren't sure what to make of it when Apple took us to this unmarked warehouse off the main campus. Inside we found yet another prototype --- a mock store where Apple's head of retail Angela Ahrendts is continually refining new designs for Apple's 469 stores worldwide.
Charlie Rose: How many iterations of what I'm looking at have you gone through?
Angela Ahrendts: I mean, honestly there are meetings in here every single week. And there's a floor set. We use this as a stage, and we say, "This is rehearsal."
Ahrendts wants customers to be transfixed from the moment they walk through the doors.
Angela Ahrendts: The most important goal is, is that it is dynamic. People are used to living on their phone. So they're used to being dynamic, emotive, immersive. And so how do we make sure when they walk into a store they say, "Wow"?
Apple's huge profit margins --- roughly 40 percent across the board --- have made it the most valuable company in the world, worth about $600 billion. People may love their Apple products, but if there is one complaint you hear a lot, it's that by the time you buy one, a newer, better version is already on the way. Apple's head of marketing Phil Schiller admits that the company often pits one product against another.
Charlie Rose: Is there danger of one product cannibalizing the other product?
Phil Schiller: It's not a danger, it's almost by design. You need each of these products to try to fight for their space, their time with you. The iPhone has to become so great that you don't know why you want an iPad. The iPad has to be so great that you don't know why you why you want a notebook. The notebook has to be so great, you don't know why you want a desktop. Each one's job is to compete with the other ones.
The first new product to come from Apple since Tim Cook took over as CEO was the Apple Watch.
There is intense speculation about everything Apple does, including that the watch may not be the breakout product Apple had hoped. It has been on the market for eight months, but Apple has not released any sales figures.
Charlie Rose: You think it's a product that needs improvement?
Tim Cook: I think all products are--going to be--
Charlie Rose: I know that. Of course I know that.
Tim Cook: Yeah. And-- I think the watch is no exception to that, is we're-- we're gonna--continue to fine tune--
Charlie Rose: So you're disappointed--in some of the things.
Tim Cook: I'm not disappointed in it. It's every par--
Charlie Rose: But you saw room to improve it?
Tim Cook: Charlie, when we launch a product, we're already working on the next one. And possibly even the next, next one. And so yes, we always see things we can do.
[Tim Cook: This is the future of television, coming now.]
And then there is Apple TV and suggestions that Apple wants to do much more in the television business... as well as speculation about Apple developing a car. But Tim Cook is keeping that a secret too.
Charlie Rose: How hard is it to say Apple will be in the car business?
Tim Cook: (Laughs)
Charlie Rose: But OK, how hard is it to say yes we've done this, we're looking it, we may very well go there, how hard is that?
Tim Cook: One of the great things about Apple is probably have more secrecy here than the CIA.
Whatever secret products Apple may be working on, no one feels the pressure to deliver more than Jony Ive.
Charlie Rose: Is there any possibility that Apple can get too rich and too fat and too complacent?
Jony Ive: That possibility absolutely exists. I think one of the things that characterizes the way that we work is that our heads tend to be down at these tables worrying about what we're doing. And our heads don't tend to be up, looking around at what we've--
Charlie Rose: Thinking how great we are, what we achieved?
Jony Ive: Yeah. And we're more aware of the distance between us and the perfection that we're chasing than ever before.
Apple has one million people manufacturing its products in China. Why doesn't it bring those jobs home? That part of the story when we return.
Part Two
Apple is based in Cupertino, California, but the vast majority of its revenue, workers, and customers are overseas. That raises a number of issues for the world's biggest company. Why won't Apple bring home more manufacturing jobs from China? Why doesn't Apple pay U.S. taxes on the nearly $200 billion it keeps overseas? But perhaps the most pressing issue facing Apple today is encryption. It is believed that the terrorists in last month's attacks in Paris used encrypted apps to avoid surveillance. U.S. law enforcement immediately renewed its calls for Apple and other companies to provide access to its customers' encrypted texts and emails. Apple CEO Tim Cook has refused to do so. And though we interviewed him prior to the attacks, Cook has since told us that Apple is cooperating with authorities to combat terrorism, but he has not changed his position on encryption.
Charlie Rose: In the government, they say it's like saying, you know, you have a search warrant, but you can't unlock the trunk.
Tim Cook: Here's the situation is on your smartphone today, on your iPhone, there's likely health information, there's financial information. There are intimate conversations with your family, or your co-workers. There's probably business secrets and you should have the ability to protect it. And the only way we know how to do that, is to encrypt it. Why is that? It's because if there's a way to get in, then somebody will find the way in. There have been people that suggest that we should have a back door. But the reality is if you put a back door in, that back door's for everybody, for good guys and bad guys.
Charlie Rose: But does the government have a point in which they say, "If we have good reason to believe in that information is evidence of criminal conduct or national security behavior?"
Tim Cook: Well if, if the government lays a proper warrant on us today then we will give the specific information that is requested. Because we have to by law. In the case of encrypted communication, we don't have it to give. And so if like your iMessages are encrypted, we don't have access to those.
Charlie Rose: OK, but help me understand how you get to the government's dilemma.
Tim Cook: I don't believe that the tradeoff here is privacy versus national security.
Charlie Rose: Versus security.
Tim Cook: I think that's an overly simplistic view. We're America. We should have both.
National security isn't the only battle Tim Cook has been fighting with Washington. Apple earns two-thirds of its revenue overseas. Rather than bring it back and pay hefty U.S. taxes, Apple, like many U.S. multinationals, parks billions of dollars in overseas income in subsidiaries in countries like Ireland. The practice is not illegal, but it's at the heart of a battle that has been unfolding in Washington to reform the corporate tax code and bring that money home.
Charlie Rose: How do you feel when you go before Congress and they say you're a tax avoider?
Tim Cook: What I told them and-- what I'll tell you and-- and the folks watching tonight is we pay more taxes in this country than anyone.
Charlie Rose: Well, they know that. And you should because of how much money you make.
Tim Cook: Well, I don't deny that. We happily pay it.
Charlie Rose: But you also have more money overseas, probably, than any other--
Tim Cook: We do.
Charlie Rose: --American company?
Tim Cook: Because as I said before, two-thirds of our business is over there.
Charlie Rose: Yeah, but why don't bring that home, is the question?
Tim Cook: I'd love to bring it home.
Charlie Rose: Why don't you?
Tim Cook: Because it would cost me 40 percent to bring it home. And I don't think that's a reasonable thing to do. This is a tax code, Charlie, that was made for the industrial age, not the digital age. It's backwards. It's awful for America. It should have been fixed many years ago. It's past time to get it done.
Charlie Rose: But here's what they concluded. Apple is engaged in a sophisticated scheme to pay little or no corporate taxes on $74 billion in revenues held overseas.
Tim Cook: That is total political crap. There is no truth behind it. Apple pays every tax dollar we owe.
Tim Cook has spent much of the last decade expanding Apple's reach around the world, nowhere more than in China.
In October, Cook made his ninth trip there since becoming CEO four years ago. In the last year, Apple's sales in china have doubled.
Charlie Rose: Will there be, at some point in the near future, a bigger market than the United States?
Tim Cook: Yes. I am as certain as I can be of that.
Charlie Rose: The numbers simply tell you that?
Tim Cook: The numbers tell us-- tell me that. And not just the numbers of people, but the numbers of people moving into the middle class. That, for a consumer company is the thing that really begins to grow the market in a big way.
And most Americans would be surprised to know that nearly all Apple products are manufactured by one million Chinese workers in the factories of Apple contractors, including its largest: Foxconn. Yet Tim Cook insists that China's vast and cheap labor force is not the primary reason for manufacturing there.
Charlie Rose: So if it's not wages, what is it?
Tim Cook: It's skill.
Charlie Rose: Skill?
Tim Cook: It's skill. It's that Chi--
Charlie Rose: They have more skills than American workers? They have more skills than--
Tim Cook: Now-- now, hold on.
Charlie Rose: --German workers?
Tim Cook: Yeah, let me-- let me-- let me clear, China put an enormous focus on manufacturing. In what we would call, you and I would call vocational kind of skills. The U.S., over time, began to stop having as many vocational kind of skills. I mean, you can take every tool and die maker in the United States and probably put them in a room that we're currently sitting in. In China, you would have to have multiple football fields.
Charlie Rose: Because they've taught those skills in their schools?
Tim Cook: It's because it was a focus of them-- it's a focus of their educational system. And so that is the reality.
Manufacting in China has brought serious labor concerns to Apple about low wages, long hours and unsafe conditions. After a series of suicides at Foxconn in 2010, the company installed safety nets outside its employee dormitories.
Charlie Rose: Do you have a responsibility to look at the labor conditions in the places where you manufacture and make sure that whatever might be an incentive for people to commit suicide is eradicated?
Tim Cook: The answer to your question is yes. We have a responsibility and we do it. We are constantly auditing our supply chain. Making sure that safety standards are, are, you know, are the highest. We're making sure that working conditions are the highest. All of the things that you would expect us to look for and more, we're doing it.
According to its most recent internal review, Apple has limited the work week to 60 hours, raised pay, and cracked down on child labor. But 30 percent of the facilities that make its products around the world still do not meet Apple's own safety standards.
Tim Cook: We believe that a company that has values and acts on them can really change the world.
Since taking over Apple, Tim Cook has broadened his company's mission beyond making products. Apple has invested billions in renewable energy to power its data centers and other operations. Cook has also become a strong advocate for human rights. His motives are personal. He grew up during segregation in Alabama and last year, he made a bold public announcement that he is gay.
Charlie Rose: No other CEO of a Fortune 500 company that might be gay has come out. You said it was God's greatest gift to you.
Tim Cook: When you're in a minority group, it gives you a sense of empathy of what it's like to be in the minority. And you begin to look at things from different point of views. And I think it was a gift for me.
Charlie Rose: Why didn't you come out earlier?
Tim Cook: Well, I, honestly, I value my privacy. I'm a very private person. But it became increasingly clear to me that if I said something, that it could help other people. And I'm glad because I think that some kid somewhere, some kid in Alabama, I think if they just for a moment stop and say, "If it didn't limit him, it may not limit me." Or this kid that's getting bullied or this kid that's co-- worse, I've gotten notes from people contemplating suicide. And so if I could touch just one of those, it's worth it. And I couldn't look myself in the mirror without doing it.
Before we finished reporting our story, Cook wanted to show us "one more thing," as Steve Jobs used to say --- a glimpse of Apple's future. So we packed into four-by-fours and with cameras, drones, and technicians supplied by GoPro we ascended this giant mound of dirt that has been excavated during the construction of Apple's new corporate headquarters. It is the company's biggest project ever.
Charlie Rose: This is like a small city.
Tim Cook: It is. There's about 3,500 people working here right now. And this is what people are commonly calling the spaceship.
Charlie Rose: Yes.
Tim Cook: We're gonna have about 13,000 people that are working in this circle and it's gonna be a center for innovation for generations to come.
Charlie Rose: Some have said it's a $5 billion project.
Tim Cook: It's a lot. It's a lot. It's somewhere near there.
Charlie Rose: I knew 5 billion was a lot.
Tim Cook: We think it's so important to have a place that inspires you.
It's wider than the Pentagon and when it's completed next year, 80 percent of the grounds will be landscaped with 7,000 trees and plants. They will produce some of the fruits and vegetables served in the cafeteria. A natural ventilation system on the roof will allow the building to go without heating or air-conditioning nine months of the year. And the entire facility will be off the energy grid, powered mainly by solar panels.
Charlie Rose: Here's what's interesting about this: it is at the core of Apple is this capacity to think about everything as building a product.
Tim Cook: Yeah. And this goes down to-- and I think Jony will show you some of this-- is it goes to the desk, the chair, the stairwell, the doorknob, the glass, the-- I mean, every single thing.
Apple's chief design officer Jony Ive played a key role in designing the building. He took us inside on the same day Apple was installing the first of 3,000 sheets of curved glass imported from Germany. They will wrap around the entire building.
Jony Ive: This is the largest curved piece of glass in the world. And there will be miles of this glass. So when we're standing here, you will get a c-- just a continuous curtain of glass and no interruption to the views beyond.
Charlie Rose: All that stuff we see there is all gone?
Jony Ive: That will be gone.
Charlie Rose: Where is your office gonna be?
Jony Ive: On the top floor.