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Cook: Apple will lead the way in improving working conditions

Apple CEO Tim Cook defended his company's record on working conditions for the employees that make the parts and assemble the products that Apple sells. And he noted that Apple is continually assessing how it does business, with an eye toward improving the lives of its workforce.

Cook's comments came during a wide-ranging session Tuesday at the Goldman Sachs Technology and Internet Conference, in which the Apple CEO fielded questions from analyst Bill Shope on everything from iPhone sales to Apple's vast cash holdings. But Cook's comments on working conditions at assembly plants may have been the most noteworthy remarks to come out of Tuesday's hour-long event. For starters, much of the financial data Cook covered on Tuesday had been discussed during last month's quarterly earnings announcements. Also, Cook's comments were the most extensive public statements an Apple executive has made on the issue of working conditions at Apple suppliers since a New York Times report on Chinese assembly plants. Previously, Cook had commented on the Times report in an email to Apple employees, and he issued a statement on Apple's commitment to a safe, fair working environment in announcing the Fair Labor Association's audit of final assembly suppliers earlier this week.

"No one in our industry is doing more to improve working conditions than Apple," Cook told attendees at the Goldman Sachs conference. "We are constantly auditing facilities, going deep into the supply chain, looking for problems, finding problems, and fixing problems. And we report everything because we believe that transparency is so very important in this area. I am so incredibly proud of the work our teams are doing in this area. They focus on the most difficult problems, and they stay with them until they fix them. They are truly a model for the industry."

Get the highlights of Tim Cook's talk at the Goldman Sachs Technology and Internet Conference in our edited transcript of the event

The issue is clearly one of importance to Cook, who was Apple's chief operating officer before he was appointed CEO last year. But Cook noted Tuesday that his experience with factories wasn't limited to his time as an executive--earlier in his career, he worked in an Alabama paper mill and an aluminum plant in Virginia.

"Apple takes worker conditions very seriously, and we have for a very long time," Cook said Tuesday.

While supply chain issues can be complex, Cook acknowledged, the company's philosophy toward the people that assemble its products is very simple: Every worker has the right to "a fair and safe workplace, free of discrimination, where they can earn competitive wages and they can voice their concerns freely." Suppliers have to agree to that to do business with Apple.

To that end, Cook touched on a few hot-button issues concerning worker treatment. On the issue of underage labor--a practice Cook called "abhorrent"--Apple's goal is to eliminate it entirely from its supply chain. As detailed in this year's supplier responsibility report, which Apple released last month, the company found no cases of underage labor at the plants responsible for final assembly of Apple products. Intentionally hiring underage workers is a firing offense, according to Cook.

Apple also doesn't let its suppliers cut corners on safety, Cook said, with the company focusing on every last detail when it audits a facility. "If there's a fire extinguisher missing from the cafeteria kitchen, then that facility doesn't pass inspection until that fire extinguisher is in place," he said.

Excessive overtime is a focus of Apple's supplier responsibility program this year. Apple caps its work week at 60 hours for suppliers. In January, the company began collecting weekly data on more than 500,000 employees in its supply chain. About 84 percent were in compliance with Apple's cap, Cook said--"significantly improved from the past, but we can do better. And we're taking the unprecedented step of reporting this monthly on our website, so that it's transparent to everyone what we're doing."

Apple's monitoring isn't limited to workplace conditions. The company's Supplier Responsibility Program also puts an emphasis on worker education and development, offering classes in subjects such as English and entrepreneurship. More than 60,000 employees have attended these classes, according to Cook, who noted that this enrollment number exceeds that of the largest public university in the U.S.

This week, Apple asked the Fair Labor Association to begin inspections of its final assembly suppliers. Cook called the audit, which will include Foxconn factories in China, "probably the most detailed factory audit in the history of mass manufacturing," and said that he was looking forward to seeing the results.

"We know that people have a very high expectation of Apple," Cook said. "We have an even higher expectation of ourselves. Our customers expect us to lead and we wil continue to do so. We are blessed to have the smartest and most innovative people on Earth, and we put the same kind of effort and energy into supply responsibility as we do with our new products."

While working conditions and supply chain issues highlighted Cook's talk at the Goldman Sachs conference, they weren't the only topics covered Tuesday. Cook also touched on Apple's most recent iPhone sales figures, in which the company sold 37 million phones during the October-to-December holiday season. "It was a decent quarter," Cook said, to the laughter of those in attendance.

As big as that number might be, Cook sees the opportunity to make it even larger. He noted that Apple's iPhone sales made up only 27 percent of the smartphone market and just 9 percent of the overall market for handsets. That means for every person who bought an iPhone last quarter, nine other people were buying some sort of other phone, be it a competing smartphone model or a more simple handset. "The truth is that this is a jaw-dropping industry," Cook said. "It has enormous opportunity to it."

"So what we're focusing on is the same thing we've always focused on, which is making the world's best products. And we think if we stay laser-focused on that, and continue to develop to the ecosystem around the iPhone then we have a pretty good opportunity to take advantage of this enormous market."

The iPhone is also helping Apple gain a greater foothold in markets where it previously hadn't done a lot of business. The iPhone "introduced our brand to people who had never met Apple before," Cook said. Consider that in 2007--the year before the iPhone arrived in markets outside the U.S.--Apple tallied $1.4 billion in combined revenue from China, parts of Asia, India, Latin America, Eastern Europe, the Middle East, and Africa. Those same markets generated $22 billion in sales for Apple last year.

On the iPad front, Cook continued to show little concern about stepped-up competition for the iPad, particularly from lower-priced tablets. (Selling 55 million iPads in the two years since introducing the product probably goes a long way toward alleviating those kinds of worries.) "Price is rarely the most important thing," Cook said. "A cheap product might sell some units and somebody may get it home and you know, they feel great when they pay from their wallets, but then they get it home and use it, and the joy is gone."

Cook was also unconcerned about the possibility that the iPad would eat into Mac sales, though he acknowledged as he has in past conference calls with analysts that Apple believes this is happening to some extent. "The way that we always view cannibalization is, we prefer we do it than have somebody else do it," Cook said. "And so we never want to hold back one of our teams from building the absolute greatest thing, even if it takes some sales from another product area. Our high-order bid is, we want to please customers, we'd like them buying Apple stuff."

Other topics covered during Tuesday's talk included:

Apple TV: Reiterating the Apple TV sales figures Apple unveiled last month, Cook provided a little bit of clarity on why Apple describes the set-top box as a "hobby." "We don't want to send a message to you or our shareholders that we think that the market for it is the size of our other businesses," said Cook, adding that the "we've always thought there was something there" with the potential for a product like the Apple TV.

Apple's cash: Apple ended its fiscal first quarter with $97.6 billion in cash, fueling speculation that the company might buy back stock or issue a dividend in the near future. Pressed by Goldman Sachs's Shope, Cook declined to spell out the company's plans, even disputing the notion that Apple has held on to its cash. ("We've actually spent billions in the supply chain," he said. "We've spent billions on acquisitions and including the acquisition of [intellectual property].") But Cook conceded that Apple's cash holdings are a source of "active discussion" among the company's executive team. "I only ask for a bit of patience, so that we can do this in a very deliberate way and make the best decision for the shareholders," he said."

Succeeding Steve Jobs Asked by Shope how he hopes to leave his mark on Apple now that he's CEO, Cook spoke quite passionately and deliberately about the company's unique culture. "And I'm not going to witness or permit the slow undoing of it, because I believe in it so deeply," he said.


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