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Wednesday, February 23, 2011, 12:00 pm PT (03:00 pm ET)

Inside Apple's shareholder meeting and Q&A with Tim Cook

Apple shareholders met at the company's Cupertino, California headquarters today to vote on six proposals and voice questions directed at Apple's executive team, followed by comments and a question and answer session handled by the company's chief operations officer Tim Cook.

Among the proposals were two regular corporate approval votes, one to approve the company's existing seven board members (William Campbell, Millard Drexler, Albert Gore, Steven Jobs, Andrea Jung, Arthur Levinson and Ronald Sugar) and a second for ratification of the firm's appointment of Ernst & Young LLC as its independent registered public accountant for the 2011 fiscal year. Both passed in the preliminary vote count.

An advisory vote on executive compensation also passed, with an advisory vote stipulating a 1 year frequency for votes on executive compensation.

Two shareholder proposals were also brought forward, one pertaining to succession planning, which did not pass in the preliminary tally, and a second regarding minority voting that was approved in the preliminary vote count. That measure, argued by CALPERS, asked for transparency and accountability in the voting process for director nominees.

Final votes will be published by Apple after all ballots cast at the meeting are counted. The preliminary vote covers ballots submitted prior to the event. Following the formal vote, the company conducted a question and answer session involving the roughly 400 attendees, about 300 of whom security reported were sat in the main theater area, with the remainder being pushed into an upstairs overflow room.

Cook's Comments

Cook handled a question and answer session after providing an overview of Apple's accomplishments over the past year. He noted that Apple's Mac sales were up 31 percent to 14 million computers, twice what the company was selling just three years ago. He reiterated that Apple has outgrown the overall PC industry for every quarter over nearly five years now, later remarking that the 375 million PCs sold worldwide indicate Apple has plenty of room for additional growth.

Cook added that in education, Apple has been number one in notebooks for three years, a position that is not just limited to the US, as the company has also led European sales in education for the last four years.

In mobile devices, Cook pointed out that Apple doubled its iPhone business over the last year to 40 million units, pointing out that not many companies take a 20 million unit business and double it, nor is it easy to do, before adding that Apple had also launched an entirely new business with iPad, generating sales of 7.6 million in the first month, sales that represented $5 billion in revenue.

Cook also said that over the last year, Apple had added 44 retail stores, hit a new milestone of 10 billion downloads in the iOS App Store, sold 160 million iOS devices, and in the December quarter, had sold a million Apple TVs, which is "not bad for a hobby." He also pointed out to shareholders that Apple's stock is up about 70 percent from a year ago, compared to 20 percent growth in the S&P average.

Shareholder Q&A

The first question pertained to Apple's vast and growing cash reserves, which shareholders have regularly pointed out could be used to distribute a dividend. This time, the question acknowledged the company's interest in having a strategic reserve of cash, but asked whether Apple had any ceiling in mind when a stockpile would overflow, triggering a distribution to shareholders. Apple's chief financial officer Peter Oppenheimer stated Apple wanted to hold the cash "to do great things," and stated the company has no ceiling in mind, but will continue to monitor the situation as the company's cash pile grows. He added that the cash indicates Apple is doing all the right things.

Another shareholder addressed competition from Google's Android platform, asking what the company was doing to secure its inventions and prevent losses in its supply chain. Cook pointed out that this year, Apple became the second largest phone maker after Nokia, surpassing RIM.

Cook also noted that Apple's iOS focuses on an integrated experience, contrasted with Android, which "turns the user into the system integrator" and noted the platform fragmentation that is resulting from each Android licensee adding its own layers of differentiation in both hardware and the user experience. Cook also said Apple could have sold more iPhones if it had been possible to build more, describing the company's competitive position in saying, "we like our hand."

Speaking directly to shareholder worries that Apple was simply letting others steal its inventions, Cook said, "there's a lot of lawsuits going around," and adding that "nobody likes to have their stuff stolen." Cook also added that Apple takes significant precautions in guarding access to its intellectual property, although admitting that in a couple of cases, "things go missing," a comment that elicited some laughs in alluding to the leak of iPhone 4 last summer.

Phil Schiller, Apple's VP of worldwide marketing, added, "we love competition," adding that Apple's success is so great that everyone else is trying to design an iPhone, and now and iPad.

Android the next Windows?

Bringing up Android again, another question asked if Apple saw parallels between the broadly licensed Android and the competitive threat of Windows back in the early 90s. Schiller answered that the situation is completely different today, as Apple is a different company, with different products, adding that it has learned a lot from looking at its history, and noting that many of the people who were at Apple during that previous period are still there, including Schiller himself.

Schiller added that back then, Apple was competing against companies like Compaq and IBM, which are not around today in the PC business, unlike Apple. He also pointed out that in "post PC" devices, "integration is far more important," than it was among desktop PCs. Apple is also the undisputed leader, adding that Apple was now well ahead of its competitors in software with its App Store, an area it formerly lagged behind on with the Mac.

Schiller said that some in the press like to equate Android with Windows because it's an easy comparison to make, but that "the analogy doesn't fit."

He also noted that enterprise features, and subsequent rapid adoption by businesses, are also being led by iOS, again in stark contrast to the history of the Mac, where the entrenched DOS world was difficult to compete against. Reiterating that 88 percent of the Fortune 100 are testing or actively deploying iPhones, and that 80 percent are already doing the same with iPad, Cook noted that "we never guessed we would see such penetration" among a segment of the market usually resistant to completely new products.

Android input plugins for iOS?

A third major question involving Android related to whether Apple would roll out OS plugins that allowed users to change how devices work, beyond just adding apps, bringing up Android's input manager plugins that allow users to install alternative keyboard types or voice recognition.

The question was fielded by Apple's leader of iOS development Scott Forstall, who pointed out that Apple has, in the iOS App Store, "created the best economy in software in the history of the planet," and noted that Apple is very careful not to create problems that might jeopardize that position. He noted that backwards compatibility is something the company takes very seriously, mentioning that users have been able to use their apps across four major releases of the system.

Forstall also referenced the security of iOS, mentioning its app curation and sandbox design that prevent viruses or malware from "stealing contacts," adding that adding operating system plugins is "very tricky" and saying the company is "very cognizant of the dangers" in allowing unsustainable customization that causes problems moving forward, specifically noting issues related to Mac OS 7.

Apple and gaming

A young man asked whether Apple sees console gaming as a potential market, given that Microsoft and Sony haven't released new generations of their gaming devices. Cook replied that "we are in the gaming business" with iPod touch, and that iPhone and iPad users are also downloading lots of games.

"We found ourselves in the broader gaming market. We think its a good place to be," Cook said, before adding, "Where we are at now."

Another shareholder asked about Apple's business relationship with Liquid Metal, which it licenses technology from; Cook noted that Apple has bought a variety of small companies, mainly for their engineering ability and people skills, but refused to comment anything specific about any of them.

"Misinformation" about Apple's publisher subscription plans

Another issues raised was Apple's 30 percent cut of publisher subscriptions, compared to Google's reported 10 percent cut. Schiller noted that "there's a lot of misinformation" about the subject, adding that according to Google's public information, it plans to take a 10 percent cut only of web sites that use its subscription fulfillment system, and will charge the same 30 percent cut within apps, just like Amazon and just like other software app stores do.

Oppenheimer added that Apple continues to run the App Store at "just a little over break even."

A second question about Apple's cut for publishers asked whether newspapers can afford to give up 30 percent of their revenues, to which Cook answered that the split Apple shares only applies to new customers, and that publishers can bring their existing subscribers content through App Store titles at no cost, managing that themselves. Apple's executives made it clear that the 30 percent cut is not the issue, and that the real controversy is related to customer information.

"We believe customers should decide" whether to share their data, Cook said, adding that "we want journalism," a response to the question's fear that Apple's cut might doom struggling newspapers.

What about Jobs?

A final question came from a woman asking if Apple's executives had seen Mike Daisey's monologuist play, "The Agony and the Ecstasy of Steve Jobs," which references the role of Steve Jobs and Apple's activities in China . Cook dismissed the play, saying "if it's not on ESPN or CNBC, I don't see it," but said he could comment on China.

Cook said in everything from worker safety to making processes environmentally friendly "we have the highest standards," adding that Apple is the most transparent in its auditing and reporting than any other company, reporting actual problems and taking real action.

Cook also noted that Apple's policies apply not just to the more reputable companies it does direct business with, but that its auditing is "going deep into the supply chain" where the real problems are. He described problems such as workers from countries like Indonesia who are recruited by layers of companies that each charge fees that add up to be a large amount of the workers' wages, or fake young workers' birth certificates to skirt employment laws.

Apple has terminated relationships with suppliers who "just don't get it," Cook said, while working to resolve problems with others who appear to have made honest mistakes. Cook noted that Apple's actions "will help more than Apple," because the company is pushing to change how business is done.

It had forced reimbursements of $300 million to workers and has involved governments to get involved and understand the issues. "We are doing the heavy lifting," Cook said. "I am really proud of the changes we have forced in."

Cook was then encouraged again by the woman to see "The Agony and the Ecstasy of Steve Jobs," because she wanted him to see how Jobs was being portrayed as a man who traveled to China and observed conditions there. To this Cook answered, "I don't need to see a play. I know Steve Jobs," adding that Apple's executives have also been there, interviewing workers and not just management, and opening lines of communications that allow workers to report problems independently.