In an interview this week, Apple’s Chief Financial Luca Maestri addressed questions regarding Apple’s research spending, a possible import tax as part of a larger reform package, and the new Apple Headquarters as tourist attraction.
Maestri spoke at the Goldman Sachs Technology and Internet Conference on Tuesday, where he commented at some length about Apple research and development, saying that with a wider product portfolio, comes a larger R&D obligation to support those products. However, a good portion of the budget comes from developing solutions that other companies might have to buy elsewhere.
“Today, we do much more in-house development of some fundamental technologies than we used to do a few years ago, when we did more of that in the supplier base —the work we do around processors or sensors,” Maestri said, regarding Apple’s research and development budget. “It’s very important for us because we can push the envelope on innovation, we can better control timing, cost, quality. We look at that as a great strategic investment.”
Cash repatriation, and tax reform
Apple is also possibly facing a big decision, regarding if it wants to manufacture future products in the U.S., and if so, how many. As part of a cohesive tax reform package including cash hoard repatriation regulations, President Donald Trump is proposing new tariffs, attempting to encourage businesses to migrate manufacturing back to the U.S.
“Very hard for us to imagine that a border tax would be good for the US economy, because it would burden the consumer and the dollar would appreciate versus where it is today, which is already too strong,” Maestri said about a potential import tax suggested by the Trump administration. “It doesn’t yield a positive outcome.”
As proposed by the Trump administration, the effective taxation on a $700 iPhone manufactured in China rises from a current $98 to $140. Minus an expected dramatic increase in manufacturing cost if production shifts to the U.S., the same phone’s taxes built in the U.S. would drop to $56.
Apple Music as part of the whole
A big driver of Apple’s profits is the new Services category, spanning not only the App Stores, but Apple Music as well.
“When you combine our download model with our streaming service, which comes from Beats acquisition, [Apple Music] is clearly gaining traction. With the combination of these two businesses, we are clearly the number one in music,” Maestri said. “We’ve got a long association with music and it’s one of the most important use cases for customers on our devices. We really want to provide the best popular offering and we think we’re actually doing that.”
Wearables as the future
Maestri spoke bullishly on Apple’s wearables segment, and grouped in the AirPods, Beats, and Apple Watch in amongst them. The CFO feels that wearable technology will see a lot of interest from Apple in the future.
“We feel very good, it was the best quarter we ever had,” Maestri said, reiterating previous remarks made during the most recent quarterly investor’s report conference call. “We could have sold more, to be honest. We think it’s a great platform to innovate on. It’s early stages, but we feel very very good about the momentum.”
Apple HQ as tourist attraction
Concluding the interview, Maestri was asked about the new Apple Headquarters, and when the company was expected to move to the new buildings.
“The new campus I really think is going to be come a national landmark. I think there’s going to be a lot of interest from tourists, and we need to figure out how to manage that,” Maestri said. “This is really Steve’s vision for the employees. We think it’s going to be a great place for our employees to innovate for many, many years to come.”
Maestri declined to give a date for the shift, but noted that the recent rains in California were responsible for a delay of a few weeks.
Apple is hosting a replay of the entire interview.