State of the Union: Why Is Apple CEO Tim Cook Sitting Next to Michelle Obama?

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Robert Galbraith / Jonathan Ernst / Reuters (2)

Apple is going through a sour patch right now. On Monday, TIME columnist Tim Bajaran asked if Apple’s amazing run disrupting markets is over. The Cupertino-Calif.-based tech juggernaut has not introduced a truly break-through new product since co-founder Steve Jobs died over one year ago. As a result, Apple’s stock price has suffered, declining 24% over the last six months. Apple investors are getting nervous.

Meanwhile, hedge fund titan David Einhorn has launched a lawsuit against the company aimed at getting the company to return some of its $140 billion cash hoard to shareholders — who, after all, own the company. Apple has said it will consider Einhorn’s demands, but that didn’t stop Apple CEO Tim Cook from slamming Einhorn’s campaign as a “silly sideshow” at the Goldman Sachs investor conference in San Francisco on Tuesday morning.

This context helps explain why Cook , a runner-up for TIME’s 2012 Person of the Year, has been on something of a PR tour in recent months, appearing on the cover of Bloomberg BusinessWeek and showing up for a rare on-camera interview with Brian Williams of NBC News.

(MOREIs Apple Losing Its Shine After Steve Jobs?)

Tonight, Cook will join first lady Michelle Obama during President Obama’s State of the Union address. (Presumably, Cook is on a private jet headed to D.C. as I type.) It’s the continuation of Cook’s PR offensive, and the symbolism isn’t lost on tech watchers. Last year, Jobs’s widow Laurene Powell Jobs sat with Mrs. Obama, as the president touted the company as an exemplar of American innovation. And indeed it is.

Last year, President Obama and other lawmakers called out Apple as the epitome of U.S. innovation. But there was a tension to that shout-out, given that most of the jobs that Apple has created have been at the giant Chinese manufacturing conglomerate Foxconn, which has been bedeviled by labor issues, prompting Cook to tighten the company’s supplier review process. And that’s the problem with holding Apple out as a U.S. success story: The company now does well over half of its business overseas, and employs most of its manufacturing workers and contractors in China. This does not exactly constitute a U.S. job-creation success story.

Late last year, in response to criticism, Cook said that Apple plans to spend at least $100 million to “do one of our existing Mac lines in the Unites States.” (To put that in perspective, Apple made over $50 billion in profit over the last 12 months.) In the Bloomberg interview, Cook added: “This doesn’t mean that Apple will do it ourselves, but we’ll be working with people, and we’ll be investing our money.” Watch for President Obama to tout Apple as an example of U.S. companies that are aiming to bring jobs and investment back home.

One feature of Apple’s business that President Obama will most likely not highlight is Apple’s intricate tax avoidance strategy. Last year, The New York Times reported that Apple paid a global cash tax rate of only 9.8% — $3.3 billion on profits of $34 billion — compared to a tax rate of 24% for Walmart, which the paper said is about average. There’s no suggestion that Apple has broken U.S. law in its tax-minimization strategy — but it’s highly unlikely President Obama will emphasize this aspect of the company’s business in his speech tonight. Talk about inconvenient truths.

(MOREApple’s Tax Avoidance: Evil Scheming, Good Business, or Both?)

In this way, Apple represents a paradox for the United States. It’s the world’s largest tech company and a symbol of American innovation. Yet it does most of its business, employs most of it workers, and keeps much of its money overseas. The Obama administration wants to hold up Apple as an example of U.S. business success. But what does that say about American capitalism?

As far as Cook is concerned, it’s time for the 52-year-old operational wizard to finish up his PR tour and get back to the business at hand. Forget about disgruntled Apple shareholders; Einhorn is agitating on their behalf. Cook’s broader challenge is to figure out how to rejuvenate Apple’s identity as a radically disruptive company. Incremental updates to existing product lines like the iPhone and iPad are no longer going to cut it.

As Tim Cook sits with Michelle Obama tonight, it’s worth remembering the things that made Apple special to begin with. Steve Jobs, the son of a Syrian immigrant, was adopted by a middle-class family in the heart of Silicon Valley. The iconoclastic Jobs refused to play by the prevailing norms of American business. In doing so, he created one of the most stunning business success stories in the history of American capitalism. President Obama will lavish praise upon Apple tonight. Tim Cook is not and will never be Steve Jobs — and he knows that better than anyone. The question is whether Cook has what it takes to lead Apple into the next phase of the company’s extraordinary evolution.

4 comments
CodeJingle
CodeJingle

This is rubbish.  Most people don't even count the iPad as a new product category, in which case Apple only comes out with a disruptive product every 6 years (2001 for iPod, 2007 for iPhone, nothing before 2001, nothing after 2007).  If you want to count iPad as a great new thing then you would also count the iPad Mini, in which case Apple just came out with something new.  Apple paid 20+% tax on the portion of profit they made in the US, and Apple employs tens of thousands of employees throughout the US alone, so Sam is just full of himself.

firmsoil
firmsoil like.author.displayName 1 Like

Hey look, the guy from the "keep most profits offshore and cheat on US taxes" company is sitting next to the "fairness" guy's wife.