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MEMO FROM THE FUTURE: APPLE

CEO Edition

BOARD STRATEGY SESSION June 2030

TO: Apple Board of Directors

FROM: Tim Cook, CEO

DATE: June 2030

SUBJECT: Reinventing Apple in the Age of AI Agents

OPENING

This memo is difficult to write because it acknowledges something we've been reluctant to admit: the iPhone upgrade cycle, which has been the engine of Apple's growth for 23 years, is genuinely threatened by AI agents.

This is not temporary weakness. It's structural change. And it requires us to rethink what Apple is and where our growth comes from.

THE REALITY

iPhone unit sales are down 4% YoY. More concerning, the upgrade cycle is extending from 3.1 years to 4.2 years.

Why? Because iPhone 16 and 17, despite being excellent phones, don't offer compelling upgrade incentives over iPhone 14 or 15.

Apple Intelligence is good, but it's slower and less capable than cloud AI. Users can access superior AI through ChatGPT or Gemini on any device. On-device AI processing is a nice-to-have, not a must-have.

Meanwhile, AI agents are disintermediated apps. When a user asks Claude "find me the cheapest flight to London," Claude is handling the search, comparison, and recommendation. Apple doesn't touch the transaction. The App Store commission ($0) is less than the $15-30 we would have made from the Skyscanner app purchase.

This pattern is repeating across shopping, booking, content consumption, and dozens of other use cases.

The implication is stark: for the first time, Apple's installed base is not driving upgrades at the historical pace.

WHERE WE ARE

The company is profitable and generating enormous cash. But the growth narrative that justified our current valuation (35x earnings) is no longer credible.

The market senses this. Our stock is down 12% from peak, trading at a valuation that suggests investors are repricing us from "growth company" to "mature company with stable cash flows."

THE OPTIONS

I see four strategic paths forward:

Option 1: Reinvigorate iPhone

Thesis: The upgrade cycle can be revived with truly transformative features. We haven't tried hard enough.

How: - Partner with or acquire an AI company (Anthropic, xAI, Hugging Face) to develop superior models optimized for on-device processing - Invest $5-10 billion in AI R&D to achieve parity with cloud models while maintaining privacy - Launch iPhone 19/20 with a genuine AI breakthrough that makes users want to upgrade

Timeline: 3-4 years to develop technology, launch iPhone 19 in 2032-2033

Probability of success: 20-30%. The physics of on-device processing will always be a constraint. Cloud models will maintain advantage.

Financial impact: If successful, restores iPhone growth to 5-7% annually. If unsuccessful, we've wasted $5-10B.

Option 2: Bet on Vision Pro

Thesis: Spatial computing will be the next major computing platform, like iPhone was after the PC. Apple should lead this transition.

How: - Accelerate Vision Pro roadmap, invest in next-generation hardware (lighter, better display, lower price) - Launch Vision Pro at price points ($2,000, $1,200, $600) to reach mass market by 2032-2033 - Build ecosystem of applications that only make sense in spatial computing - Market Vision Pro not as "novelty" but as the "primary computing device of the future"

Timeline: 5-7 years to achieve mainstream adoption

Probability of success: 15-20%. The use cases for spatial computing remain unclear. Mainstream adoption is uncertain.

Financial impact: If successful, Vision Pro becomes a $30-50 billion business. If unsuccessful, it's a perpetual niche product.

Option 3: Pivot to Services

Thesis: Hardware is saturating. Services is growing and more defensible. Shift capital allocation toward Services growth.

How: - Expand Services from 20% to 35-40% of revenue within five years - Develop new services: Apple Health Intelligence, Apple Financial Services, Apple Travel Services, Apple Workplace (competitor to Microsoft 365) - Price these services as premium offerings ($15-30/month) bundled with Apple One - Position Apple as a "lifestyle" and "health" company rather than just a hardware company

Timeline: 5-7 years to reach 35-40% of revenue

Probability of success: 70%. Services are growing; we have the ecosystem to build new services. This is credible.

Financial impact: Total Services revenue could reach $150+ billion by 2035. Gross margins 65-75%. This is attractive.

Option 4: Return Capital and Stabilize

Thesis: The iPhone has matured. The installed base is satisfied. Rather than reinventing, return cash to shareholders and maintain the business as a cash cow.

How: - Reduce R&D spending on growth initiatives - Increase buyback program from $100B to $150B+ annually - Increase dividend from $0.24 to $0.35-0.40 per share - Accept that iPhone growth has peaked at ~5-10% CAGR through early 2030s, then stabilizes

Timeline: Immediate; results apparent in next 2-3 years

Probability of success: 95%. This is the "safe" option.

Financial impact: Stock returns 4-6% annually (dividend + buyback). This is acceptable but not exciting for growth investors.

MY RECOMMENDATION

I'm recommending a combination of Options 2 and 3.

Here's why: Option 1 (reinvigorate iPhone) has low probability of success and requires us to compete with companies (Anthropic, OpenAI, Google) that are better positioned in AI. We shouldn't try to beat them; we should work with them.

Option 4 (cash return) is the "give up on growth" option. I'm not ready to make that call, especially given the amount of capital and talent we have to deploy.

Options 2 and 3 are complementary:

Together, they allow Apple to grow into a company where: - Hardware remains 50-55% of revenue but growth slows to 2-3% annually - Services grow to 35-40% of revenue with 8-10% annual growth - Total company growth: 4-6% annually, acceptable for a $2-3 trillion company

EXECUTION PLAN

Phase 1: Services Acceleration (2030-2032)

Target Services revenue growth: 12-15% annually through 2035, reaching $150+ billion.

Phase 2: Vision Pro Evolution (2030-2035)

Build ecosystem of spatial computing applications and content. Market Vision Pro as "the future of computing."

Target Vision Pro revenue: $40-50 billion by 2035.

Phase 3: Strategic Partnerships

FINANCIAL IMPLICATIONS

By 2035:

Stock returns: 4-6% annually from dividends and modest capital appreciation, reaching stock price of $280-320 by 2035.

This is not the 15%+ annual returns Apple shareholders have enjoyed historically. But it's sustainable, defensible, and appropriate for a company of Apple's size and maturity.

CLOSING THOUGHT

Apple has been the greatest technology company of the smartphone era. The iPhone revolution lasted 23 years, which is extraordinary by any measure.

As we enter the AI era, we can't rest on the iPhone. We need to identify and lead the next major platform. I believe that platform is spatial computing, and I believe Vision Pro is the right bet.

But we also need to acknowledge that the iPhone will mature. Rather than fighting this, we should embrace it and build new growth engines (Services, Vision Pro) that compensate.

This strategy allows Apple to remain a growth company for another decade, even as the iPhone transitions to a mature product.

Let's execute on this path.

Tim

Confidential — Board of Directors Only