Thursday, August 25, 2011

Apple Without Its Core

Change at the top can be wrenching in Silicon Valley. At many technology companies, founders loom large and success is often closely tied to his or her personal vision.

This is especially so at Apple (NASDAQ: AAPL). News of its founder Steve Jobs' resignation as CEO sent Apple shares lower.

Mr. Jobs is widely credited with returning triumphantly to Apple over a decade ago to lift it from irrelevance to be battling only ExxonMobil (NYSE: XOM) as the most valuable US company.

He has personally overseen the introduction of products including the iPhone, iPod and iTunes online music store. The popularity of these products has transformed the hand-held computing, mobile phone and digital download markets. Mr. Jobs is also the driving force behind the iPad. In its first year, it has captured a large chunk of the tablet computing market and spawned a host of imitators.

“He's redefined consumer electronics this century,” said technology analyst Richard Doherty.

Steve Jobs is also seen as the guardian of the powerful Apple brand. And as the visionary who has presided over a successful melding of digitized content with reliable consumer electronics products.

The Next Stage

What comes now for Apple's investors? Apple has been heavily criticized for not making public a clear plan of succession at the company.

For now, as he did during Mr. Jobs' prior leaves of absence, Apple's chief operating officer Tim Cook will run the show and become the CEO.

Mr. Cook has been with Apple since 1998. During this time, he learned the value of instinctive decision-making working for the creative and exacting Mr. Jobs. The ability to balance his engineering, manufacturing and business background with the more rapid and innovative decision-making style he has learned from Mr. Jobs will be critical in the months ahead.

Apple does face a crucial period as it makes its bets on its new wave of technologies. This wave includes the next generation of its celebrated iPad tablet and iPhones.

In the short term, Apple will continue to flourish. Mr. Jobs departure will have little impact for at least a couple of years. As Charles Golvin, an analyst at Forrester Research, said “The next wave of [Apple] products has already been designed.”

Based on his prior stints running Apple, in 2004, 2009, and most recently, Mr. Cook will most likely do a fine job again. So Apple shareholders will have little to worry about for now. But he still has much to prove if he has to take over Mr. Jobs' role over the long term.

Does Apple Need a “Great Person”?

Whether Mr. Cook will be the one to take Apple forward or a future dark horse will emerge with an unerring sense of what consumers want, ala Steve Jobs, is the great uncertainty for Apple shareholders.

Corporate history tells us that the more “creative” a business is, the more of a difference a visionary executive can make. Look at Mr. Jobs, perhaps the world's greatest electronics products genius.

Many Apple shareholders cannot imagine that the company would have gone from near extinction little more than a decade ago to the success it is today without Steve Jobs. And they cannot imagine Apple maintaining its dominance without him or his clone. They are believers in the “great person” theory of business.

Apple's Future

But what about the non-believers in this theory, who don't have a cult-like obsession with Mr. Jobs? How should they look at Apple right now?

How important Steve Jobs actually is to Apple is unknowable at this time. The company's PR machine has created a monster by not reining in the perception that Steve Jobs IS the company.

But no one man, no matter how talented, can run a company in today's global economy alone. Some of the company's best ideas have actually bubbled up from below rather than coming directly from Mr. Jobs.

All along Mr. Jobs has had the help of Tim Cook and many others. The difference is now that Mr. Cook will be the point man instead of the more colorful Mr. Jobs.

And again, Mr. Cook will not be alone in running Apple. He is backed up by a strong 'bench' – industrial design chief Jonathan Ive, marketing chief Phil Schiller, Scott Forstall, the executive in charge of iOS software and other talented executives. In fact, some former employees have suggested that the decision-making process will be even smoother now than with Mr. Jobs as CEO.

A look at Apple's stock shows that it trades at a reasonable ratio to 2011 earnings. Additionally, Apple is still growing strongly and has 30-odd per cent operating margins that are the envy of other phone and PC makers.

So for the short term any weakness in Apple's stock looks like a buying opportunity for investors. The longer term outlook is still unknowable.

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