Posts Tagged ‘tim cook’


What have Apple and the Duchess of Cambridge not got in common? Answer: Apple still needs a new baby. It’s the point that the markets don’t seem to get about the company. Its shares have been falling faster than a guillotine on the head of the last King of France, but the markets have been way too quick to write the company off. Yesterday saw good news from Apple as profits beat expectations and shares rose; but still the real story is being forgotten.

The company’s latest set of results were out yesterday. Profits fell to $7 billion in the latest quarter, from $9 billion in the same quarter last year. To put the numbers in perspective, profits from the equivalent quarter in 2011 were pretty much the same, but in for 2010 were only $3 billion, and just $1billion in 2009. In other words, they have risen sevenfold in four years, which some might say is impressive.

It was a similar story with sales, but if anything a tad better. Sales rose 1 per cent on the same quarter in 2012, and have risen by more than 400 per cent over the last four years.

But the markets don’t care about all that. What they care about is whether the company did better than expected, and on this occasion it did. It was down to the iPhone. It sold no less than 31.2 million units of the old girl in the quarter (compared with 26 million this time last year), a record for that particular three month period, in fact.

Sales of the iPad were down, and so were sales of the Mac, although in the case of the latter, the fall was not as great as that seen by the overall PC market.

Apple’s problem is that it is now operating in mature, or at least mature(ish), markets. When smart phones or tablets become commodities, margins will fall – it’s simple economics.

The company’s boss Tim Cook said: “I don’t subscribe to the common view that the higher-end smartphone market has hit its peak.” He added: “We saw very strong sales in many of the emerging markets.” And indeed sales into India, Turkey and the Philippines rose substantially. (As an aside, note that bit about sales to the Philippines rising. It is a different story altogether but worth mentioning at this point that at the moment the Philippines is one of the hottest markets in the world, from an investor’s point of view.)

But the real point is that Apple has proven itself to be the master of disruptive technology. It did it with the iPod, iPhone and iPad. When it comes to established markets it is just another player. Okay, it’s one with very pretty products, and maybe an important player, but Apple has no inalienable reason to outsell, say, Samsung in its key markets.

Apple’s big test lies ahead. The key for the company lies not with tweaking existing products, but disrupting markets with new products, such as smart watches or TV players.

Mr Cook also said: “Our focus is always on new products and services,” and “We are laser-focused and working hard on some amazing new products that we will introduce in the fall and across 2014.”

So how about that? – laser focused, no less. Let’s hope that the new products are not laser discs.

© Investment & Business News 2013

Commodities. It’s difficult to make money in the commodities business. Barriers to entry are low, and prices often fall so much that profit margins are very low indeed.

The snag for the likes of Apple is that the smart phone business is looking increasingly like a commodities game.

Apple had first mover advantage, just like biro once had it with pens, and Hoover with vacuum cleaners, but will it be enough?

Investors are having their doubts, and despite the company posting a 61 per cent increase in profits on the year before in its most recent quarter, shares have been falling.

They are 33 per cent or so off peak price. Apple’s market cap is $445 billion, why that is only $40 billion or so more than Exxon Mobil. If Apple ain’t careful, it will lose its mantel as the world’s biggest company. In fact it did, for a few days in January.

But then you consider Apple’s cash pile, and that the forward earnings ratio of market cap to expected annual profits, or p/e ratio, of just 10.78. Strip out the company’s cash from the equation and the p/e ratio is not much more than seven. That’s a pretty tiny multiple for what has been one of the fastest growing companies in the world over the last ten years.

Investors are fretting over Apple’s profit margins, which have been falling, and are scared that the company cannot carry on growing when the smart phone business is looking like a commodity business.

But whatever you do, don’t write the company off yet.

Steve Jobs may no longer be with us, but Apple’s design man – the fellow said by some to be as important to Apple’s success as Jobs – Jonathan Ive is very much part of the company still.

Last year, while in London and collecting his knighthood, he said that the product he is working on now feels like Apple’s most important product to date.

So what is it?

Most are expecting Apple to release its iTV player.

But now the rumour mill has churned out talk that the company is planning a smart watch. The breakthrough technology for this to work must be a screen that can curve. Well we know Apple has been working on precisely this technology.

So what will this smart watch do? Your guess is as good as anybody’s – except Tim Cook Apple’s CEO and Jonathan Ive that is.

But it sounds intriguing, doesn’t it?

Apple has no God given right, no irreversible reason why it should out innovate its rivals. The company one day will fall victim to reversion to the mean, and will be just another player. That day may be close. Or it may not be.

It is possible Apple is about to do for smart phones what the wrist watch did for those old fashioned pocket watches. And that will be something to watch.

©2012 Investment and Business News.

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They say Steve Jobs used to fire staff in the elevator. So this was the nightmare scenario for you if you worked at Apple. You step into the lift and just as the doors close, a hand reaches in, the door slides back open and there stands the familiar figure of Steve Jobs. At this point you have limited options. You can pray that Jonathan Ive steps in too, and then you will probably be ignored. You can try to hide in the shadows and hope Jobs doesn’t spot you.  Or you can tough it out, look the potential death of your career in the face, and smile. Regardless, what often happened was a series of quick fire questions, about you, your role in Apple and what you thought about this, that and the other. When the lift journey came to an end, you may well have found you were out of a job.

Today, Apple’s CEO is Tim Cook, and the axe has been wielded, although on this occasion no elevator seems to have been involved.

Out goes a Brit. John Browett is a former CEO of Dixons, and a high flyer at Tesco. He was charged with leading Apple’s retail strategy.

Out goes Scott Forstall, the man who headed iOS software.

Browett was the first appointee of Tim Cook. Forstall had been with the company since 1997. He joined Apple along with Steve Jobs himself, and before that was with the special one at NeXT.  In other words, Forstall was a Jobs man through and through, working with the Apple founder during his wilderness years post and pre Apple. He was considered by some to be the Apple CEO in waiting.

It is not hard to see why Forstall has gone – actually he is leaving in a few months’ time, if you want to be precise. The Apple maps on the latest iPhones were a disaster (darling).

Up goes Jonathan Ive. He is now responsible for the look and feel of software. He already held a similar role for hardware.

Ive has now taken on the kind of role once held by Jobs himself.

If Apple is all about design, design and design, then Jony, Jony, Jony is the man.

But how long can it last?

Regression to the mean is a term all mathematicians know about. These days economists understand it too. In the long run it is not possible to continuously do better than your rivals, unless you have some innate advantage.

Microsoft was in danger of suffering regression to the mean when DOS was coming to an end. It avoided a downfall by playing to its size, and experimenting; trying lots of different ideas, Windows being one of them. It seems to have forgotten that lesson, although the new Surface product does seem pretty exciting.

Companies such as GlaxoSmithKline may enjoy long term success by building upon their huge distribution network and financial clout, to market products developed by third parties.

In a funny way, even Facebook has an asset that may provide long term value; after all its network of users provides an inherent asset that is not going to disappear in a hurry

Apple just has to go on being brilliant.

And Jonathan Ive may just be brilliant enough to ensure the success continues. And, by the way, the company’s valuation is surprisingly modest compared to profits, bearing in mind its recent growth trajectory.

But nothing lasts forever, sooner or later regression to the mean occurs. Are the recent departures at the top a sign of this, or merely indicative of a company ensuring it stays at the top?

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here