Is AAPL more than SJ?

Of the flurry of articles written today about Steve Jobs relinquishing his role as CEO from Apple, I picked this Forbes piece which seems to sum up the feeling of most analysts: Apple – like Microsoft before it – has outlived his charismatic CEO and will continue to prosper under Tim Cook.


Except Apple is exceptional – no other tech company managed to prosper the way Apple did in this decade; if you look up any of the big tech giants (IBM, H-P, Oracle, Cisco, Microsoft, Dell) none of them comes closer to the fundamentals Apple shows and, consequently, none of their stocks comes close to AAPL’ performance, not because of investor sentiment but simply because the company is a formidable money machine.

In that respect Forbes is right: provided Apple continues to clock in the stellar results it did during Jobs’ tenure, nothing should change. The question is then what will it take for the company to continue on this track record and this question is slightly more difficult to answer; recently on Seeking Alpha I came across an article explaining that one of the things Apple did exceedingly well was cost management, expressed as its percentage of Sales, General and Admin costs over Revenue.

But this is a reflection of the fact Apple has largely become a consumer company, where increases on revenue do not require more staff to be handled, which means its success hinges on its ability to guess what consumers will want: those same consumers who, as Forbes tells us, have no idea who Steve Jobs is, but want the iPhone 5.

So El Jobso leadership was not limited to his fabled black mock turtleneck stage presentations and the “reality distortion field” he projected, but became incarnate in blockbuster products like the iPhone or iPad which rocked entire industries and toppled what seemed invincible competitors like Nokia. Without those stroke of genius (which by the way allow Apple also to play smart tricks on procurement), without the fixation on completely vertically integrated products, without the knack for superior software design, Apple is nothing but another glorified assembler of commodity electronics.

Biggest challenges

I tried to list here what I perceive the biggest challenges will be for Apple (= benchmarks for Tim Cook):

  1. OS integration – iOS and Mac OS X are converging, but the completion of such evolution is potentially rife with numerous potholes, especially vis-à-vis the two different vocations of the Operating Systems; while OS X is a high-performance system conceived for high end multicore and fast clock processors, iOS was designed to run on a phone, with low energy consumption and limited cycles. Harmonizing the two may result in lacklustre performance on either (or both).
  2. Smartphone Wars – true, the iPhone is the most successful phone ever, but its market share is not growing anymore; most recent data suggest Android is the big winner, and is yet to be seen what will happen of Nokia, especially with rumors about the possibility it might be broken up and sold. Nokia is still a formidable competitor who invented smartphones and, were it not for some management blunders, it would not be in the weakened position it is; whether still in Espoo, or as part of an even stronger competitor like Samsung, HTC or LG, those abilities will not disappear and may give Apple a run for its money.
  3. PC business – eschewing the traditional Lego approach of all its competitors, Apple managed to make its personal computing devices “different” and – fanbois would say – better. However, its market share its still minuscule and it is hard to see how it could grow substantially without breaking into the Enterprise market which means a different, non-consumer sales model with different, much higher SGA ratios. Consolidation is looming in this industry, with the likely exit of market-share leader HP, and most major players losing money, so there is likely to be significant disruption coming; in such times, a CEO may need a crystal ball more than a spreadsheet…
  4. Intel tax avoidance – for all the taxes Apple doesn’t pay, the Intel tax on microprocessors is still there; will Apple manage to integrate vertically all the way to silicon with its own chip family? Currently iPads and iPhones are running Apple-designed Ax chips manufactured by Samsung, but the A5 is still light years away from best-of-class i7 multiple cores manufactured by Intel; were Apple to abandon Intel, i would be incredibly expensive and technically difficult to keep up in performance with all its competitors, not to mention the software ecosystem.

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