Mr. Sensitive

January 24, 2013

Rotten AAPL

Filed under: Uncategorized — lbej @ 14:11

Is the cult of Apple dead?  The company reported quarterly results on Wednesday and the numbers are staggering: record quarterly revenue and earnings of $54.5 billion and $13.1 billion, respectively, and record sales for iPhones (47.8 million units) and iPads (22.9 million unites).  CEO Tim Cook described the results as “extraordinary,” and he’s absolutely right.  Alas for Timmy, they’re also disappointing.  Earnings per share came in slightly higher than the Street expected, but total revenue was below expectations, as were other key metrics, including iPhone and iPad unit sales and gross margin.  The market crushed AAPL stock, driving it down $60, or 12%, after the earnings report.  After trading above $700 a share in September 2012 and becoming the most valuable company in history, AAPL shares have fallen 35%, wiping out nearly $240 billion in market value along the way.  To put that in perspective, only one other U.S. company—Exxon Mobil, at $415 billion—has a total market value greater than the market value Apple has lost over the last four months.  By any conventional measure, Apple is dirt cheap.  It trades at 10 times earnings, far below the market multiple of 17.  It trades in line with slow-growing tech giants like Cisco, Intel, and Microsoft.  At least it still trades at a higher multiple than struggling PC maker Dell’s 8.9; no one thinks Dell deserves a higher valuation than mighty Apple.  But hang on—strip out the $137 billion in cash on Apple’s balance sheet, and the earnings multiple drops to 6.9.  It even yields over 2% after the stock’s four-month swoon.  So what’s the problem?

The problem is that the market discounts future results; it only cares about past performance to the extent past performance bears out management’s vision for the future.  Tim Cook has not provided a compelling vision, only the most ardent AAPL bulls still believe he can.  Even more troubling is the mounting evidence that Cook thinks he’s got the vision thing down.  Any successful leader can tell you that it doesn’t matter if your vision is clear when no one else can see it.  If the people you’re supposed to be leading don’t know what your vision is, then you don’t have a vision—period.  Even if Cook doesn’t possess the marketing and product design genius of the Divine Jobs—and he doesn’t—he can at least convince investors that he has tangible, fruitful plans for the $137 billion(!) in cash his company is doing nothing with.  He hasn’t made a case for his plans for the cash hoard, either, and that’s why the market doesn’t assign it any value.  That’s a lot of cash for one man to render worthless.

Steve Jobs was an asshole.  Even his admirers understood that about him.  He wasn’t successful so much because he was a genius—and he was—as because he knew what to do with his genius, namely, wrap it in corporate power and beat your face in with it.  That’s why Apple’s ecosystem is closed and compatibility with non-Apple devices has been conceded slowly and grudgingly.  That’s why Apple outsourced production of everything it could—and some things it couldn’t (right, Foxconn?)—in pursuit of every basis point of gross margin possible.  That’s why the great artiste of the digital age proposed to the CEO of Palm that they collude against employees and, when the more ethical man balked, threatened to bury Palm in patent infringement lawsuits.

That’s collusion and extortion—it’s not art.  Could Jobs have built Apple in the world’s most valuable company without that combination of brilliance and ruthlessness?  Not a chance.  To this point, Tim Cook hasn’t demonstrated either quality, and today his shareholders are paying the price.


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