AMITIAE - Sunday 27 January 2013

Why would Wall Street want Apple as a Broken Company (2): Repeating Themes

apple and chopsticks


By Graham K. Rogers

Tim Cook

Apple is not a broken company: far from it. Reports in some sources might have us believe that Cupertino was about to put up the shutters. Perhaps it is Wall Street that is broken and their short term gains are more important than long-term company health. However, Wall Street is aided and abetted by a shoddy press who often fail to analyse. Many in the press also rely on unconfirmed rumours, citing them as fact.

In Part One I looked at an overview of Apple and its perceived problems - at least as perceived by Wall Street and some in the media - with some of the background. Here I examine some of the specific themes that appear in the press as apparent evidence that Apple is done and there must, therefore, be changes. Some of the comments overlap as they are to an extent integrated with what Apple is. [All images here are reproduced with the permission of Apple.]

Tim Cook is the Wrong Man

Looking at Apple over the years, Steve Jobs made some good decisions and some bad decisions. While the press ignore the negatives now in their attacks on Cook, they were less reticent in the 1980s and 1990s. Nor were some shy about criticising Jobs when, for example, the iPhone was released, Rob Endlerle (always good for a laugh), wrote, "2007 may be starting out as one of Apple's worst years this decade." and his expert analysis on the iPhone was "It comes in at a nosebleed price, it has really lousy estimated battery life, it uses the aging 2.5G wireless network, and both the hardware and the OS on it are relatively new -- read probably buggy."

To be fair, Enderle is not alone and this tone is used by many critics more and more these days: knee-jerk reaction, get in early, and being wrong is not a major problem: or so it seems. Endlerle's choice over the iPhone, by the way, was the LG Prada phone. Has anyone seen one of those recently?

Tim Cook was chosen by Steve Jobs for some good reasons and despite the round table of Executive Vice Presidents that are the core of Apple's success, Cook was nominated to head the company in the interim periods when Jobs was ill, and when he gave up the CEO position as Jobs' illness took over.

Jobs knew what time of man Cook is. His abilities to control the executives and the company were what prompted the decision, as well as the ways in which he organised the supply chain (his area of expertise - not technology per se) ensuring part of that long term profitability and growth that Apple enjoys.

Almost from the moment Jobs died - up to then some of the press felt he was like Bill Gates, hovering behind Steve Ballmer - Cook's suitability to head the company was under fire on a number of fronts. He seems to have no personality, he is not good at presentations, he does not have the vision of Jobs, and (most important) he is not Steve Jobs. Oddly, Steve Jobs knew that.

Cook is from the south and there is a lovely understated way in which he speaks. It may not be the best for product presentations, but works superbly in meetings ("Why are you still here?" ).

mini_me As to his managerial strength, while Scot Forestall was sometimes cited as a future CEO and a favourite of Steve Jobs, his dismissal showed that Cook was not afraid to get his hands dirty when the occasion arose. Forestall was well liked within his own group, but was a source of friction among other executives (notably Bob Mansfield and Jony Ive) who would only meet with Forestall if Cook was present - indicating the level of control Cook might have.

Allegedly when Forestall declined to take responsibility for the Maps app data (the app was fine and had already been used with Google data), Cook wrote a public mea culpa and Forestall's fate was sealed. Note, however, he was not dismissed immediately - despite press reports claiming this - he was removed as Executive Vice President and made to report to Cook for the next few months.

This is what officials in Thailand refer to as being moved to an "inactive position". In this way, Forestall will not be able to see any current developments, so the value of secrets he takes with him (even with the non-disclosure agreement he will have signed) is diminished when he does leave Cupertino officially.

A lot of people think that Tim Cook does little. Nothing could be farther from the reality and it is hard to understand why they think this way - they only have to look. It is also difficult to understand why some want him off the board and out of the CEO position. I have a number of ideas about the CEO job and what the real reasons may be, but those who suggest his removal are thin on evidence.

As CEO he has made more of an effort to develop a public face: that comes with the job. He spent a while in New York late last year being interviewed by some important columnists and presenters; and when the time comes for Apple product releases, he is up there now with a little more bite (even some jokes) outlining the recent successes of the company, before stepping aside to let those with the product knowledge do their job.

Particularly, we may think of Phil Schiller whose full knowledge of the products he is demonstrating are clear - he is carrying on the Jobs' mantle here with the depth of preparation. Also worth mention is Craig Federighi who also has shown a good level of understanding of what he is presenting. Scott Forestall used to do a first rate job at these presentations, but that is another story.

And when the main part of these shows is over, like the excellent ringmaster that he is, Cook returns to the stage to tie up the loose ends. He is no Steve Jobs, but Cook and the support team do as good a job.

Jony Ive for Chairman

Ives Steve Jobs has gone, if Tim Cook were to go, who would replace him. One of the candidates was Scott Forestall, sometimes referred to as Mini-me to Jobs; but that CEO is apparently not going to happen in this world for Forestall.

Also put forward sometimes is Phil Schiller who might actually make a go of it for a while, but he does not seem to have the overview that a CEO needs. He has excellent knowledge of the company and has been involved in some top level decisions for years; but something does not fit in my view, at least not for the time being. He has been with Cook to China, so is learning more about other areas of Apple over and above his sphere of marketing, but at best, for now, he is waiting in the wings.

As well as these candidates in the unlikely event that Cook were to be removed, other suggestions have been for an outside candidate to fill the CEO shoes. Those putting this forward have not been paying attention. That has been tried before, and while it seemed a good idea at the time, it turned out to be one of Steve Jobs' biggest mistakes, although the wilderness years gave him the bite to make Apple succeed when he returned.

Sculley, Spindler, Amelio knew nothing of Apple's DNA and through layer upon layer of errors almost ran Apple into the ground. Note also other companies that try this route, most notably Hewlett Packard which has managed to gut itself by moving away from the core products that made it so strong. This was also a Steve Jobs rule, Stick to what you do best.

But the same people who want Cook off the stage because they claim he is not much of an orator, are pushing someone who has even less of a public voice, unless it is pre-recorded or in carefully organised one on one interviews where he can just be himself.

Apple has lost its way

The idea that Apple is somehow wandering in a technical and financial wilderness began to form when Steve Jobs died, although the same theme had been heard while Jobs was alive too which suggests that this is somewhat hollow. No one could replace, The Steve, was the cry; and Cook, despite being the choice of Jobs, was not the man for Wall Street, nor for the blogger sheep.

Before a new product is revealed, there are countless rumours about what it is, what it will do and when the announcement is finally made by Apple, the popular press leaps on the advance with the idea that there is no innovation here: Apple is done.

Apple also is supposed to be lost in the economic sense as whenever the numbers are revealed they fail to meet analysts expectations and there is a great cry of "Woe and Alas" from the very people who got it wrong: why blame yourself when you can blame Apple?

The latest figures are a perfect example. Shares heading down for months (like the year before) expectations missed as for Q1 2012 and other quarters, and a subsequent share price drop. Only this time, an unusually large bock of shares was put up for sale in the very last second of trading: the intent here can only be to force the price down even more.

Apple may have been feeling some frustration with the way the analysts' chicken entrails were more important than its own guidance (which some suggested was "sandbagging"). To try and counteract their negative influences, Daniel Eran Dilger on AppleInsider reports on a change in the way Apple outlines guidance and now provides a range of expectations. The background in this article is worth examining and Daniel Eran Dilger has a clear perspective of the situation.

A look at what goes on at Apple - despite the limited amounts of real information available - shows that it is far from lost. Recent expansion, coupled with the revelation that it has secretly been working with the largest Chinese carrier for 4 years, as well as other plans for China are points that suggests Apple is still pushing as hard as before. Products are still being developed, by evolution as well as revolution, although much of that revolution is invisible to the eye. In several other countries too (as well as the USA) Apple has plans for expansion.

The rumour mill used to be a way that Apple could milk to generate interest in upcoming products: one email invitation launching a thousand online articles within minutes. Nowadays, rumours have become a stick with which to beat Apple around the head.

No more innovation

When the iPhone 4S was announced, some commentators immediately declared that Apple had stopped innovating, Apple was dead and we had all better move on. Some commentators did actually stop to look at the specifications and to those who did, it was clear that there had been considerable advances.

iPhone5 The same happened with the iPhone 5. A couple of weeks later, when some sites (e.g. AnandTech) disassembled the device and showed how clever it all was, it was too late: the Apple-is-not-innovative-any-more mantra had begun (and not for the first time).

At the same product announcement presentation there was also a new MacBook Pro 13" with Retina display, and a new range of thin iMacs that used a fusing technology (created at a British university) for joining parts of the front. Along with the patents concerning the way iOS devices and Macs work, Apple has a considerable number of patents for innovations in industrial techniques.

To these numb-nuts analysts and their blogger acolytes, Apple does not seem to be innovating because they only look at the last product, they only look at the surface (although how the screen change in the iPhone 5 was not an innovation is beyond me) and there is little examination of other aspects of Apple's operations, especially software and industrial processes.

Apple has stopped growing

The profit reported in the latest financial results was identical (give or take a few dollars and cents) to the same quarter a year ago. Revenues were up to record levels, sales of iPads and iPhones were up, and Mac sales were down, but this had been predicted and ignored. What was also ignored by many was that these figures reported a shorter quarter than the year before (13 as opposed to 14 weeks) and that this is a time when the rest of the IT industry is contracting: reporting lower sales, apart from Samsung in the handset business.

That sales of the devices (including the iPhone 4S which is still in production) is up, is ignored. Shipments are still at high levels and the iMac production problems are now fixed, so deliveries of these will increase.

There is also the question of market saturation, especially with the handheld devices and the appearance in the market of excellent products from other companies, most notably Samsung. While for some there may be questions about litigation between the two companies and about who created what, the reality is that there is healthy competition with (presumably) a limited number of buyers.

Sales figures do not tell the whole story here. If we were to use these as a basis, Samsung (with 37 handsets released in the last 12 months) would win hands down. Apple released one iPhone and two iPads. However, it is reported that Apple is making 75% of the profits in the smartphone market. That would appear to be a useful figure.

Currently rumours (ah, those rumours) suggest one or two new iPhones on the way (iPhone 5S and iPhone 6). Some commentators are also wetting their pants for a downmarket iPhone (for the masses). We mark this as a "who knows" but "doubtful": this is not how Apple works.

In Part One, I examine the background to Apple's recent outside pressures

In Part Three, I speculate as to some reasons why Wall Street might put Apple under attack

Graham K. Rogers teaches at the Faculty of Engineering, Mahidol University in Thailand. He wrote in the Bangkok Post, Database supplement on IT subjects. For the last seven years of Database he wrote a column on Apple and Macs.



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