Apple is clearly not Steve Jobs' company any longer, analysts said this week, citing examples from the recent earning calls with Wall Street.

Eighteen months after the co-">

Moves, mistakes prove Steve Jobs era at Apple over, say analysts

Gregg Keizer
29 April, 2013
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Apple is clearly not Steve Jobs’ company any longer, analysts said this week, citing examples from the recent earning calls with Wall Street.

Eighteen months after the co-founder and former CEO’s death, Apple is a very different company, the experts argued, driven by current CEO (chief executive officer) Tim Cook to make moves Jobs would have dismissed out of hand, and making mistakes that Jobs would not have tolerated.

“I just don’t think Apple is running quite as well as in Jobs’ days,” said Ezra Gottheil, analyst with Technology Business Research. “Mistakes have been made, like the poor performance of newer OSes on older hardware, Maps, the miss on the iMac, the neglect of the professional market.”

Cook, in fact, rued the decision to launch the iMac, the firm’s hallmark all-in-one desktop, last October even though Apple had no hardware to ship.

“If we could run it over, frankly, I would have announced the iMac after the turn of the year, because we felt our customers had to wait too long for that specific product,” Cook said during the earnings call.

Apple unveiled a slightly-thinner iMac last October, but did not begin selling the desktop until five weeks later, and then only the smaller of the two models. The larger 27in iMac finally started selling in mid-December, seven weeks after its introduction. Both were in short supply until deep into the quarter ending 30 March.

During the bulk of those five months, Apple had few if any iMacs to sell, as it had pulled the previous models from its e-store and not restocked its brick-and-mortar outlets.

The lack of iMacs was a prime reason why Apple’s fourth quarter 2012 Mac sales dropped 22 percent, and the shortages also contributed to the two percent downturn in 2013′s first quarter.

“Is this a formula for disaster?” asked Gottheil. “No. Apple will find its rhythm again. It will be a less spectacular company, but still a solid one.”

Other analysts saw the Cook era differently, but like Gottheil, used the latest quarter’s financials – and Apple executives’ explanation of the results – to make their points.

“This is where Apple becomes human,” said Patrick Moorhead, principal analyst at Moor Insights and Strategy. “Both the CFO (chief financial officer) and CEO said margins are going to get to a normal rate – less than 40 percent – and coming back to the ground. They’ve been in the stratosphere, but that’s not going to happen again.”

Jobs would not have allowed margins to fall to the levels Apple have just predicted, argued Moorhead. Nor would Jobs, as secretive as he was, have spelled out the company’s strategy as clearly as did Cook and Peter Oppenheimer, Apple’s CFO, in the 23 April call.

“What was very telling from the series of questions with the CFO about gross margins was that Apple essentially mapped out its strategy,” said Moorhead. “They basically said that they’ll use penetration pricing on new products to scare competitors out of the marketplace. Apple will show up in a market, get a grip on it, then take lower-than-average margins on that product to drive the competitors into the sea.

“After a time, when everyone else has left the market, Apple will be able to milk it for profit,” Moorhead said.

Moorhead based that interpretation on Oppenheimer’s acknowledgment that Apple’s margins had fallen, and would fall even further. In the next quarter – as far ahead as Apple’s willing to forecast – Oppenheimer said gross margins would run between 36 percent and 37 percent.

First-quarter margins were 37.5 percent, down a fourth from 2012′s 47.4 percent in the same period. In the 2012 quarter that ended 30 June – comparable to what Oppenheimer said would have a 36 percent to 37 percent margin this year – Apple reported gross margin of nearly 43 percent.

Jobs was adamant about pushing for high margins, not that he was always successful.And he was dead set against returning revenue to shareholders via dividends or stock buy-back programs, both of which Cook has instituted.

In fact, on the financial side, the big news from Apple last week was that it will expand its stock buy-back plans to spend US$100 billion by the end of 2015, more than doubling the original program’s target expenditure of US$45 billion over three years.

And Apple will borrow to fund part of the buy-back, even though it has huge cash reserves, something the anti-debt Jobs would never have brooked. Analysts explained that move as meant to avoid US corporate income taxes applied when overseas funds, of which Apple has a sizable amount, are repatriated.

None of the analysts, even Gottheil who cited the mistakes under Cook’s watch, felt the current CEO is in over his head, or is running Apple off the tracks. But because he’s different, so is Apple.

“I certainly can’t fault him,” said Carolina Milanesi of Gartner, when asked her take on internet critics of Cook. Some of the most aggressive have called for his head as the company’s stock price plummeted. “He has a more sober communications style, which is very different from Jobs.”

Milanesi’s only complaint? Cook and Oppenheimer constantly referring to IDC, Gartner’s research firm rival. The two executives cited IDC seven times in the earnings call, Gartner –Milanesi’s employer – once.

“I thought, ‘You mention IDC one more time…’” Milanesi said, laughing.


By Gregg Keizer, Computerworld

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