STEVEJOBSANDAPPLE

STEVEJOBSANDAPPLE

STEVEJOBSANDAPPLE CONTENTS
PREFACE:STEVEJOBSLEGACY..................................................................... Page3 THEMAN:GENIUSANDSICKNESS ................................................................ Page6 THEPRODUCTS:CREATIONANDDISRUPTION ........................................... Page14 THECOMPANY:VALUEANDTHEFUTURE.................................................. Page21 ABOUTUS ................................................................................................... Page33

Front cover: With a projected image of the new Apple PowerBook G3 behind him, acting Apple CEO Steve Jobs speaks during a presentation of Apple's new G3 line of Macintoshes and PowerBooks at the Flint Centre in Cupertino, Nov. 10, 1997. Reuters/Lou Dematteis.

STEVEJOBSANDAPPLE

PREFACE:STEVEJOBSLEGACY
ThiscollectionofBreakingviewsarticlesonSteveJobs,Appleanditsindustryisbest introducedbytheviewwepublishedfollowingnewsofhisdeathonOct.5,2011.The articlesincludedherehavebeenselectedtoofferinsightintotheApplestory,the competitiveimpactofJobscreativegeniusandthecompanysmostlikelybrightfuture. RichardBeales,AssistantEditor October2011 JOBSWORTH ByRobertCyranandRichardBeales SteveJobshasdiedat56.Hewasnoordinarychiefexecutive,andheleavesnoordinary company.TheforcebehindtheiPod,iPhoneandiPadnotonlycofoundedandthen rescuedApple,buildingitintothemostvaluabletechcompanyontheplanet,worth some$350billion.Healsochangedthewaypeoplelive.Itsarareentrepreneurwho leavesthatlegacyandacompanythatcanthrivewithouthim. Jobsdroppedoutofcollege.AndhewasforcedoutofApplelessthanadecadeafter startingitwithSteveWozniak,havinglosthisfighttopromotenewMacintosh computersinsteadofmoreprofitable,lesscapablemachines.Butthesemomentsof changeprovedcentraltohislatersuccess.Ina2005Stanfordcommencementaddress, Jobstalkedofhow,forexample,calligraphyclasseshetookafterdroppingoutofcollege influencedthedesignoftheMacintosh,arguablyApplesfirstworldchangingdevice. Hewasalwaysreadytomoveon.HecalledbeingfiredfromApplethebestthingthat couldhaveeverhappenedtome.ItseasytoforgetthatJobsbuiltPixar,the astonishinglysuccessfulcomputeranimationcompany,whileinexilefromApple.Even beforePixar,hefoundedNextComputer,makingdeviceswithanoperatingsystemfar aheadofitstime.ThisplayedaroleinApplessuccessafter1996whenitboughtNext, bringingJobsbackintothefold.

STEVEJOBSANDAPPLE

Alongwiththevision,driveandperfectionismthatledtoastringofsuccessfulproducts, JobsdidbringalessdesirablecultofsecrecytoAppleafterhisreturn.Inonesense,it servedthecompanywellwhentheiPhonelandedandshowedtheworldthereal potentialofsmartphones,itshockedtheindustry.Itwas,asanobserverputitatthe time,likeitdroppedoutofawormholefromthefuture.Butinhandlingthebosss healthproblemsinrecentyears,Applestightlippednaturecausedinvestorstogetless informationthantheydeserved. Evenso,thecompanysgreatestsuccess,theiPhone,wasdevelopedafterJobshad survivedtheinitialonslaughtofcancer.AndApplejustthisyearbecamethemost valuablecompanyinAmericaforatime,anditsmarketvaluenowonlyjustlagsExxon Mobils.Bysomemeasures,Jobscreationoughttobeworthmuchmore.Thesuccessof itslatestcategorycreatingproduct,theiPad,meansitsgrowthpotentialremains powerful.Andthecompanyhasanimpressivearrayoftalentevenwithouthim. Dontbetrappedbydogma,JobstoldthatgraduatingStanfordclass.Dontletthe noiseofothersopinionsdrownoutyourowninnervoice.Appleisalegacyinitself,but itsthedevicesbornofthatphilosophythatarguablymattermost.Likeallgreat inventors,Jobscreatedthingsthatpeopledidntevenknowtheywanteduntilmillions ofthemjusthadtohavethem. PublishedOct.6,2011

STEVEJOBSANDAPPLE

STEVEJOBSANDAPPLE

THEMAN:GENIUSANDSICKNESS
ROTTENAPPLEFORTHETEACHER ByRobCox SteveJobsdidaterrificjobofpullingthecompanyhestartedtwodecadesagoupbyits bootstrapswhenherejoinedin1997.ButinvestorsinAppleComputerarestillnotgiving himthebenefitofthedoubt.Witnessthespectacular$8billionpluswipeoutofmarket valuefollowingthesurprisewarningaboutfourthquarterand2001earnings. Applecertainlydeservedaspankingforambushingthemarket.Yettheextentofthe punishmentshowsinvestorsarenottakingitonfaiththattheearningsshortfallisa simplespeedbump,asJobscalledit.Theymayberight.Applesaidsalestostudents,a bigmarketforitsproductsinSeptember,werewellbelowexpectations.Sincestudents tendtobemorefashionconsciousconsumers,thatmaysignalwaninginterestinthe funkyiMacandCubemodelsthathavebeenthecompanysrecentsalvation. Inasense,Applefindsitselfavictimofitsownfashionablesuccessandmustnowwork furiouslytokeepitsproductslookingcuttingedge.Ifitfails,itcouldloseahardcoreof customers,namelystudents,whothecompanyisrelyingonasitsnextgenerationof users.ShouldthetrendycomputergeeksabandonApple,thecompany'sshare certificatesriskbecomingcollectorsitemsalongsideitsfirstMacintosh. PublishedSept.29,2000 MISSEDOPPORTUNITY ByRobCox SteveJobsmaybeavisionarywhenitcomestotechnology,buthisfinancialforesight maynotbesokeen.Sure,hisstakeinPixarAnimationStudios,whichWaltDisneyis reportedlyinterestedinacquiring,iscurrentlywortharound$3.6billion.Thisisnota badreturnontheroughly$60millionJobspumpedintothebusiness.Andheissetto receiveawindfallofnearly$800millionwhenhis10millionsharesinAppleComputer

STEVEJOBSANDAPPLE

vestinMarch.YethadJobsnotexchangedamuchbiggerchunkofunderwaterstock optionsforthesesharesafewyearsback,hewouldnowbesittingonanApplefortune worthnearlyasmuchashisPixarpile. InJuly1997,Jobsreturnedtotheflounderingcomputerbusinesshehadcofoundedtwo decadesearlier.Afewmonthslater,rivalcomputermogulMichaelDellsneeringly suggestedthatApplebecloseddownanditscashreturnedtoshareholders.Lastweek, whenApple'smarketcapitalisationforabriefmomentsurpassedDell's,Jobsgloated thathisrivalhadn'tbeen"perfectatpredictingthefuture."YetJobshimselfwasn'tmuch betteratanticipatingiPodmaniaandtheextraordinaryrevivalofApple'sfortunes. Inearly2000,asthetechbubblewasreachingitspeak,theApplebossreceiveda controversialstockoptionspackagewortharound$548million,accordingtocompany accounts.This40millionsplitadjustedoptionspackagehadanexercisepriceofaround $22.In2002,Mr.Jobsreceivedanotherpackage,with15millionstockoptionssporting anexercisepriceofaround$9.Afterthesegrants,theApplesharepricedeclined precipitously. That'swhenJobslosthisnerve.InMarch2003,asthestockhitanear5yearlowof around$7.50,Jobstradedinhis55millionunderwateroptionsforalessriskybut smallerpackageofrestrictedstock,thenworth$75million. Inretrospect,Jobs,whodeclinedtocomment,couldn'thavechosenaworsetimeto exchangehisoptions.Apple'ssharesarecurrentlytradingataround$80.True,the restrictedstockisvaluedatmorethan10timesitsoriginalvalue.Buttheoptionswhich Jobsdivestedwouldbenowinthemoneytothetuneofmorethan$3.3billion.Sohe effectivelykissedgoodbyeto$2.5billion. Still,Jobshashis$3.6billionPixarstakeforconsolation.Theonlyrealloseristhatother Californianvisionary,GeorgeLucas,whosoldhimthecompanythatbecamePixarfor $10millioninthefirstplace. PublishedJan.20,2006

STEVEJOBSANDAPPLE

CULTOFPERSONALITY ByRobertCyran Howsickisthedearleader?Partyofficialsarentsaying.Outsidersparseeverygaunt appearance,orlackthereof,atpartycongressesforsignsofseriousillness.Insiders cannotimaginelifewithouthim.Supportersputonshowsoftechnologicalforcewhile talkswirlsaroundtherelativestrengthandofficialtitlesofhiserstwhileheirapparent. ThatsumsupthesituationinPyongyang.Butitcouldequallyapplytogoingsonin Cupertino,California,homeofApplethecompanythisweekatthecenteroffervent speculationinthemarketsandmediaoverthehealthofitsvisionaryfounderSteveJobs. Admittedly,itsafarstretchtocomparethegovernanceofoneofthemostsuccessful technologycompaniesintheworldwiththemostbizarreandparanoiddictatorshipon theplanet.AndeventhoughJobsisbelovedwithinthecompany,evenApplewould neverattributesuperhumanfeats,suchasshootingmultipleholesinonetheveryfirst timeheplayedgolf(oneofKimJongIlsmanyreputedaccomplishments),tohim. YetpronouncementsfromAppleregardingitschiefexecutiveshealthhaverepeatedly provenoverlycheery.FirstJobshadavirusinJune2008.InJanuaryofthisyear,hehada hormoneimbalance.Aweeklater,hewasgoingonsixmonthmedicalleave.Nowithas emergedhereceivedalivertransplant.Meantime,goodnews,suchasJobsappearance atworkonMonday,quicklyappearsinthepress. Theriskofsuchselectivesilenceisthatitcreatesunrealisticexpectationsforits foundersabilitytogovern,whilemuddyingsuccessionplanning. Makinganappearanceatheadquartersandrunningacompanyaretwodifferentthings. YetthecompanystillmaintainsJobswillsoonbebackinthesaddle.Livertransplantsare trulyanamazingscientificadvance.Butrecipientsmusttakeharshimmunosuppressant drugs,whichcancauseserioussideeffects,fortherestoftheirlives.WhetherJobscan fulfillthegruelingdemandsofbeingthefulltimechiefexecutiveisntclear. WhileitishardtocontemplateJobsmortality,avoidingtheissuedoesntmakeitgo away.About30percentoflivertransplantpatientsdiewithinfiveyears.Jobsfight againstcanceraddsfurtherrisk.Appleshouldhaveaclearsuccessionplaninplace.Yet

STEVEJOBSANDAPPLE

theexecutivecurrentlyrunningthecompany,TimCook,didnotevenreceivethe honorificofinterimchiefexecutiveofficerduringJobsmedicalleave,includingwhilehe wasundergoingsurgery. Jobsisanextraordinaryexecutiveandinnovator.ButforshareholderssakeApplehasto belarger,andhopefullymoreenduring,thananyoneman,includingitsfounder.The company,anditsboardofdirectors,shouldhavetheconfidencetoproclaimasmuch. PublishedJune25,2009

Steve Jobs stands beneath a photograph of him and Apple co-founder Steve Wozniak during the launch of the companys iPad in San Francisco, California, Jan. 27, 2010. Reuters/Kimberly White.

STEVEJOBSANDAPPLE

ADHOCINFINITUM ByRobertCyran AppleneedsamoreformaldelegationofSteveJobs'power.Thetechgiant'schief executiveishandingdaytodaycontroltoChiefOperatingOfficerTimCookdueto healthissues.YetheretainshisCEOtitle.Thisisthethirdsuchmove,andthistimethe handoverisindefinite.Howeverpainful,amoreformaltransfertoanactingCEOwould havebeenbetter. Boththecompanyanditsshareholderscantakecomfortfromthefactthatthelasttwo transfersalsotoCooktookplacesmoothly.Apple'soperationsshowednosigns whatsoeverofimpairmentundercaretakermanagement.CookhasworkedatApplefor morethanadecadeandhasbeenCOOforseveralyears.He'sclearlyasafepairof hands.Moreover,Jobshaspromisedtoretaincontroloverbigstrategicchoices. ButJobs'fitnessis,sadly,anincreasingconcern.Thecompanyhasn'tsaidexactlywhat thematteris,butthislatestsetbackfollowsprevioustreatmentforpancreaticcancer andanorgantransplant.Furthermore,theopenendednatureofJobs'currentrespite willaddtotheworryforemployeesandinvestorsalike. Inthesecircumstances,ApplewouldhavebeenbetterservedbyexplicitlynamingCook asactingCEO.ThatwouldleaveJobsaschairmanwherehecouldretainsayoverApple's strategicdirectionwithoutthegruellingdailychoresofrunningthecompany.Thatis whereheismostvaluableanyhow.SuchadivisionwouldprovideclarityandgiveCooka propermandate,giventheresponsibilityofoverseeinga$300billiongroup. JobsplaysanoutsizedroleatApple.Heisarguablythebestexecutiveintechnology.But hisreputationalsodependsonkeepingthecompanyonthesoundestfootingpossible evenifthatmeansformallylooseninghisgrip. PublishedJan.17,2011

10

STEVEJOBSANDAPPLE

CREATIVECONSTRUCTION ByRobertCyran LosingavisionarylikeSteveJobsaschiefexecutiveisreasonablecauseforshareholder concern.ButApplewouldntbethefirstlargeandinnovativecompanytoweathera difficultsuccession.IBM,WalMartandGeneralMotorsshowhowanobsessivefocuson design,customerneedsandtightcontroloversupplychainscanbeingrainedinaculture byitscreator.Buttheseexamplesalsoprovidewarningsignsabouthowthosewho followSteveJobscouldgowrong. ThomasWatsonwasasimilarlyiconicfigureatIBM.Whenhejoinedin1914,he establishedanearreligiousatmosphere.Salesmenworebuttoneddownvestments, engineerprieststoiledawayinlabsandtherewasevenacorporatemantra:THINK.This virtuouscombinationhelpedthecompanychurnouthighqualityequipmentandgaina hardwonreputationthatIBMcouldntbethewrongchoice.PostWatsonleadersstuck totheformulawithgreatsuccessforseveraldecades. WalMartalsoshowedthevalueofwashrinserepeat.Themegaretailerdidntskipa beatwhenfounderSamWaltonsteppeddownin1988.NewCEODavidGlasswisely didnttinkerwiththerecipe:setupshopoutsideasmalltownnotwellservedbyrivals, embraceeconomiesofscaletosellgoodscheapandusetechnologytokeepinventoryat remarkablylowlevels.WalMartssalesare26timesaslargenowastheywerewhen Waltonsteppeddown. EvenGeneralMotorsthrivedforatimeafterAlfredSloangaveupthereinsinthemid 1950s.Underhisrule,thecarmakersetupasystemofdistinctbrands,dealersto supportthemandasystematicapproachtomanagementbefittingitsengineering culture.GMstayedonautopilotafterSloanleftandthecompanyretaineditssolid positionintheU.S.carmarketintheensuingyears. Whileallthreeenjoyedsuccessaftertheirlargerthanlifefiguresretired,theirplaybooks alsopavedthewayforstagnation.IBMsbuttoneddowncultureandfocusonbig businessmeantitwasslowtothePCrevolution.GMstechnocraticsystemfailedwhen thefirmbecameincreasinglyscleroticandbeancounterstookoverfromtheengineers. WalMarthasstruggledtoexportitsmodelandhasexperiencedpersistentlabor problemsathome.

11

STEVEJOBSANDAPPLE

AsthenewAppleboss,TimCookwillhavehisworkcutoutavoidingsuchpitfalls.But historyalsosuggeststhattrailblazerslikeJobsleavebehindsomeworthyblueprintsto follow. PublishedAug.26,2011 GREATERTHANGRAVITY? ByMartinHutchinson SteveJobsleavesbehindacompanywithahuge$350billionmarketcapitalization,butit isactuallymuchbiggerthanthat.Apple,whichJobscofoundedandranthroughmostof itshistory,haschangedtheworldseveraltimes. ThecompanysfirstgreatdevelopmentwastheAppleII,whichmadepersonal computerseasytouse.ItworkedespeciallywellwithDanBricklinsVisiCalcsoftware, thefirstsuccessfulspreadsheetprogram.Nowautomaticrecalculationandeasy adjustmentsaretakenforgranted,butthentheywererevolutionaryforanyonewho workedwithnumbers. ApplelostthePCmarketingwarstoIBMandMicrosoft,butremainedthetrendsetter. The1984Macintoshspointandclicktechnology(partlyderivedfromXeroxs1970sPalo AltoResearchCenter)reducedtheneedtorememberinnumerabletrickytouseDOS commandsandbroughtoutthevisualandtactilepotentialofcomputers.Therivalsonly fullycaughtupadecadelaterwithWindows95. TherevolutionscontinuedwhenJobsreturnedtoAppleafter12yearsaway (revolutionizinganimationatPixarwhilehewasgone).TheiPodsetanewstandardfor storingandplayingmusicdigitally,butApplesgreatesteffectontheworldcamewith theiPhone. Theleapofimaginationthecombinationofmobilephoneandcomputingcapability, mixedinwithcooldesign,andfuntousestillseemsawesome.Theculturaleffect cannotbemeasured.Itleveledtheworld:eventhemostremotetribesmanwitha smartphoneisconnectedtotheInternetcloudasifhewereinaNewYorkoffice.Apple

12

STEVEJOBSANDAPPLE

islosingshareinsmartphones,butstilldeservesmostofthecreditfortheir development. Jobsgeniusfordesignandunderstandingoftheneedsofnontechnicalusershashelped makethetechsectoraconsumerbusinessandtherebyrevolutionizedtheeconomy andthelivesofalmosteveryone.ThelatesteffortistheiPad.FrankJ.Fleming,afan, calledittheonlythingthatsmetmychildhoodexpectationsofwhat2011wouldbe like.Itishardtoargue.AnearlierappleissaidtohavespurredIsaacNewtontodiscover gravity.ThisApplemaybejustasimportant. PublishedOct.6,2011

13

STEVEJOBSANDAPPLE

THEPRODUCTS:CREATIONANDDISRUPTION
OUTOFTHEPOD ByRobertCyran WithcustomersqueuingaroundtheblockfortheiriPod,it'snosurpriseApple'snet profitrosefourfoldinthelastquarter.TheU.S.computergroupsold4.6millionofits iconicdigitalmusicplayersinthequarter,morethansixtimesasmanyasitsoldinthe sameperiodlastyear.Buttherealimportanceofthequartercamefromthefactthat iPodsalesappeartobedrivingsalesofitsMaccomputers.Thegroupsawitsfirst increaseinmarketshareforcomputerssince2000.Andthistrendlookssettorun. ThecaseagainstApple'scomputershasalwaysbeentwofold.First,unlessonedoesa lotofgraphicsoraudiowork,there'slittlereasontopreferaMacoutsideoftheirnice looks.Second,Applechargesasubstantialpremiumforitscomputers.Thesetwo objectionsnowlookabitoutofdate. Digitalcamerasarerapidlysupplantingfilm,whichisincreasingthenumberofpeople workingwithimages.AndApple'sintroductionofa$499computeralbeitwithout monitor,keyboardormousemeansthegroupnowhasacomputerinthesub$1,000 range.Themajorityofcomputerssellunderthisbarrier. ThrowinthefactthatMacscurrentlyhavefewproblemswithviruses,andtherenow appearstobeatailwindasiPodusersswitchtoMacs.Andevenasmalldifferencein marketsharewillhaveadisproportionateeffectonthegroup.Apple'sshareofthe computermarketisaround2percent.Every1percentincreasetranslatesintoabout$2 billioninrevenue. Ofcourse,thesesortsofprojectionsarealwaysdangerous.Biggainsinmarketshareare ratherambitiousforacompanywithalonghistoryoflosingmarketshare.Andentering lowerpricedmarketshasitsownproblems.Thegroupcurrentlyhasanoperatingmargin of12percent,whiletheaverageconsumerelectronicsfirmearnslessthan5percent. Marginsarelikelytofallasthegroupentersmorecompetitive,cheapermarkets.

14

STEVEJOBSANDAPPLE

ButApplehasnowshownthefirstrealsignofturningaviciouscircleintoavirtuousone. Andifthisisthecase,therecouldbemanymorequarterslikethelast. PublishedJan.13,2005 PUSHYCALLER ByRobertCyran Applemaycarryselfpromotiontoextremes,butitslongawaitedcellphonelooksallit's crackeduptobe.Thetechcompany'siPhone,unveiledTuesdaybySteveJobsathis annualMacWorldlovefest,islikelytograbasizeablechunkofthemarket.Itwillalso irritatetelecomoperatorsintheprocess. Thephoneiscertainlyimpressive.ItrunsonApple'seasytouseoperatingsystem.In additiontoofferingbasicphoneservices,itactsasaniPodmusic/videoplayer.Itsultra thin,highdefinition3.5inchscreencanbeturnedsidewaystowatchvideo.Inshort,it looksasstunninglyfreshastheiPoddidwhenitwasintroduced. Ofcourse,nobodycangeteverythingright.Allthesefeaturesmakethedeviceanenergy hogthebatterylastsjustfivehours.It'salsopricythe8gigabyteversionruns$599,a lotofmoneyfornotmuchmemory.Finally,thelackofakeyboardmakesitvisually stunning,butitstouchscreenmayfrustrateusers. Butthesearequibblescomparedtothewowfactor.Users,andespeciallyApple's maniacalfanbase,arelikelytoflocktothenewphone.Apple'swillingnesstogowhere otherhandsetmanufacturershavegonebefore,andfailed,suggestsasmuch. Duringthetechbubble,NokiastartedClubNokia.Itletusersofitsphonesdownload games,ringtonesandothercontent.Thiswasn'tpopularwithoperators,whosubsidise anddistributemostphones.TheyresentedNokiamusclingintowhattheyconsidered theirownturf.Nokiaultimatelybackeddownin2003.LikeNokia,Appleisencouraging iPhoneuserstobuymoviesandmusicfromiTunes. Intriguingly,theiPhoneisn'tusingthemostadvancedwirelesstechnology,3G.Oneof thebigreasonsoperatorsarerollingout3Gistoselltheirownservicesandcontent.

15

STEVEJOBSANDAPPLE

Nonetheless,carrierCingulariswillingtoplayalonginexchangeforanexclusiverightto markettheiPhone.IfApple'slatestgadgetisassuccessfulastheiPod,otheroperators mayhavenochoicebuttofollowitslead. PublishedJan.10,2007

Steve Jobs holds the new iPhone at the Apple store in central London, Sept. 18, 2007. Reuters/Alessia Pierdomenico.

THEYREINiSUITCASES ByRobertCyran WherearealltheiPhones?Applesold3.6millionofitshitmobilephoneslastyear,but itsofficialpartnersonlyregistered2.3millionnewcustomers.Meanwhile,manyofits U.S.retailstoresarehavingtroublekeepingthehithandsetsonshelves.InManhattan, forexample,dailyshipmentsaresoldoutbeforeitstimeforasecondcupofcoffee. Appleistightlipped,butthetwostoriescouldberelated.

16

STEVEJOBSANDAPPLE

TheiPhoneisusuallytiedtoasinglephonenetworkineachcountry.IntheUnited States,softwarelocksusersintoAT&T'snetwork.SimilaragreementsexistinFrance, Germany,IrelandandtheUK.Inexchangeforthisexclusivity,Applegetsacutofusers' monthlyfees.Theproblem,atleastfromApplespointofview,isthatthesoftwarecan berelativelyeasilytweakedtoallowthephonestorunonotheroperatorsGSM networks. ChinaMobile,oneoftwomobileoperatorsinChina,doesn'thaveanydealwithApple butstillreckonstherewere400,000iPhonesonitsnetworkattheendof2007.That numberisprobablymuchhighernow.Thosephonesmusthavebeenbought somewhere. That'swherethestoriescometogether.ThefactisthatiPhonesmugglinghasbecomea lucrative,iflegallyquestionable,wayfortravellingstudentsandflightattendantstoearn abitofextracash.AniPhonecosts$499plustaxintheUnitedStatescallit$550. Unlockit,for$50orless,andyoucansellthesamephonefortheequivalentof$900or soinEurope.Themorethedollarfalls,themoreattractivethisarbitrage. PerhapsitsnocoincidencethatiPhones,unavailableinApplesManhattanstores,arein stockinBuffalo.Manhattanisfulloftouristsarmedwithstrongeuros,roublesand Brazilianreais.FewofthemvisitpostindustrialcitiesinupstateNewYork. Ofcourse,therecouldbeotherexplanations.Applecouldbeclearingthedecksfora moreadvancedversionoftheiPhone.Oritcouldhavesimplymisjudgeddemandorrun intopartsshortages.ListentotheBabeloflanguagesinApplesNewYorkCitystores, though,anditseasytoimaginethemissingphonesinsuitcasesflyingoverseas. PublishedApril4,2008 BIGAPPLE ByRobertCyran ApplesiTunesmilestoneproveswhospiper.Thetechgiantjustsoldits10billionthsong online,andthepaceofdownloadingfromitssevenyearolddigitalmediaservice

17

STEVEJOBSANDAPPLE

continuestoquicken.Ittookthreeyearstogettoabillion,oneyeartogetfrom1billion to2billionandnowiTunessellsabillionsongsabouteverythreemonths. ThemoresongsApplesells,themoreitentrenchesitself.Ithasusedmusictomakeits variousgadgets,andthesoftwarelinkedwiththem,sopopular.Eventhoughallsongs purchasedfromiTuneshavebeenplayableonnonAppledevicessince2009,the formativeyearswhenthiswasntsohelpedestablishthesitesdominance.The continuedeaseofconnectingtotheonlinestoreandthevolumeofmusicavailableonit meanscustomersfindthemselvesincreasinglybuyingfromApple. GrowingevenmoredependentonApplethanconsumersistheentertainmentindustry. Thetechcompanyretainsabouttwothirdsofthemusicdownloadmarket,andone quarterofallsongsarenowsoldfromtheiTunesstore,accordingtoresearchoutfitNPD Group.Apple'stryingtoduplicatethestrangleholdonthemarketforTVandmovies. ContentprovidershavefoundiTunesawelcomesourceofrevenue.Illegaldownloading hasguttedthemusicindustryandisstartingtoeatawayatvideosales.Unfortunately fortheindustry,it'sincreasinglycleartheyhavetodancetoApple'stune. PublishedFeb.25,2010 HALOINTHECLOUDS ByRobertCyran Appleholdsitsannualdevelopers'conferenceonJune6.Ashappenedwithprevious newproductintroductions,likethatoftheiPad,thetechgroup'sobjectivewillbeto triggeravirtuouscirclewherebywhatevernewgadgetitunveilstendstoencourage consumerstobuyotherAppleproducts.Expandingitscloudofferings,wheredataand programsarestoredremotely,couldsetoffmorefavorablefeedbackloops. ThecompanysaysChiefExecutiveSteveJobscurrentlystillonmedicalleaveis addressingthecrowd,andwilltalkaboutwhatitcallsiCloud.Characteristically,Appleis keepingitscardsclosetoitschest.Butthisappearsamajoreffortintoprovidinglots moremusicandcomputingservicesremotelyviatheWeb,insteadofbeingstored

18

STEVEJOBSANDAPPLE

locallybytheuser.Thecompanyhasbuilta500,000squarefootdatacenterinNorth Carolinaandsigneddealswithmultiplemusiclabelsinpreparationwiththelaunch. Puttingmusic,moviesandotherprogramsonthecloudoffersafewobviousbenefitsto Apple.Itscomputers,tablets,andphoneswouldpotentiallyneedlesslocalmemory. Thatmeansdevicescanbecheaperorsimplyhighermarginyetslimmerandmore attractive.That'simportantforthedesignconsciousApple. Butthesecondaryeffectsaremoreimportant.Ifusersstoredataandprograms remotely,devicesblendtogether.Buyasongonceanditcanbelistenedtoonany gadget.Likewise,editaspreadsheetonthecloud,andthechangescanbeseenand modifiedonmultipleplatforms.Thatmakescustomersmorelikelytostickwithasuiteof Appleproducts. Andthere'sanadditionalplus.Cloudserviceseatupbandwidth.Telecomcompaniesare hungryforrevenuefromdatatransmission.Thatmakesthemmorewillingtosubsidize iPhonesalesinexchangeforlockingcustomersintolongtermcontracts.IfAppleusers startneedingmoreexpensivedataplans,thencompanieslikeAT&TandVerizonare morelikelytofundthepurchaseofApplegadgets. Applerevenuegrewby83percentinthelastquarter.Thatmusteventuallyslow.Butits iCloudserviceshaloaffectcouldkeepgrowthhummingalongawhilelonger. PublishedJune3,2011 PLEASESIR,NOTANOTHER ByRobertCyran Applehasanastonishingabilitytocasuallyunleashcreativedestruction.Itslatest iPhone,the4S,offersfasterdataprocessinganddownloads,aswellasvoicepowered software.Thismaynothaveliveduptothemostfeverishexpectationsofinvestors: Applesharesfellwhilethemarketrallied.Butitwilldomorethanenoughtocreate headachesforcompaniesrangingfromResearchInMotiontoAmericanGreetings.

19

STEVEJOBSANDAPPLE

Smartphonesstartedbydevouringthepersonaldigitalassistant,asanyformerPalm Pilotaficionadocantestify.Theyterrorizedthemarketforfixedlinephones,whichare nowinsharpdecline.Applesnewestgadgetshowsjusthowhungrysmartphone makers,andAppleinparticular,aretoeatrivalslunches. ThenewiPhonescameraofferssharplybettervideo.Thatwillfurtherhurtsalesof digitalstillandvideocameras.ItssoftwareallowseasyandfreetextingtootherApple devices.Thatsbadnewsfortelephoneoperators,whomakefatmarginsonsuch services.InstantmessaginghasalsobeenthekillerappforBlackBerryusers. Applealsounveiledafunctionthatletsusersdigitallycreatetheirowngreetingcards andsendtheminphysicalform.ThatmaynotexciteApplesmostardentfans,butitwas enoughtosendsharesofcardmakersAmericanGreetingsandInternationalGreetings reeling.Oh,andthenewiPodNanoallowsrunnerstotracktheirperformance,whichwill takeachunkoutofthemarketforpersonalfitnessmonitorsandshoeswithsensors. Inasense,though,thesearetheeasilyquantifiableeffectsofthenewiPhone.The devicealsocomeswithvoicepoweredsoftwareallowinguserstosearchtheInternet, answerqueries,takedictationorsetupphonecommands.Itshardtojudgehow effectivethissoftwareisuntilitactuallyhitstheshelves.Butinvestorsonthelookoutfor Applescreativedestructiveimpactaresurelydrawingupanewlistofvictims. PublishedOct.4,2011

20

STEVEJOBSANDAPPLE

THECOMPANY:VALUEANDTHEFUTURE
THISISGOINGTOHURT ByRobertCyran Applesold3.3millioniPadsinthelastquarter.Thatsoneofthebeststartseverfora consumerelectronicdevice.Itwillprobablysell25million,ormore,tabletsnextyear basedonthetrajectoryofpasthitconsumergoods.WhileAppleanditssuppliers,like partsmakerSamsung,arecelebrating,manyfirmswillsuffer.Breakingviewshas compiledalistofthepotentiallosersfromtheobvioustotheindirect. PCmakersandsellers:ItstandstoreasonthatifcompaniesandconsumersbuyiPads, theywillcutbackoncompetingelectronicitemsduetolimitedbudgets.Thiseffect probablyhasntfullykickedin.Earlyadoptersaremorewillingtosplurgeonanew gadget.YetBarclaysCapitalpointsouttherearealreadysignsofcannibalization.The numberoflowerpricednetbooksfell19percentinJunecomparedtolastyearaccording toNPD.HP,DellandAcerearnlittlemoneyonsellingthesedevices.ButiftheiPadstarts tocannibalizehighermarginitems,sellingPCscouldbecomearecipeforlosses.Dell,for example,ekedoutlessthana3percentnetmarginlastyear. Microsoft:ItdoesnttaketheIQofBillGatestofigureoutthatreducedsalesof computersrunningWindowswouldhurtMicrosoft.True,thecompanysmostrecent quarterlyfigureswererobust,asusersupgradedtoWindows7.ButifPCcannibalization occurs,itwontbepretty.ThecompanysWindowsdivisionhasastonishinglyhigh marginsitaccountsforroughlyaquarterofsalesbuthalfofoperatingprofit.Asmall fallinrevenuewouldleadtoadisproportionatelylargehittoearnings. IntelandAMD:Likewise,ashiftfromPCstotheiPadwouldhurtthetwochipmakers. InsteadofusingachipwhoserootslieindesktopcomputingwhereIntelhasits stronghold,Appleusedonefromthecellphoneworld.Intelmaycatchupindesigning lowpowerchips,butitcouldloseitsquasimonopolystylemarginsifitdoesnt.AMD, whichperenniallychasesafterIntelyetnevercatchesup,wouldtakeaharsherhit. Softwaresecuritycompanies:Applesdevicesaregenerallyperceivedashavingfewer securityholesthanWindows.WhilemostPCusersinstallantiviralprograms,manyApple

21

STEVEJOBSANDAPPLE

usersdontbother.SoaniPadshiftwouldhitsoftwaresalesatsecuritycompaniessuch asMcAfeeandSymantec.True,themorepopularApplessystemsbecome,themore effortcriminalsandhackerswillmaketocrackthem.Butoverall,antiviralvendorslook likepotentiallosers. Harddiskdrivemakers:Applewasoneofthefirstcomputermakerstoeschewfloppy diskdrives.Likewise,theiPadcouldleadthechargeawayfromharddiskdrives.The deviceemploysNANDflashmemory,whichissmalleranduseslesspowerthanthehard drivescommonlyusedinlaptopsanddesktops.IftheiPadcannibalizesthesemarkets, companieslikeWesternDigitalandSeagatewouldsuffer.Moreover,Appleisalready rumoredtouseathirdoftheworldssupplyofthismemory.Ifitdemandsmore, companieslikeSamsungwouldbeencouragedtorampupproductioninmoreadvanced plants.Thatsalmostalwaysarecipeforaneventualpricecrashandconsequentuseof NANDinmoreconsumerdevices. Cellphoneproducers:ApplesaysabouthalfofFortune100companiesaretestingthe device.AT&Tsaysbusinessdemandforthedeviceisrobust.SincetheiPadandthe iPhoneessentiallyusethesameoperatingsystem,thetabletcouldactasaTrojanHorse forthehandset.Letemployeesuseoneandyoumightaswellletthemusetheother. AndsinceapplicationsdevelopedfortheiPadoftenworkequallywellontheiPhone,the platformismoreattractivefordevelopers.NokiaandResearchInMotionappearin dangeroflosingtheappbattleiftheirphonesareregardedasundifferentiated commoditiesbyconsumers,theirprofitmarginscouldvaporize. Bookstores:Otherformsofcollateraldamagemayseemsurprising.Takebookstores.It seemsclearthatmosttextswillbeeventuallysoldandconsumedelectronically. Amazon,Barnes&NobelandBorderssellelectronicdevicesspecializedforreading.Yet theiPadslaunchsetoffaviciouspricewarinereaders.Thatsuggestsconsumersprefer gadgetsliketheiPadthatcanreademail,playgamesanddownloadappsthatperform othertasks.True,thebookretailershaveiPadappsthatallowforeasypurchaseof electronicbooks.Butconsumerscandownloadseveralandeasilycompareprices. Increasedcompetitionmeansmarginsonelectronicbooksarelikelytofall. PublishedJuly30,2010

22

STEVEJOBSANDAPPLE

GRAVITYSRAINBOW ByRobertCyran

WhenshouldinvestorssellAppleshares?Thegroup'spushoverseasandintothe businessmarketstillholdspromise,asdoesthesteadystreamoffreshgadgetssuchas AppleTV,unveiledbyChiefExecutiveSteveJobslastweek.Apple'strajectoryshould continueforsometime,soitsstockwhichhasgainedmorethan40percenteachyear forthepastfivelooksattractiveat15timesestimated2011earnings.

Butnocompanycangrowsalesatthatpaceforever.Whileitmaysoundprematureor evenchurlishtodoso,Breakingviewsoffersupsomestrategiccuesthatcouldactas warningsignsforinvestorsthatApple'sgrowthisslowing:

Discounting:WhileApplecomputersandhandsetsaccountforlessthan5percentof globalunitsales,thecompanyracksupextraordinaryprofitsonthem.Itsreputationfor producingqualitygadgetsmeansApplecanchargeapremiumovercompetingproducts. Itsoperatingmarginisalmost30percent.Evensmallgainstoitsmarketshareresultin superchargedprofitgrowth.

Applehasusedthesocalledhaloeffect,ratherthanpricecuts,togainmarketshare.Its devicesworkwelltogether.AnduserswhotryoneoftenadoptApple'sotherproducts. Thiscanbeseennowintheenterprisemarket,whereApplehastraditionallybeenweak. TheiPadappearstobeabighitamongcorporateexecutivesandprofessionals.This shouldincreaseadoptionofiPhonesandMacs.Moreover,Appleappearstohave avoidedthediscountstypicallyofferedtobigcustomers.IfsalespeoplewantiPads, there'snowhereelsetoturnbutretail.

Applecouldboostmarketsharequicklybyofferingdiscountsorcheaperdevices.While thiswouldbumpupprofitsintheshortterm,itwouldbeaflashingyellowlightbecause thehighendofthetechmarketisdisproportionatelyprofitable.

WhileApplecouldprofitfromsellinglotsoflowendgadgets,it'satoughplacetomake abuckbecauseofgreatercompetitionandlowercapacitytodifferentiateproducts. Nokia'soperatingmarginonphonesisaround11percent.ThoseinthecommodityPC marketaren'tbetterDell'sarearound5percent.There'sabigrisk,too,thatselling cheapergoodscouldtarnishthebrand.Alossinthecompany'sabilitytochargean Applepremiumorasmallfallinmarketshareatthehighendwouldhitprofitshard.

23

STEVEJOBSANDAPPLE

Raisingtolls:OnewayApplehasmaintainedpremiumpricingforitsgadgetsisby improvingthemeachyear.InthecaseoftheiPhone,alargechunkofthisimprovement hascomefromtheincreasednumberofapplicationsthatcanrunonthehandset. Partnerswhodevelopthesebearmuchofthecost.Applevetstheapplicationsand distributestheminexchangefor30percentofsales.Applehasn'thistoricallyrunits onlinestorestomaximiseprofits.Instead,thegoalhasbeentomakethedevicesmore valuableandentrenched.Theresultisavirtuouscircle.Consumerslikethegadgets becausetheyhavebecomeincreasinglyuseful,andsoftwaredevelopersfollowthe customers.Applecould,theoretically,extractbiggertollstake50percentofrevenue fromsales,forexample.Thatincreasedrevenuewouldfallrighttothebottomline. Yetdeveloperscouldeventuallyturnelsewhere,andusersmightfollow.Google,for example,planstotakeonlya5percentchunkofsalesongamesthatitsellsonline,plus asmallprocessingfee.Second,ratchetingupthetollmightinviteregulatoryattention, becauseitsmacksofanticompetitivebehavior.Whileraisingitsrevenuesharecould generatesomeshortrungrowth,itwouldbeabadsignforthecompany'sfuture. Bigacquisitions:Applehas$46billionofcashandinvestmentsonitsbalancesheet.Jobs mayfindthisfastgrowingstashcomforting.Butitisn'tearningmuchinterest.Applehas wiselyavoidedbigacquisitions.Whenmanycompaniesseetheirgrowthslowing, however,theyoftentrytobuyitthroughtransformativeacquisitionsinthewayIntelis purchasingMcAfeeorHPbuying3PAR.Apple'scashcouldbuyamajorityofcompanies intheS&P500.Surelyitcouldfindabigfirmthatwouldgenerateabetterreturnthan whatitearnsinthebank,right? Don'tcountonit.Integratingtwobigcompaniesmoreoftenthannotresultsin unproductiveexecutiveinfightingandbloatedexpensesinsteadofvaluablenewproduct innovations.Mostdamningly,sellersusuallyextractthegains.JustlookatCisco.Thefirm isanefficientM&Amachine,yetitsshareholdershavereceivedlittlebenefitoverthe pastdecadefromCEOJohnChambers'shopping.IfAppleeverheadeddownthisroute, itwouldbeasignthatthefirmhastransformeditselfintoalessercompany. PublishedSept.6,2010

24

STEVEJOBSANDAPPLE

NUDGED ByRobertCyran

Applehastakenapreemptiveantitruststrike.U.S.regulatorshavegrownincreasingly worriedbyApple'smonopolisticpotentialinthemobilephonemarket.Thecompany's decisiontopublishrulesgoverningitsonlinestore,greenlightGoogletoadvertise withinapplicationsandallowdeveloperstouseAdobemayforestallgovernmentaction. ThecompanyrunbySteveJobsdoesn'thaveamonopolyinthesmartphonemarket.But someofitsbehaviorseemedtosuggestitwasgettingthere.Applebarredbigrivalslike GooglefromplacingadswithinappsrunningonApple'sdevicesliketheiPhone. Inaddition,AppleprohibiteddevelopersfromusingpopularAdobeFlashtoolstobuild appsamovethatcouldhaveforcedsmallcompaniestochoosewhethertoproduce programsforiPhonesorhandsetspoweredbyGoogle'sAndroidsystem.Andthe company'sopaquestandardsforwhatcouldbesoldinitsonlinestoreresultedinsome curiousdecisions,suchasApple'srejectionofGoogle'sVOIPtool.

Yettechnologytrustbustingisatrickything.Onceestablished,monopoliesaredifficult todislodgeasthehistoryofMicrosoftandIntelhasshown.Themorepeopleusea giventechnologicalstandard,themoreusefulandentrencheditbecomes.Andthe monopolistusuallyhasthefinancialclouttopunishanyrivalthatdaresenterthe market. BypokingaroundAppleearlierthisyear,theFederalTradeCommissionandDepartment ofJusticeappeartohavenudgedthecompanyeversoslightlytowardmoredesirable behavior.ThethreechangesannouncedonSept.9certainlyhelpdevelopers.Theyhave additionaltoolsforcreatingapps,moreclarityonhowtogettheirproductsinApple's storefront,andagreaterchancetoearnabitofadvertisingrevenue.Consumersshould alsobenefit,sincetheyshouldhaveevenmoreprogramstorunontheiriPhones.

Apple'sclimbdownmaybeawkward,butitcan'treallycomplain.Ifthemovesmakeits devicesmoreattractivetodevelopers,thatshouldbenefitsales.Moreimportantly,they mayreducethechancesofgovernmentalinterference.Trustbustersmaynotbe particularlyeffectiveintechnology,butJobspresumablywouldpreferspendingthenext decadetalkingtoApple'sengineers,designersandfansinsteadofitslawyers.

PublishedSept.9,2010

25

STEVEJOBSANDAPPLE

MYSTERYOFTHEFAITH ByRobCox

ThemystiquethatApplecloaksitselfinwhenlaunchingsnazzygadgetshasservedits bottomlinewell.Butthatsameopacitydoesn'ttranslatewelltocorporategovernance. IttookApple'sboardfartoolongthisweektorevealthat,withitsvisionaryleaderSteve Jobssick,30percentofitsshareholderswantedmoreinformationonhowthecompany wouldberunintheeventhedoesnotreturntohisposition.GivenApple'sstunning success,thelowprofileofthepensionfundproposingthemeasureandtheboard's recommendationagainst,thatshouldsendapowerfulmessage. LateThursday,Appledroppedintoaregulatoryfilingthefactthat172millionshares werevotedinfavorofaproposalputforwardbytheCentralLaborers'PensionFund, whichhasunder$1billionofassets,callingforthecompanytoadoptanddisclosean executivesuccessionplanpolicy.With400millionsharescastinopposition,or70 percentofthevote,thecompanyclearlyprevailed. Butamoremainstreamgovernanceproposalfromafarlargerinvestor,the$200billion plusCalpers,didgetpassedagainsttherecommendationoftheboard.Andevenwith theCLPF'seffort,it'srarefornontraditionalproposalsfromrelativelyunfamiliarspecial intereststocapturesomanyvotes.That'sparticularlytruewhenboardsingoodstanding withtheirstockholdersrecommendagainstthem.Appleshareshave,afterall,roughly doubledineachofthepastfiveyears,soshareholdersshouldbehappy. ThesupportfortheCLPFsuggestsmanyinvestorsdowantthecompanytobemore forthcoming.ThatmightalsoapplytothemannerinwhichApplereportedthevotingat Wednesday'sannualmeeting.Atthetime,itsaidshareholdersdefeatedthesuccession planningproposalbutitdidn'trevealthevotetallies,somethingthatisstandard procedureatmanybigcompanieslikeFordMotorandGoldmanSachs.

AppleinsteadslippedtheresultsintoafilingwiththeSecuritiesandExchange Commissionthefollowingday.Thatsmacksofunnecessaryreluctancetokeep shareholderspromptlyinformed.WhateverhappenstoJobs,thecompanyneedstodo betteratseparatingthejustifiedsecrecyofitsproductlaunchesfromkeeping shareholdersinthedark.

PublishedFeb.25,2011

26

STEVEJOBSANDAPPLE

WHATSINANAME? ByRobertCyran Measuringabrand'sworthisanimpreciseart.Apple'shasneverthelessbeendeemed theworld'smostvaluable.At$153billion,accordingtoanewsurvey,itaccountsfor abouthalfthecompany'smarketcapitalizationandnearly10timesitsestimatedvalue fiveyearsago.Techcompaniesalsopopulatethetopranks.Therearegoodreasonsthey dominatethelistandwhythey'repronetobigswingsinvalue. Thesurvey,byasubsidiaryofWPP,estimatedtheearningsresultingfrombigbrandsand attemptedtoputamultipleonthemtoaccountforfuturegrowth.Theresultisatech heavylist.Google's,at$111billion,rankssecond,IBMisthirdandMicrosoftfifth.This notonlyreflectsthegrowingimportanceofhardwareandsoftwareontheeconomy,but alsohowconsumersspendmoretimeonlinesocializingandshopping.Facebookscored thebiggestincreaseitsvaluenearlytripledto$19billion.AndAmazon'sbrand overtookWalMart's.

27

STEVEJOBSANDAPPLE

Therearealsoeconomicreasonstechfirmsratesohighly.Alargechunkofwhatthey makeisintangible,andthereforehardtocaptureonabalancesheet.Codingskillsand patentsarevaluable,butnoteasilymeasured. Further,technologyisoftenawinnertakeallgame.Networkeffectsmeanpeoplewant tousethesamesoftwareorsystemsastheirfriendsoremployer.Thathelpsexplainwhy Apple'sdistinctlabelaccountsforsomuchofitsworthcomparedto,say,ExxonMobil, whosenameisestimatedtorepresentjust4percentofits$414billionmarketvalue. Brandcalculusneverthelessremainsasquishyconcept.IsMicrosoft'sreallyworth$78 billion,ordoesitsextraordinarymarketpoweraccountforthebrand'svalue?Yetthere's obviouslysomethinginaname.JustlookatthepremiumpricesApplecantackontoits computersorgadgetsorhowcarefullyitguardstheuseofitsname. Appleisn'talone.Google'smostvaluablerealestateisitsfrontpage.Itonlyputsitsown logothere,insteadofads,toavoiddilutingorsullyingitsownbrand. Timesstillchange,however.Andevolutionhappensfasterintech,withnewinvasive speciespoppingupregularly.Nokialostmorethanaquarterofitsbrandvalueinayear, accordingtothesurvey,asusersswitchedtoAndroidbasedandApplehandsets.Yes,a namehasvalue,butitisfarfromtimeless. PublishedMay9,2011 PIRATEBOOTY ByRobertCyran Applehasthrownthemusicindustryanotherlifevest.ItsnewiTunesMatchservicelets userslistentosongsonanydevicefor$25ayear.Significantly,italsoworksasan amnestyofsortsforcustomerswithillgottentunesintheirharddrives.Itlooksa concessiontopiracybutitatleastoffersapathtomorerevenue. Whileothermusicservices,suchasAmazon's,allowcustomerstostoremusicremotely, Apple'soffersaclevertwist.Itcomparesdigitalsignaturesofmusicalreadystoredby customerstothe18millionsongsitsellsoniTunes.Ifthere'samatch,theusergets

28

STEVEJOBSANDAPPLE

rightstolistentothatcontentonanydevice.Thatmakesitquickerandeasierthan servicesthatrequirefilestobeuploaded.Italsodoesn'tdistinguishbetweenlegaland illegalcontent. Applewillhandover70percentoftherevenueitgeneratesfromtheservicetothe musicindustry,accordingtopeoplefamiliarwiththeplans.Labelsandsingerscoulduse themoney.Digitaldownloadshaven'tcomeclosetomakingupforthecliffCDsales wentover.Thevalueofrecordedmusicsoldgloballyhasshrunkby40percentoverthe pastdecade,toabout$16billion,accordingtotheindustry'sglobaltradegroup. ItisnoteworthyApplecouldevensignadealwithmajorrecordcompanies.Theindustry hasfoughthardagainstpiracy,filingexpensivelawsuitsagainsteveryonefromNapster togeekyteenagers.Itcouldofcoursecontinuetopursuesuchcases.Butofferingapath forpiratestogolegitalsolookslikeapragmaticwaytocashin. Apple'shistorycertainlyhelps.Digitalrevenuehasbeenoneofthefewsourcesof growthformusiccompanies.AndthecompanyledbySteveJobshasplayedahugepart. TheiTunesstorehassold15billionsongssinceitsinceptionin2003.AndApple'sU.S. shareoflegallydownloadedmusicisabout70percent,accordingtoNPD.Whether Matchwillbeahitremainstobeseen.ButApplemayagainbetherecordingindustry's bestchanceforanotherplatinumseller. PublishedJune6,2011 COGNITIVEDISSONANCE ByRobertCyran CouldApplebeworth$1trillion?Itsconceivable.The$342billioniPhoneandiPad makerbecameifonlybrieflythemostvaluablecompanyintheUnitedStateswhenit surpassedExxonMobilonAug.9.Yetitssaleshavebeensurging80percentayear,and profitfaster.AndAppletradesroughlyinlinewiththegrowingU.S.marketandatless thanhalfthepricetoearningsmultipleitfetchedin2006,whenrevenuegrowthwas muchslower.

29

STEVEJOBSANDAPPLE

Applenowtradesatabout11timesestimatedearningsforthefiscalyearending September2012.TheS&P500Indexisvaluedatabout10timesnextyearsearnings.But Applessalesgrowthisnotfaroff10timesfasterthanthatoftheaveragecompany.The gadgetproduceralsositson$76billionofcashandinvestments. Togetatthisdissonanceanotherway,considerApplesPEGratio.Thishintsattheprice ofgrowthbydividingacompanysPEratiobyitsprojectedpercentageearningsgrowth. Asmallerfiguresuggestsacompanyischeaper.Applesis0.2.Thatslowcomparedto growthdarlings.BurritopurveyorChipotleMexicanGrill,forinstance,comesinat2.1, andSalesforce.comat13.2.PandoraandLinkedInarentevenexpectedtomakemoney. Alternatively,putAppleonthesamePEmultipleittradedonin2006,anditwouldbe worthalmost$900billion.Apremiumfortodaysfastergrowthcouldgetitto$1trillion. ApplecantbesocheapjustbecauseSteveJobsisinprecarioushealth. True,Applealreadysellsmoreperquarterthanitdidinalloffiscal2007,andittakes moreandmoresuccesstomovetheneedle.Growthcouldeasilyslow.Yetthe smartphoneandtabletmarketsareyoung,thecompanyscustomersshowremarkable fidelity,andareassuchastelevisionareripefornewgadgets.Moreover,Applesreturn onequityisalmosttwicewhatitwasin2006,suggestingithaspricingpower. Maybeinvestorssimplycantfathomsolargeacompany.A$1trillionApplewouldmean addingallofMicrosoft,Google,IntelandAmazonandmoretothefirmscurrent marketcapitalization.PerhapsAppleiscorrectlypriced,themarkettooexpensive,and growthstocksgrotesquelyso.Butsomethingdoesntaddup.Inrelativeterms,Apple shouldbeworthfarmore. PublishedAug.9,2011 WELLSEEDEDORCHARD ByRobertCyran FewcompaniesareasindeliblylinkedtoanindividualasAppleistoSteveJobs.Notonly oneofthefounders,heledthecompanyfromnearbankruptcytobecomeoneofthe mostvaluablecompaniesintheworld.NewsonWednesdayofhisretirementfrom

30

STEVEJOBSANDAPPLE

runningdaytodayoperationsisablowevenifitwasbothinevitableandexpected. ButinvestorshaventyetwrappedtheirmindsaroundthepowerhouseJobsbuilt. Forthetimebeing,ApplewillstillbeabletocallonJobsuncannysenseofconsumer tastesandshrewdmarketingskills.Hewaselectedchairmanoftheboardandwill presumablyguideandadvisethecompanyaslongasheisphysicallyable.Its neverthelessreasonabletosurmisehisillnesses,firstdisclosedsevenyearsago,are takingahardertoll.Meanwhile,hisreplacement,TimCook,isnotjustcapablebuthas hadseveralstintsintheCEOsseat,duringwhichtherewerenonoticeablehiccups. CookmaynothaveJobsabilitytomarrydesignwithtechnologyortoinspireengineers toextraordinaryheights.Nobodydoes.ButthefactJobsanointedhimsuccessorshould addabitoflustertohispersona.Moreimportantly,Cookhasprovenhecanmanage astonishinggrowth.DespitethatApplenowsellsmoreperquarterthanitdidperannum justafewyearsago,itisstillincreasingrevenueatanannualrateofmorethan80 percent. Thisgrowth,inaway,showshowhardithasbeenforinvestorstoseparateJobsfrom Apple.Despiteitsextraordinaryexpansioninsalesandprofitability,thecompanyis valuedataboutthesameearningsmultipleastheS&P500.Thatmakeslittlesense, unlessitreflectsworriesaboutJobshealthor,worse,arepeatofthetroublesApple experiencedafterJobsleftbackin1985.Whatsmore,followingthenewsthatJobs resignedasCEO,inafterhourstradingAppleshedsome$20billionofmarketvalue. Oncetheinitialshockwearsoff,however,investorsshouldbeabletofocusonjusthow goodAppleis.EachofitsstableofiPads,iPhonesandMacsfeedsthegrowthofthe others.Applescustomerbaseisgrowingandloyal.Thesmartphoneandtabletmarkets haveyettohittheirfullstride.NewgroundinTVisboundtobebroken. HavingJobsaroundtoleadthe$350billioncompanythroughthisnextphasewouldbe preferable.Butsoonenough,itoughttobecomeapparentthatCookandJobslegacy willbeaprettypotentcombination. PublishedAug.25,2011

31

STEVEJOBSANDAPPLE

Apple COO Tim Cook (L) and CEO Steve Jobs remove their microphones after a news conference at Apple headquarters in Cupertino, California, July 16, 2010. REUTERS/Kim White.

32

STEVEJOBSANDAPPLE

ABOUTUS
ReutersBreakingviewsistheworldsleadingsourceofagendasettingfinancialinsight. Everyday,Breakingviewscommentsonthebigfinancialstoriesastheyhappeninthe UnitedStates,EuropeandAsia.Expertanalysisisprovidedbyaglobalteamof30 correspondentsbasedinLondon,NewYork,Washington,HongKong,Madrid,Moscow, DubaiandMumbai. Ourcolumnsreachfinancialprofessionals,includingassetmanagers,seniorcorporate executives,investmentbankers,lawyers,tradersandprivateequitypartners,bywayof 500,000ThomsonReutersdesktopsandonBreakingviews.com,asubscriptionwebsite. SelectedcontentisalsosyndicatedtoReuters.comandoveradozeninfluential publicationsincludingTheNewYorkTimes,TheInternationalHeraldTribune,TheGlobe &MailandLeMonde.Foundedin1999,Breakingviews.comwasacquiredbyThomson Reutersin2009andisnowReutersbrandforfinancialcommentary.

33