Can Apple's success continue without Steve Jobs?

Published on Friday 21 January 2011 10:15

AS ANALYSTS dialled in from across the United States to get the lowdown on Apple's latest blockbuster results on Tuesday, the unspoken question on everyone's mind was the latest health threat to Steve Jobs, who only the day before announced he would take his third round of medical leave since being diagnosed with pancreatic cancer in 2004.

Despite the Apple founder's herculean industry reputation, not one person felt it appropriate to question during the call what impact his absence might have on the business. Instead, the quarterly earnings update focused on the usual matrix of shipments, volumes, margins and market share.

Even so, many could not help pondering privately the tone of the e-mail that Jobs had sent to Apple's roughly 50,000 employees just 24 hours before. Though the e-mail emphasised the chief executive would still "be involved in major strategic decisions" for the company, no time frame was given as to when he might return.

"I love Apple so much and hope to be back as soon as I can," Jobs told his staff. "In the meantime, my family and I would deeply appreciate respect for our privacy."

That appeal - plus stern indications that Apple would not disclose any further details - persuaded analysts on Tuesday to ignore the elephant in the room. "It was a very personal appeal, and there is a lot of respect for Steve Jobs across the industry," says Bill Kreher, analyst at Edward Jones, who took part in the conference call from his office in St Louis, Missouri.

"With that in mind, despite the fact that his presence in the company is so important, I don't think any analyst wanted to look like that insensitive guy or gal who was the first to ask. If there had been one question, others would have followed."

The first to mention the founder's name was chief operating officer Tim Cook, who will take the helm while Jobs is on leave. It's a role he has filled in the past with aplomb, earning him respect and a reputation as a safe pair of hands.

"In my view, Apple's doing the best work ever," Cook said in response to a query on long-term product planning. "The team has an unparalleled breadth and depth of talent and innovation that Steve has driven in the company, and excellence has become a habit, and so we feel very confident about the future of the company."

Under Jobs' charismatic leadership, Apple has been a raging success, putting in market-beating financial performances for the last 32 consecutive quarters. It is now the world's second-largest company by market capitalisation, eclipsed only by US oil giant Exxon.

However, many believe Jobs to be the linchpin of strategic focus that has allowed Apple to create game-changing products such as the iPod, iPad and iPhone. He is credited with having a brilliant insight into what consumers want - especially those gadgets that most haven't yet thought of.

Jobs' compulsive attention to detail has additionally given him a central role in negotiating key contracts essential to the popularity of Apple products, such as content deals with record labels and film companies. Meanwhile, he is unquestioningly Apple's irreplaceable chief spokesman.

"When Jobs gets up onstage for a product launch, he projects his industry status as a pioneer and visionary," says Tim Bajarin, president of technology research company Creative Strategies of California. "He is the chief cheerleader within the company, and has a great deal of input and final say on all new products. He has an eye for design and an uncanny gut feeling for what consumers want."

Despite all this, Bajarin dismisses suggestions that Apple under the permanent leadership of Cook would revert to a safety-conscious culture shying away from bold new initiatives.

"Anyone who says that doesn't understand Apple at all," says Bajarin, who has followed the company since 1981. "He has already given his team what I would call his strategic vision."

Jonathan Jackson, a London-based analyst at Killik & Co, agrees that Apple would aim for a seamless transition in the event that Jobs does not return on a permanent full-time basis. Anything more dramatic would constitute a high-risk strategy, given the company's strong track record.

This was reflected yet again in Apple's first-quarter results covering the three months to 25 December, in which the company smashed expectations with net income of $6 billion (3.77bn) on sales of $26.7bn.

The release of those figures completely eradicated the marginal share price loss suffered immediately after the news that Jobs was taking medical leave - a fact that Apple's meticulous planning machine would have taken into account.

The record first-quarter figures have given rise to expectations that Apple's share price, currently kicking around $333 (209), will increase to at least $425 in the medium term. All things remaining equal, a price of roughly $390 per share would put Apple on par with Exxon.

With a strong pipeline of new and updated products covering at least the next two years, most analysts agree that Jobs' absence would do little damage to Apple's immediate growth prospects. Killik's Jackson believes the primary potential threat to Apple lies in competition from cheaper products driven by Google's Android operating system.

Although no precise figures are available, Carphone Warehouse has reported that sales of smartphones using the Android platform are now outstripping those of iPhones in the UK. Analytics firm Nielsen estimates that Android now accounts for 40.8 per cent of US smartphone sales, versus 26.9 per cent for the iPhone.

While smartphones are driving the overall mobile handset market, they still account for less than 20 per cent of global mobile phone sales. In addition, Kreher at Edward Jones notes that with less than 5 per cent of the worldwide market for all handheld devices, Apple still has plenty of room to grow, particularly in emerging economies such as China.

With plenty of cash in hand, record profits and the opportunity for growth, Edward Jones continues to rate Apple as an attractive long-term buy. Kreher says there is no reason to believe that Cook and the rest of Apple's executive team - all of whom have served under Jobs for years - can't fill any void left by their legendary chief executive.

"It would be unfair to put that sort of expectation on any one person," he says. "But if you think of all of the things that Jobs brings to the table, while one man can't replace him, they have a bench that can cover all the bases."

Jobs' lot

1 April, 1976: Steve Jobs and Steve Wozniak effectively create Apple with the release of the Apple I computer

12 December, 1980: Apple floats on the US stock market

May 1985: Steve Jobs resigns after a power struggle within the board of directors. He goes on to set up NeXT Computer and Pixar Animation Studios

4 February, 1997: Apple buys NeXT, paving the way for Jobs' return

16 September, 1997: Jobs appointed interim chief executive of Apple after the ousting of Gil Amelio

19 May, 2001: First Apple Stores open, in Virginia and California

October 2001: Apple presents the iPod, above, offering "1,000 songs in your pocket"

28 April, 2003: Apple launches the iTunes online music store

July 2004: Jobs undergoes surgery to remove a pancreatic tumour

20 November, 2004: UK's first Apple Store, left, opens in London

29 June, 2007: The first iPhone goes on sale in the US

3 April, 2010: The iPad is launched

January 2011: Jobs announces that he will take a third period of medical leave for an unspecified amount of time