Apple needs a COO, not new CEO

A rather fanciful and irresponsible commentary at Forbes today asserts Apple is looking for a new chief executive. "Some Wall Street sources close to some Apple executives say such a move is afoot", contributor Gene Marcial writes, without offering any more meaningful identification in that. What? Were the boys talking between toilet stalls again?

At the very best, his sources are second-hand. Hearsay. Regardless, replacing Tim Cook is the wrong solution because his management isn't the problem, nor should he be ousted simply because the stock is in freefall. The fruit-logo company is a money machine, enormous in his hands compared to predecessor Steve Jobs. What Cook lacks is what Jobs had: a chief operating officer. Apple needs to find one -- now -- and public COO search might even boost investor confidence, which lacking perplexes me, given how much money this company mints.

Monster Money

Starting in 2010, Apple saw tremendous -- simply astounding -- revenue and profit gains, nearly doubling in one year from $13.5 billion to $24.7 billion and $3.1 billion to $6 billion, respectively. During fiscal 2010, Apple generated $65.23 billion in revenue. 2011: $108.25 billion. For fiscal 2012, which closed end of September: $156.51 billion. Apple revenue is up 140 percent from fiscal 2010. During the same time period, Apple's net income rose from $14.01 billion to $25.92 billion to $41.733 billion.

Looked at differently, for all calendar 2012, Apple generated $164.68 billion in revenue. That's more than twice Microsoft ($73.2 billion). Two years ago, the software giant's revenue exceed the fruit-logo company quarter for quarter. By calendar Q4 2011, iPhone revenue alone exceeded all of Microsoft.

During fiscal first quarter 2013, Apple generated $54.5 billion revenue and $13.81 earnings per share. Analyst consensus for fiscal Q2 is $42.49 billion, up 8.4 percent year over year, and EPS of $10.07, which compares to $12.30 a year earlier. Apple reveals second quarter results tomorrow.

Two Men, One Mind

Cook largely deserves credit for Apple's amazing success for more than three years. As COO for most of the time, and CEO since August 2011, he managed day-to-day operations. Jobs' role changed starting with his first medical leave in January 2009. Critics, and even many Apple supporters, don't give Cook the credit he deserves.

Jobs and Cook worked as a team. My favorite analogy for the pair is Captain Kirk and Mr. Spock. Kirk, like Jobs, is more emotional, intuitive, risk-taking. Cook is more like Spock, making logical, logistical decisions that maximize margins. Under Jobs, Apple released category-creating, or redefining products, that left people breathless -- and wanting to buy. Cook brought Appleware to market and wrung every cent the supply chain would give.

Jobs may have had the vision with iPhone, which launched in June 2007, but Cook executed on it, particularly in 2010 and 2011, with launches of iPad and iPad 2 and iPhone 4 and 4S, and further in 2012 with iPad mini and iPhone 5. At the end of calendar 2011, Apple had 315 million cumulative iOS device sales. 2012: 500 million, all from zero four-and-a-half years earlier.

Cook's problem: He is now half of a whole, a man responsible for two jobs: Vision and management, and he does neither as well as he could just one. A COO, and the right one -- a compliment to Cook's weaknesses -- could make a crucial difference as Apple prepares for the next big thing.

Stock Crash

The market clamors for Apple's next big thing, and wanting perceptions about its absence feeds negative perceptions that have little to do with revenue and performance reality. Just look at the numbers above.

Jobs' legacy is part of Cook's problem. For years, Apple was a perception stock, largely buoyed by smart marketing and Jobs' ability to cast the so-called "Reality Distortion Field", while generating cult-leader like adoration. For most of his time running Apple during the so-called second coming, shares rose more because of positive perceptions, and overly-given attention from the Apple Fan Club of analysts, bloggers, reporters and other writers. Funny thing: Apple is no longer a perception stock but performance one. Recent punditry about falling shares feeds an anti-reality distortion field.

Seemingly anyone who is no one speculates about the great Apple disaster. If bumper crop is definition of crisis, gimme some of that, please. The stock's declines should be viewed independently from the company's real performance, or Cook's. At market close today, Apple shares were down 43.5 percent from their all-time high, in September, of $705.07.

Shares, already in freefall, plunged further following January's fiscal first quarter announcement. How will they be after tomorrow's announcement? Worse, likely, given the Street's response to Apple. All based on negative perceptions that ignore market realities.

Cook's first problem is no COO. Second: no compliment, like Jobs. Third: the next big thing and his failure to deliver it. But the last is urban legend. Cook actually is doing right by Apple and shareholders by staying the course, at least for a time.

One Less Thing

Under Jobs, Apple launched new categories and saw them to maturity. You can see this process everywhere. First is the category definer, the new thing for the company. Then there is a process of iteration, where Apple improves features while keeping prices the same and sometimes lowering them near the end of the product cycle before something new in that category comes along. Pick any Apple product. The first several generations of iPod look similar (2001-2003), then Apple changed up with iPod mini (2004), nano (2005) and touch (2007) and completely refreshed the lineup (2012). The music player is an end-of-life category that will receive nominal reinvestment of time.

iPhone and iPad track similarly, and not nearly as far along. Right now, Cook's charge is managing two relatively new product lines, which make up the bulk of profits. During fiscal Q1, iOS devices represented close to three-quarters of all revenue. His first responsibility is to manage these maturing businesses before committing Apple to some new or redefining category. But investors want the feel-good thing that creates allusions, or perhaps
illusions, about Apple as sitting-at-the-right-hand-of-God innovator.

Apple shouldn't replace Cook, whose managerial performance is exemplary, but instead give him a helping hand, by appointing a chief operating officer. Ousting Cook would be fool's play. Jobs brought positive perceptions to Apple, but Cook manages a performer -- a burden his predecessor never really carried.

Some Context

Here are a few of my recent stories related to this analysis:

They're a meme about a company in perception crisis, which is far different from Apple in decline or collapse.

Photo Credit: nui7711/Shutterstock

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