Apple Death Knell #62: Apple Isn’t Just Dying, It’s Dead

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Apple Death Knell #62Apple is dead! So sayeth Rocco Pendola writing for TheStreet.com. "There's No Question Now," Mr. Pendola wrote in the title, "Apple is Dead."

Whoa. That's a doozy of a death knell that goes beyond the usual mantra that Apple is dying by jumping right to the post-mortem pronouncement that Apple is actually dead.

What is the source of Mr. Pendola's observation? Apple's announcement that some of Tim Cook's and other executive stock option bonuses will be tied to Apple's stock performance—he believes that this is a betrayal of some of the late Steve Jobs's principles, particularly the notion of never kowtowing to Wall Street. As such, he sees it as proof Tim Cook has strayed far as CEO.

Ergo Apple is dead.

The Death Knell

Here's what he said:

[Apple's decision to tie executive compensation to stock performance] is not only a rebuke of Steve Jobs and the Apple way -- the very essence of what made Apple the world's greatest company -- it's a perverse validation of Wall Street and the stock market. As if Wall Street should play any role whatsoever in determining how much anybody from the CEO to the cleaning crew at Apple makes.

[...]

But, yeah, it's a brilliant and ballsy move by Cook and the Board to, yet again, give the nod to external and irrational forces such as the stock market. These guys are recklessly and multi-handedly desecrating Steve Jobs's legacy. This is just another example of Apple losing its way, operating like every other company.

Unlike almost all of the Death Knells we've captured in the Apple Death Knell Counter, Mr. Pendola's entry (#62) has some merit, but I think that merit is rooted in misunderstanding.

Innovation

For one thing, Apple is not dead. Far from it. We saw at WWDC that innovation is alive and thriving at Apple. iOS 7, Mavericks, and the new Mac Pro show that Apple knows how to think differently. More importantly, it was proof to me that Tim Cook has so far achieved his goal of protecting and nurturing Apple's culture.

As I argued recently, Tim Cook was the ideal choice to transition Apple from the era of Steve Jobs to a new era, an era without a single figurehead for innovation. Even more importantly, Tim Cook has to train his successor, find the person who can not only lead Apple, but maintain its culture, too.

That is, after all, why Steve Jobs picked him.

(Note that the same column said that Jony Ive would be that successor, and that I stipulated that if Jony Ive didn't take the stage at the WWDC keynote I was wrong. Jony Ive didn't take the stage, making me wrong).

But this column is supposed to be about Mr. Pendola being wrong, not me, so let's back to to this Death Knell of his.

Right

To find out where he went wrong, we need to look at what he got right. Apple has never kowtowed to Wall Street. At least not under Steve Jobs. Apple famously focuses on making the best product it can, and both Steve Jobs and Tim Cook (when Mr. Jobs was alive and since his death) have repeatedly said that if they do so, the stock price will take care of itself.

If Tim Cook has lost sight of that—if Tim Cook has suddenly decided that Wall Street is its first master—then I would stand up and say that Apple is doomed until we see the perpetrator's head on a pike.

To that end, I understand where Mr. Pendola is coming from—and unlike most members of the Apple Death Knell Counter, he's not a rabble rouser or someone who just doesn't get Apple.

Wrong Turns

Mr. Pendola believes that Apple's dividend and stock buyback programs are examples of Apple kowtowing to Wall Street. I completely disagree. Those programs are an effort to kowtow to the reality that Apple makes more money than it needs to keep growing. It's good governance that rewards shareholders for investing in $AAPL.

I think he's also taking the wrong angle on this executive pay thing. It's not about Wall Street, but rather more good governance for Apple's shareholders—a distinct subset of "Wall Street"—as well as Apple's own employees.

Note, for instance, that Wall Street has only punished Apple's stock more since this policy was enacted over the weekend. $AAPL closed Thursday at US$393.78, a loss of $4.29 (-1.08 percent), on moderate volume of 12 million shares trading hands. It's lost about $20 this week. Wall Street clearly couldn't care less about Apple's shift in executive compensation.

Ergo, the shift was not done for Wall Street's benefit.

It's All About the Messages

This change is about sending a message to Apple's shareholders, a group that could be understandably cranky about executives getting tens of millions in bonus options when they themselves have seen the stock drop from $702.1 in September to $394 today.

In Tim Cook's case, this policy shift covers his own massive grant of the one million shares he had already been given when he took over as CEO. There are hundreds of millions of dollars at stake for him.

Shareholders are a group of people Apple must pay attention to, and this message was for them, not Wall Street per se.

Apple's employees are another group for whom this change was designed. Stock options are a big part of Silicon Valley, and the message for employees is that the executives are more or less eating the same dog food, even if their plates are bigger and fancier.

That's a good message to send.

Is it what Steve Jobs would have done? Probably not. Mr. Jobs had a singular take on such things that worked really well for him. Tim Cook is a different person, and Apple will be a different company under him (and anyone else).

That's OK as long as Apple's culture of innovation continues, and as evidenced by WWDC, that culture is alive and well. When Apple releases the next crop of iPhones and iOS 7 and OS X Mavericks prove to be big hits, Apple's stock will begin its recovery.

We'll see that in a few months.

Thanks to TMO member Louis Skonick for the heads up on Rocco's article.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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Comments

Bosco (Brad Hutchings)

The stock is pretty dead. Two things need to happen. Tim Cook needs to move over a chair or down to a VP job. They need to repatriate the cash (at any tax cost) and distribute to the stockholders.

I’m quickly reaching a frightening conclusion. The US government might actually be a better thing to fund with that money than Apple management.

palenoue

If Bosco says Apple stock is dead, then it’s time for me to buy-buy-buy!  I’ve made over $50,000 by doing the opposite of whatever he says.

CudaBoy

My 2¢? I think Wall Street was just as unrealistic a yardstick when this site was predicting $1000 a share several months ago ( that was good crack, huh? )  as the Death Knell is now. I wish I was as dead as Apple. OTOH, markets change fast and so do the consumers. I would split the difference and see a bump when a new iPhone comes out DEPENDING on how “new” it is, the Mac Pro won’t be a huge factor and I would be HAPPY to see Apple average $350 per for a whole year.

Bosco (Brad Hutchings)

@palenoue. Post your trades. You’re full of beans.

Bryan Chaffin

Cudaboy, I quite agree with you on the unrealistic expectations before and after $AAPL’s fall. I wrote that piece about all the stupid things being written about Apple, and part of my point was that there were just as many stupid things being said on the way up as there was on the way down. It’s just easier to ignore when people are right for the wrong reasons than when they are wrong for the wrong reasons. smile

Lee Dronick

No, Apple is not down for the count nor is it on the ropes. They will be around for quite a while and probably have products in the works that stagger the other boxers.

Bring the cash back, and as a tax payer I would support amnesty for that. Don’t give it to the vulture investors. Use it to build facilities here, get the hell out of east Asia while the getting is good. The stock will rise, then investors can sell to make a profit.

RonMacGuy

@palenoue. Post your trades. You’re full of beans.

Just takes one trade.  April 2010 - Brad advises to sell at $240.

 

Tiger

Hmm. Apple trades currently about $400 and having topped out at $705 in last 52 weeks.

Microsoft has yet to break $36 per share in the last year.

Dell hasn’t traded over $15 in the last year.

HP hasn’t crossed $26 in the last year.

I think the moral of the story is…Apple is in a slump. The PC industry is DEAD.

RonMacGuy

Tiger, I agree with your Microsoft/Dell/HP assessment, except I would clarify that you can’t generalize on the PC industry as a whole.  The low-end netbook market is DEAD (replaced with tablets and smart phones).  The old-fashioned average-powered boxy desktop computer is DEAD (replaced with the more portable and just-as-powerful ultrabooks and MacBooks, as well as iMacs and other copycat all-in-ones).  The high-end, high margin, high-cost desktop market is about to evolve with the new Mac Pro (and soon-to-be copycats of it), but is a niche market for high-end users, so not a big part of the overall personal computer market.  And, Apple’s slump will either continue (much to my chagrin, given my stock options for later this year) or, with upcoming iPhone/iPad/iWatch/iTV/iWhatever announcements, will turn around based on Apple’s continued evolution away from that dead/dying PC industry you referenced.

Bryan Chaffin

Tiger, note that comparing the share price of one company to another is apple to oranges without also including the number of shares each company has outstanding.

Microsoft has 8.4 billion shares outstanding. Apple has 938 million. Dell has 1.8 billion. HP has 1.9 billion.

So while Apple is worth much more Microsoft, it’s about 7 times more valuable, not 12 times. That’s why Google with a share price of $877 is still worth less than Apple at $393 per share.

Make sense?

Gregg Schwinn

@ronMacGuy
I think one can generalize abouth the entire PC industry.

As Asymco’s Horace Dediu pointed out: Apple sells 5% of the world’s PCs and takes home 45% of the profit. That says all you need to know about the PC side of things.

RonMacGuy

@Gregg, I stand corrected!!  LOL.

http://www.comscore.com/Insights/Press_Releases/2013/6/comScore_Reports_May_2013_U.S._Smartphone_Subscriber_Market_Share

Well, look at that - Apple improving it’s share of the US Smartphone market from Feb to May - Now up to 39.2% share.  Amazing how a dead company can continue to grow market share.

For the record - just stating facts, and not attempting to hold anyone responsible for past failed predictions…

Bryan Chaffin

Ron, remember that comScore’s reports are not for market share, but rather subscriber share. Apple’s growing share of subscribers is more a measure of the longevity of its products, rather than a direct reflection of sales.  Apple is likely losing market share right now, and it will continue to do so until the next wave of iPhones. That’s been the pattern for the last couple of seasons.

RonMacGuy

Granted Bryan, but don’t you find it interesting that Apple’s longevity of its products is able to offset the huge differences in sales between android devices and iOS devices?  To increase subscriber share while android has been drastically outselling iOS is still pretty impressive.

wab95

Bryan et al:

Very nice discussion, particularly on share price.

I tried to post this from my iPad a few days ago, while out and about; it failed to upload, so here’s an attempt at reconstruction. Apologies for it being added to a cold discussion thread.

Pendola’s rationale for pronouncing Apple a ‘dead Co walking’ is inherently contradictory, in that he cites Tim Cook’s departing from what SJ would have done/did do, and therefore belies his implicit claim of understanding what SJ would do were he still here. SJ explicitly told Tim Cook not to be hamstrung by Apple’s legacy, and never to ask himself, ‘What would Steve do?’.

To pronounce an entity moribund simply for its departure from the past, or that such departure is proof of inevitable extinction, is not simply flawed reasoning but a failure to grasp a cardinal truth - all viable entities, indeed all living things, must undergo change and adaptation. The only things that cease to change and evolve are already dead, such as museum artefacts and preserved specimens. Worse, those who cite SJ and his actions as a rationale for rigid adherence to a status quo are attempting, in my opinion, intentionally or not, to create an orthodoxy of time-limited ritual. History suggests that orthodoxy and ritualised behaviour seldom lead to innovation and successful adaptation to a changing environment. The irony of a company that advocates thinking ‘different’ adopting such rigid adherence to stereotyped convention as a means of self-preservation is not insubstantial nor to be discounted as an indicator of just how conflicted is the advice of some of these pundits.

Two other quick points.

First, something alluded to above, is SJ’s comments to Tim Cook about not asking himself what would he, SJ, do. When critics/pundits start citing what SJ would or would not have done, never mind SJ’s own counsel not to ask or be beholden to that, they should first demonstrate certain and unambiguous anticipation - foreknowledge if you will - of what SJ would do by predicting his moves prior to his making public announcements about them; anything from the simplification of Apple’s product line, to moving to UNIX in OS X, to the iPod, the creation of the iTunes Store, the iPhone and the iPad , and for crikey’s sake, SJ’s appointment of Tim Cook as his successor - not simply in a one-off but with a consistency that would silence any doubter that this pundit ‘knew’ Steve Jobs. Cold. In the absence of a track record of demonstrating certain knowledge of SJ’s mind, on what basis do such now claim to be able to speak up for SJ and articulate what he no longer can, whether for or against what Tim Cook or Apple have or have not done? None objective or empirical. Needless to say, such critics belie such certain knowledge of SJ’s mind whenever they wax oppositional or cavil about Tim Cook’s departure from the ways of SJ by directly contradicting SJ himself.

Second, if Apple is so dead, then why do these pundits and critics keep citing it as if it’s a new fact? If Apple were truly dead, then there should be objective indicators and consensus of the same, and therefore no need to state the obvious, and even less need to continually repeat it. Their frequent and continuing pronouncements would be rather like the Washington Post running a banner headline - President Lincoln Dead! No kidding, Einstein? In fact, they keep stating it, each time bringing up something new, rather like Bullwinkle and his attempt at pulling a rabbit out of the hat, only this time for sure. So far, we’re seeing anything but a rabbit. Or a dead Apple. The mere fact that they continually discuss Apple is itself the greatest inherent contradiction to their argument, and proof that, at least in their minds, Apple is very much alive, if not alive and well.

My point is less to do with Pendola’s reasons for pronouncing Apple dead than it is with the general pattern behind these death pronouncements. Simply put, these are generally not only irrational (although at least Pendola posits something tangible), but come across less as statements of fact, which if fact, would not be in either dispute or need of repetition, but as campaigns of persuasion to a point of view, perhaps even at self-validation.

Just my two cents, and now the end of my rant.

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