Apple And The Godfather
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If the Italian Mafia was a publicly traded company it would be among the most profitable in the world, bringing in revenues of $178 billion and free cash of $65 billion, bettering Apple (NASDAQ: AAPL) according to Italian anti-crime group SOS Impresa. It would also boast a yearly revenue growth rate of 40%. The Italian mafia would likely be listed as a diversified conglomerate and would be one of the hottest stocks on Wall Street. As a business, one can’t dispute it is thriving.
Apple, however, has to run its business as a law abiding corporation, but some of its strategies bear an amazing resemblance to business success guidelines that the Mafia observes as set out by quotes from The Godfather trilogy and 25 Rules of Wisdom by anonymous blogger, Mr. Mafioso.
His #1 rule, “Even the boss must get his fingernails dirty.” Steve Jobs was famous for personally inspecting and vetting new products. He was demanding, overseeing the smallest details like designing the furnishings of the Apple stores, down to the choice of flooring.
Analysts also complain about how much cash Apple keeps lying around. But Apple must agree with Rule #4, “Cash is cash, even if it comes from an elephant’s stomach”. You can translate that to mean cash is king. It frees you up for opportunities on the fly. Apple still has $27.65 billion in total cash and no debt.
Apple is famous for keeping future plans under wraps like the #5 Rule “Never reveal 100% of anything to anyone”. When Apple revealed the iPad Mini on Oct. 23, it also unexpectedly debuted the new iPad 4, a new improved iMac, and an improved MacBook Pro. Or in actual Vito Corleone words, ”Never let anyone outside the family know what you’re thinking.” Apple’s suppliers are famously closed mouthed about terms, costs, numbers manufactured, supply availability etc. They have to be if they want to keep the business. These terms are why Apple supplier stocks like Nuance Communications (which makes SIRI for the iPhone) and ARM Holdings don’t move as much as Apple when there is new product news because they can’t say what they’re making from Apple’s business or plans for future business with Apple.
Apple is notorious for guiding low each earnings season only to surprise the next with better than expected results, which is an iteration of Rule #7. “A man is nothing without his word.” Don’t make promises you can’t keep, so err on the side of lower guidance rather than hyberbole. This is something to expect from Apple when they report on Oct. 25. If Apple reports and sells off that is your chance to use some cash, remember rule #4, scarf up Apple as fast as you would fresh cannolis on your way out to hit the mattresses. (“Leave the gun, take the cannolis.” Clemenza from The Godfather.)
Rule #22, and a Godfather quote from Michael Corleone,“Keep your friends close, but keep your enemies closer.” Former Google (NASDAQ: GOOG) CEO, Eric Schmidt, was on the Apple board. While they were amicable then, the seeds of the frenemy relationship between Google and Apple eventually blossomed into an infamous turf war. Apple and Microsoft had a tumultuous relationship, yet Jobs and Bill Gates were always civil to each other, even admitting a grudging mutual respect.
#15 “Nothing lasts forever.” So true in Silicon Valley and Sicilian valleys. Apple keeps coming out with new and improved products. A year after Steve Jobs is gone; they still can’t coast on the products launched in his lifetime. This rule is what analysts have been nattering about for some time with respect to Apple’s future earnings power when Jobs’ purported five-year plan for the product pipeline expires. Yesterday’s debut should prove that Apple is keeping the pipeline fresh.
Godfather consigliere Tom Hagen says, “This is business, not personal.” Apple is and was a tough negotiator with suppliers, telecom carriers, book publishers, and the music industry. Those that balked found Apple to be a formidable foe. For example, iTunes has made 99 cents the standard for music and changed the industry forever. Or in the most famous line from the Godfather movies, “I’m gonna make him an offer he can’t refuse.” Samsung, you were warned.
Apple has a P/E of 14.48 and a forward P/E of 11.57 with a 1.70% yield like Don Fanucci’s “Just enough to wet my beak.”
But my favorite rule is #25,”Lucky is the man who suffers humiliation in front of others, for his revenge will be sweeter.” This couldn’t be truer in the case of Jobs, let go from his own company only to return as maybe the best CEO of the century. Failure is a goad more powerful than success. He referred to his experience in his memorable 2005 commencement speech at Stanford, “I didn't see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. I'm pretty sure none of this (his and Apple’s later success) would have happened if I hadn't been fired from Apple. It was awful tasting medicine, but I guess the patient needed it.”
And don’t forget his last words from that address, “Stay Hungry. Stay Foolish.”
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