Is Apple’s Tim Cook the Next Steve Ballmer?
Leo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many Apple (NASDAQ: AAPL) shareholders, myself included, have been lamenting the poor performance of our stock over the past six months. Even though bullish analysts keep touting the fundamental strengths of the company, the stock seems to have a mind of its own, trading independently from the market and swinging wildly on the slightest rumor.
When Tim Cook took over as permanent CEO in August 2011, investors were worried that Steve Jobs, who departed for health reasons, would never return. When Jobs passed away two months later, he left a void that could never be filled.
Although some will argue whether Jobs was a true visionary or just a talented marketer, there’s no question that his product launches were powerful, proactive and disruptive. Jobs was never afraid to take chances in the face of the harshest critics. He didn’t care about quarterly earnings and guidance, and refused to play nice with software developers, competitors or Wall Street.
Therein lies the problem.
Although Tim Cook is certainly a capable leader, he has failed to launch any inspirational products. Apple under Cook has devolved into a reactive company, one that caters to Wall Street and fan demands. His Apple is one that is focused on product refreshes, not product launches.
We get new, higher-resolution versions of existing products. We get smaller, more compact versions with higher storage capacities. What we don’t get is that new seminal product that stands the chance of turning the industry upside down once again, and breaking out of the Steve Jobs product cycle.
With every step Cook takes, and every opportunity wasted, he is flirting with Apple investors’ greatest fear - that he has more in common with Microsoft’s (NASDAQ: MSFT) Steve Ballmer than Steve Jobs.
Is it fair of me to make such a drastic comparison? Let’s review some of Cook’s decisions since he took over the top spot.
The Wall Street CEO
Right from the start, Tim Cook showed that he was willing to play Wall Street’s game. In March 2012, the company initiated a $10 billion stock buyback and introduced a quarterly dividend of $2.65 per share, giving in to two investor demands that Jobs had repeatedly declined.
To Steve Jobs, issuing a dividend was a sign of maturity in the tech market - a last resort to appease shareholders as growth slowed. Intel, IBM, Cisco, HP, Nokia and Dell are all prime examples. For Steve Jobs, the massive growth of Apple stock was reward enough for shareholders.
To his credit, though, Cook turned down $75 million in dividends, just to show that he wasn’t the “Wall Street CEO” that many critics claimed he was.
The Reactive CEO
In a previous article, I mentioned how Steve Ballmer was a reactive, and not proactive, CEO. Every product release since Cook took over has been an upgrade or modification of an existing one. Let’s take a look at the two key product releases in the past year - the fourth-generation iPad, the first-generation iPad Mini and the sixth-generation iPhone.
The fourth generation iPad (or the “new” iPad) had an upgraded A6X processor and “Retina Display”. Retina Display is simply a brand name for “very high resolution” displays. In the iPad’s case, this was an incredible resolution of 2048x1536, which far exceeded all tablet displays at the time. It also replaced the well-recognized 30-pin dock connector with an all-digital Lightning connector, much to the chagrin of third-party accessory makers, whom accepted the 30-pin connector as an industry standard.
The 7.9-inch iPad Mini was a reactive move to counter the growth of Amazon’s (NASDAQ: AMZN) 7-inch Kindle Fire tablet, which had surprisingly captured the second place spot in North American tablet sales due to its low price. It was also meant to compete with the third place, 7-inch Samsung Galaxy Tab. The iPad Mini features the internal same specifications as the iPad 2.
What bothers me about the iPad Mini is that Apple fans, bloggers, and those people who make mock-ups of Apple products in Photoshop have all predicted that this device would arrive one day. It’s as if Apple suddenly decided to create a “fan service” product, one that Steve Jobs had refused to create.
The iPhone 5, introduced in September, added a 4-inch screen - what I believe to be a reaction to the popularity of the Samsung’s Galaxy S’s 4.3-inch screen. It also added 4G LTE connectivity, an upgraded Apple A6 chip and a new version of its operating system, iOS 6.
So there you go - three refreshed products, two of which were modified reactively to counter additional features offered by competitors.
People always said Steve Jobs gave us what we wanted before we knew we wanted it. In contrast, Tim Cook appears to give us what we “might” want since it’s a newer and shinier version of what came before.
For now, Apple's product cycle is steady and iPhone sales remain strong, but the first blemishes have already started to appear in its iPad sales numbers. By the end of 2012, Apple’s North American market share of tablets dropped 7.14% to 78.86%, while Amazon’s Kindle Fire gained 3.03% to end with 7.51%.
That brings us to the question that is on every Apple investor’s mind right now: “What’s next?” Wall Street seems obsessed with this riddle, and here are the top rumors - the smart watch, the smart TV and the iPhone Mini.
The Smart Watch
I’m surprised by how long it’s taken Apple to visit this idea. The first time I saw the small iPod Nanos with their watch displays and straps in the Apple Store, I thought, “Wouldn’t it be cool if these Nanos could sync with an iPhone, like a heads-up display for the smartphone that’s in your bag or pocket?”
Anyone who’s seen Knight Rider or Dick Tracy would immediately have thought of it too. Unfortunately, Tim Cook didn’t.
Meanwhile, the Pebble Watch by Pebble Technology beat Apple to the punch. It is set to be released on January 23, 2013, and will sync with iOS and Google (NASDAQ: GOOG) Android smartphones via Bluetooth. The Pebble Watch, which features a GPS, a media player, and messaging apps, will be competitively priced at $150 for pre-orders.
The Smart TV
The fact that Apple kept touting its “Retina Display” led many speculators to assume that an ultra-high television was in the works. Then analysts, especially Piper Jaffray’s Gene Munster, started to fan the flames with rumors of Siri voice-activation, FaceTime, integrated iOS video games, and more.
However, Apple stayed quiet, with only rumor mills stating that it was in “no rush to launch” a TV in 2013. However, these “rumors” gave Samsung quite a few ideas of their own.
Samsung recently released its voice and gesture activated, Internet-enabled smart TV (S Recommendation). At CES 2013, Samsung charmingly told the audience that its voice activated hub would be able to understand English-speakers of all different accents, even Australians.
If Apple intends to release a full-featured set, as Munster so adamantly claims, then would it discontinue its Apple TV set-top media streaming box, which was released in 2007?
Although the Apple TV, which received second and third generation updates in 2010 and 2012, hasn’t been a runaway success like the iPad and iPhone, Apple managed to sell 5.2 million devices in fiscal 2012. Will it squander the potential growth of this product - which can easily be converted into a “smart device” in the next iteration - in favor of chasing Samsung’s full-featured smart television?
Margins for full-featured televisions are very poor (just ask Sony or Panasonic) which is the very antithesis of Apple’s high margin products. On the other hand, if all of Apple’s competitors create smart televisions, then why would you need an Apple TV set-top box?
Since Apple released the iPad Mini, defying Steve Jobs’ vision, some speculators have believed for a long time that an iPhone Mini (or iPhone Nano) must be in the works. It turns out that they might be right. Bloomberg and the Wall Street Journal reported that a smaller, cheaper iPhone would be available in late 2013, in order to combat the rise of cheaper Android phones from Samsung, Sony and HTC.
The phone may retail for as little as $99 in the United States, putting the pressure on Samsung to defend its lower-end offerings. However, Apple's Pete Schiller recently shut down these rumors, stating that cheaper phones "will never be the future of Apple's products," but stopped short of denying plans for a smaller iPhone.
I honestly don’t think an iPhone Mini can succeed in today’s smartphone market. Samsung’s Galaxy Note has given birth to a whole new niche market of “phablets” - large screen smartphones that resemble small tablets. Samsung’s flagship Galaxy S series prides itself on its large display, ideal for today’s applications.
The current market has a taste for larger screen devices, not smaller ones, and a smaller iPhone could find it locked out of mainstream applications due to its incompatible screen size - which cancels out the need for a smartphone altogether, even with budget users. This was a major issue with smaller devices such as the HTC Wildfire and Motorola Admiral.
My problem with each of these rumored devices is that, if released like the iPad Mini, they would be exactly what the public expects. Even worse, they would trail their competitors, rather than lead them as the iPad and iPhone originally did.
Now does that strategy of “following the leader” sound more like Steve Jobs, or Steve Ballmer?
My Foolish Take
In the tech world, timing is everything. Steve Jobs had impeccable timing and the ability to peer around the curve. Unfortunately, Tim Cook’s opening strategies in his first year suggest that he is looking straight ahead, rather than around corners.
One of these “straight ahead” strategies - the patent battles against Samsung - is extremely bad for the company’s PR. This strategy constantly reminds us of two painful facts:
- Apple is afraid of Samsung.
- Our beloved underdog has evolved into a bully.
For Tim Cook, it’s high time to stop playing the part of the reactive CEO. Apple needs to refine its vision for the future, and use that massive cash hoard - $121 billion at the time of this writing - for proper acquisitions and R&D to excite consumers and investors again, instead of spending it in the courtroom.
Steve Ballmer failed to live up to Bill Gates’ legacy because he spent too many years believing that Microsoft’s cash cow product cycle - Windows and Office - would last forever. Let’s hope that Tim Cook avoids that fate.
Leo Sun owns shares of Apple. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com, Apple, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!