Tim Cook Might Be a Better CEO Than Steve Jobs for Apple Right Now

Without Steve Jobs, Apple (NASDAQ: AAPL  ) wouldn't exist today; virtually everyone would agree that this is true. Jobs was a visionary who was able to motivate the people around him to create innovative products, and he was in turn able to market them creatively to reach a wide audience. Jobs' untimely death has further bolstered the "cult of personality" surrounding him -- as has Apple's perceived lack of innovation over the past year or two.

However, Jobs was also a dominating individual who often had a hard time admitting when he was wrong. He had a knack for understanding what consumers wanted, but he still made plenty of mistakes in his career. By contrast, Tim Cook seems very open-minded, but he isn't the kind of inspirational leader Steve Jobs was. However, at this stage in its life, Apple needs a smart, adaptable businessman at the helm more than it needs a disruptive visionary. Thus, Tim Cook may actually be a better fit for Apple right now than Jobs would have been.

Harvesting cash
The key difference between the Apple of today and the Apple of five or 10 years ago is that the company is now, along with competitor Samsung, one of the two largest consumer-electronics vendors in the world. Because of its legendary margins, Apple still leads Samsung by far in terms of profit. As an established leader in consumer electronics, Apple's primary goal today should be converting its leadership position -- particularly in high-end smartphones -- into a steady stream of free cash flow.

To be sure, Apple needs to continue innovating to achieve that goal. Google (NASDAQ: GOOGL  ) is clearly determined to keep improving its Android platform to draw users away from iOS and drive higher usage of various Google services. If Apple stands still, it will probably continue to lose market share to Android, which offers an open platform and more choice for users. Apple also needs to continually improve its hardware and software to drive robust upgrade cycles. If the iPhone 9 isn't much different from the iPhone 7, users will wait longer to upgrade, especially in regions where wireless carriers don't offer big subsidies.

On the other hand, the disruptive innovation for which Apple was known under Steve Jobs would probably not help the company much today. While Tim Cook has said that Apple isn't worried about "cannibalizing" itself, I think that's an overstatement. For example, the iPhone has greatly cannibalized the iPod since its introduction; people don't want to have two devices in their pockets when they can have just one. However, in the iPod's peak year, fiscal 2008, sales totaled approximately $9 billion, with the iPod gross margin probably falling somewhere below $3 billion. As a result, Apple didn't lose very much by cannibalizing the iPod, compared with the size of the iPhone business it gained, which surpassed $80 billion in revenue last year with gross margin above 50%.

By contrast, it's hard to imagine how any new product line that cannibalized the iPhone could be a good thing for Apple. The iPhone is already an incredibly large business by any standard, with an unheard-of gross margin profile. Any new product that might undermine iPhone demand would have a hard time making up for the lost iPhone profit.

The benefits of Tim
So what does this all have to do with Steve Jobs and Tim Cook? The point is that Apple can best maximize its value for shareholders by squeezing as much profit from the iPhone and iPad product lines as possible. The introduction of the iPad Mini represented a step in that direction. Steve Jobs famously went on a rant against 7-inch tablets during Apple's Q4 conference call in 2010. There's some evidence to suggest that he was coming around to the idea of a smaller iPad in the following months, but it's still unclear whether Apple would have produced the iPad Mini had Jobs remained at the helm. By contrast, Cook had less at stake in the screen-size debate; he recognized that smaller, cheaper tablets were the iPad's biggest competition, and he created a very successful product in the iPad Mini that maintains Apple's favorable margin profile.

The iPad Mini (courtesy of Apple).

A similar move may be occurring with the iPhone. Jobs was a firm believer in the iPhone's original 3.5-inch screen size, even as Android phones started to get bigger and bigger. Many iPhone users like the smaller form factor, but as Android devices -- particularly Samsung's Galaxy S lineup -- have gained share at the high end, it's become clear that Apple's "one-size-fits-all" approach is a hindrance. Apple broke this barrier by moving to a 4-inch screen for the iPhone 5, but the company is still well behind Android on the "size curve." Whereas Jobs would probably have resisted further fragmentation, I expect Cook to OK an even larger iPhone for late 2013 or 2014. This is just good business sense -- giving customers what they want.

Conclusion
Steve Jobs' dogmatic perspective on product engineering was probably the most important cause of Apple's success. However, now that Apple has reached the top of the mountain, the company needs a more flexible, opportunistic approach. Since screen size is apparently a barrier to iPhone sales, I expect Tim Cook to fix the problem by offering an iPhone with a larger screen. I'm not sure Jobs would have done that.

Obviously, there is some risk of missing other opportunities with a CEO who doesn't have Jobs' penchant for driving innovation. That said, I remain optimistic that Jobs' death didn't suddenly turn off the innovation machine at Apple. In any case, I believe that the opportunity for Apple's existing product lines is so large that having a CEO who will maximize the profit from those devices (Tim Cook) will be better for Apple than having a CEO whose focus is on dreaming up the next big thing (Steve Jobs).

There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (8) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 17, 2013, at 11:13 AM, alboy5 wrote:

    Meet the new ipad. Same as the old ipad only smaller or bigger.

  • Report this Comment On March 17, 2013, at 11:47 AM, MFdetractor wrote:

    This article perfectly exemplifiers why I no longer consider Motley Fool as a source of sound information. Cook has been progressively killing Apple following similar advice that is stated in this article. Jobs had a long term strategy in which products were developed and released to achieve those strategic goals and objectives instead of chasing the joneses. Adam, you literally fit the name Fool very well.

    Just in case you were wondering why I would even read this article, the headline popped up on my yahoo homepage and I just fell out of my chair because the title was so idiotic. I read it hoping that it was an April Fool's joke. If I can figure out a way of stopping Motley Fool headlines from appearing on my homepage, I would do it immediately.

    My prediction, Cook, being the awful CEO that he is, will follow the advice of this fool and he will turn Apple into another Microsoft or possibly even a HP.

  • Report this Comment On March 17, 2013, at 12:44 PM, Popi1953 wrote:

    Thanks for this well thought out and well-written piece. I know a few people at Apple, and the inside consensus is Tim Cook is a savvy and disciplined executive who deserves a good amount of credit for company’s tremendous success. Of course Apple would never have existed without Steve's vision, passion and fanatical quality standards, but Apple is a huge and complex organization today. Tim is the right kind of leader for Apple 2013. The "Apple isn't innovating anymore" chant is hogwash. Just because they aren't leaking details of their strategic R&D work doesn't mean they aren't doing it.

  • Report this Comment On March 17, 2013, at 1:07 PM, jrogowsk wrote:

    Good comment Popi1953

  • Report this Comment On March 17, 2013, at 1:35 PM, tychicum wrote:

    Jobs was so incredibly stupid that he treated cancer with herbs and roots. I guess as he was a Buddhist he was planning on reincarnation as a yoga teacher.

    Cook has my complete confidence.

    The day Tim Cook took over Apple closed at $374 per share ... last I checked it was still North of there.

  • Report this Comment On March 17, 2013, at 2:05 PM, JJApple wrote:

    It is easier to have a cover-all strategy as outlined by the writer. The problem is you showed your weakness and ends up a self-fulfiling prophacy for your downward spiral path against competition.

    The reason Steve Jobs is successful in business because he can hold the ground and defend the vision to get people steady and then guide people to the place where people could still end up to be, whether it is different size, device capability (e.g. USB).

    It is like the hawkish Begin of Israel talks about peace later has more chance of success as people against Peace approach at least was on the side of Begin.

    If you start to talk about different size, different capability (e.g. USB, customization etc) to have a cover-all strategy, you open a can of worms, you lose control and you essentially let competition pray on you further.

    This is the genius of Steve Jobs in addition to his innovation.

  • Report this Comment On March 17, 2013, at 2:45 PM, michaelbinCA wrote:

    What Apple apparently needs is someone like the other guy. Someone who will steal and not pay. But, of course. If paid, it would not be stealiing.

  • Report this Comment On March 17, 2013, at 3:52 PM, TMFGemHunter wrote:

    @JJApple: Why is this not true for Samsung, then? Samsung doesn't really innovate in the sense of having a clear vision for what products should be. They just build lots of stuff and move in the direction suggested by market trends. The most obvious example is the Galaxy S; the models have gotten bigger each generation because that's what a lot of their customers seem to like.

    Steve Jobs' vision for the iPhone was a tremendous success. But Apple has been around for nearly 40 years now, and never generated the same level of success in the PC industry. It's a two way street: if you build to everyone's taste you can lose your identity, but if you are too rigid you are going to alienate a lot of people. Apple cannot afford for the iPhone to become the Mac of the smartphone world.

    Adam

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2316966, ~/Articles/ArticleHandler.aspx, 12/21/2014 11:44:59 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement