The investing world raised a glass to Tim Cook on Friday. A year at the helm of Apple (Nasdaq: AAPL) -- this time for real -- has served shareholders well.
The tech giant began shelling out quarterly dividends for the first time since 1995. The subsequent updates to the company's bread-and-butter iPad and iPhone lines easily outsold their predecessors. There isn't a trace of "what would Steve Jobs have done?" in the air.
Perhaps more importantly, Apple's stock has soared 76% through Cook's first 12 months as CEO. Investors who trusted the transition have been richly rewarded for believing that the company wouldn't come undone when it became improbable and then impossible for Jobs to go on. Jobs headed Apple as it took the market-cap crown, but it was under Cook -- just last week -- that it became the most valuable company of all time in this country.
Is that enough?
Maybe things aren't all that great
On Friday, fellow Fool Evan Niu praised Cook's freshman year as the top dog at Apple.
I'm certainly encouraged and impressed by the reasonably smooth transition that has taken place, but let's go over a few of the things that haven't gone exactly according to plan.
- After routinely blowing past Wall Street's profit targets during Jobs' tenure, Apple has come up short in half -- two out of four -- of Apple's quarterly reports under Cook.
- Google's (Nasdaq: GOOG) Android has padded its market-share lead over the past year in mobile. The race isn't even close. According to industry tracker Gartner, Google's market share has grown from 43.4% to 64.1% over the past year. Apple's slice of the admittedly growing pie has only improved from 18.2% to 18.8%.
- The market wasn't initially impressed by the iPhone 4S. Despite hitting the market a few months later than the company's historical summertime refreshes, the device lacked the NFC and 4G LTE bells and whistles the market was craving. Whispers of a radical redesign with a larger touchscreen also failed to materialize. This obviously isn't Cook's fault, but it's a safe bet that the charismatic Jobs would've been more persuasive in the unveiling.
- Rumors of a full-blown Apple HDTV have grabbed analysts' attention. Even Jobs' own biographer pointed out last year how Jobs had "finally cracked" the code. Well, it has yet to materialize, and some analysts now believe that it's not coming anytime soon.
- iPod sales continue to decline, and Mac sales have been essentially flat over the past year.
In short, Apple's ascent over the past year has been more the result of market momentum and things that Jobs put into action than Cook's own accomplishments. Yes, Cook did restore the company's dividend policy -- something that Jobs probably would not have done -- but it's not just the shareholders getting paid to stick it out with Apple.
Dilution breeds confusion
Cook received a million restricted stock units -- valued at roughly $376 million at the time -- for taking the most important job in consumer tech last summer.
That's some serious dilution, even for a company as big as Apple, with less than a billion diluted shares outstanding. The board also authorized a $10 billion buyback that would kick in come fiscal 2013.
Why wait? The stock's already trading 14% higher, and who knows how much more Apple will have to pay -- resulting in the repurchasing of fewer shares -- when fiscal 2013 kicks in five weeks from now?
Obviously, the board is to blame for that move. Investors naturally won't complain if the buyback takes place at higher price points, given the increasing value of their own shares, but it's yet another logic conundrum that probably wouldn't have happened under Jobs.
Avoiding the sophomore slump
It's going to be Cook's second year where he truly proves his worth. The iPhone 5 is no doubt going to be amazing when it comes out in a few weeks, but the competition is intensifying across the smartphone and tablet markets that now make up 73% of Apple's revenue. Consider that just days before Apple will presumably unveil the iPhone 5 on Sept. 12, press conferences by Amazon.com (Nasdaq: AMZN) and a joint event by Microsoft (Nasdaq: MSFT) and Nokia (NYSE: NOK) will take place.
Apple has been able to swat away these pesky contenders in the past, but Amazon and Microsoft are dangerous in that they have both been willing lately to sacrifice margins for the sake of market share. Selling subsidized hardware, possibly even at a loss, is acceptable to them, and Apple needs to be careful.
If the open-source nature of Android was enough to hold Apple back from what would've been a far greater iOS market, how will things play out later this year, after Amazon and Microsoft have their say?
Cook deserved applause for his rookie campaign, but it's going to be how he and his company responds during his second year at the helm that ultimately defines his success.
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