STEVEJOBSANDAPPLE

STEVE JOBS AND APPLE

STEVE JOBS AND APPLE
MC LC
GII THIU: STEVE JOBSLEGACY................................................................. Page 3
THE MAN: GENIUS AND SICKNESS................................................................ Page 6
THE PRODUCTS: CREATION AND DISRUPTION........................................... Page 14
THE COMPANY: VALUE AND THE FUTURE.................................................. Page 21
ABOUT US ................................................................................................... Page 33
Front cover: With a projected image of the new Apple PowerBook G3 behind him, acting Apple CEO
Steve Jobs speaks during a presentation of Apple's new G3 line of Macintoshes and PowerBooks at
the Flint Centre in Cupertino, Nov. 10, 1997. Reuters/Lou Dematteis.
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STEVEJOBSANDAPPLE

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PREFACE:STEVEJOBSLEGACY

ThiscollectionofBreakingviewsarticlesonSteveJobs,Appleanditsindustryisbest
introducedbytheviewwepublishedfollowingnewsofhisdeathonOct.5,2011.The
articlesincludedherehavebeenselectedtoofferinsightintotheApplestory,the
competitiveimpactofJobscreativegeniusandthecompanysmostlikelybrightfuture.

RichardBeales,AssistantEditor
October2011

JOBSWORTH
ByRobertCyranandRichardBeales

SteveJobshasdiedat56.Hewasnoordinarychiefexecutive,andheleavesnoordinary
company.TheforcebehindtheiPod,iPhoneandiPadnotonlycofoundedandthen
rescuedApple,buildingitintothemostvaluabletechcompanyontheplanet,worth
some$350billion.Healsochangedthewaypeoplelive.Itsarareentrepreneurwho
leavesthatlegacyandacompanythatcanthrivewithouthim.

Jobsdroppedoutofcollege.AndhewasforcedoutofApplelessthanadecadeafter
startingitwithSteveWozniak,havinglosthisfighttopromotenewMacintosh
computersinsteadofmoreprofitable,lesscapablemachines.Butthesemomentsof
changeprovedcentraltohislatersuccess.Ina2005Stanfordcommencementaddress,
Jobstalkedofhow,forexample,calligraphyclasseshetookafterdroppingoutofcollege
influencedthedesignoftheMacintosh,arguablyApplesfirstworldchangingdevice.

Hewasalwaysreadytomoveon.HecalledbeingfiredfromApplethebestthingthat
couldhaveeverhappenedtome.ItseasytoforgetthatJobsbuiltPixar,the
astonishinglysuccessfulcomputeranimationcompany,whileinexilefromApple.Even
beforePixar,hefoundedNextComputer,makingdeviceswithanoperatingsystemfar
aheadofitstime.ThisplayedaroleinApplessuccessafter1996whenitboughtNext,
bringingJobsbackintothefold.

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Alongwiththevision,driveandperfectionismthatledtoastringofsuccessfulproducts,
JobsdidbringalessdesirablecultofsecrecytoAppleafterhisreturn.Inonesense,it
servedthecompanywellwhentheiPhonelandedandshowedtheworldthereal
potentialofsmartphones,itshockedtheindustry.Itwas,asanobserverputitatthe
time,likeitdroppedoutofawormholefromthefuture.Butinhandlingthebosss
healthproblemsinrecentyears,Applestightlippednaturecausedinvestorstogetless
informationthantheydeserved.

Evenso,thecompanysgreatestsuccess,theiPhone,wasdevelopedafterJobshad
survivedtheinitialonslaughtofcancer.AndApplejustthisyearbecamethemost
valuablecompanyinAmericaforatime,anditsmarketvaluenowonlyjustlagsExxon
Mobils.Bysomemeasures,Jobscreationoughttobeworthmuchmore.Thesuccessof
itslatestcategorycreatingproduct,theiPad,meansitsgrowthpotentialremains
powerful.Andthecompanyhasanimpressivearrayoftalentevenwithouthim.

Dontbetrappedbydogma,JobstoldthatgraduatingStanfordclass.Dontletthe
noiseofothersopinionsdrownoutyourowninnervoice.Appleisalegacyinitself,but
itsthedevicesbornofthatphilosophythatarguablymattermost.Likeallgreat
inventors,Jobscreatedthingsthatpeopledidntevenknowtheywanteduntilmillions
ofthemjusthadtohavethem.

PublishedOct.6,2011
STEVEJOBSANDAPPLE

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STEVEJOBSANDAPPLE

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THEMAN:GENIUSANDSICKNESS

ROTTENAPPLEFORTHETEACHER
ByRobCox

SteveJobsdidaterrificjobofpullingthecompanyhestartedtwodecadesagoupbyits
bootstrapswhenherejoinedin1997.ButinvestorsinAppleComputerarestillnotgiving
himthebenefitofthedoubt.Witnessthespectacular$8billionpluswipeoutofmarket
valuefollowingthesurprisewarningaboutfourthquarterand2001earnings.

Applecertainlydeservedaspankingforambushingthemarket.Yettheextentofthe
punishmentshowsinvestorsarenottakingitonfaiththattheearningsshortfallisa
simplespeedbump,asJobscalledit.Theymayberight.Applesaidsalestostudents,a
bigmarketforitsproductsinSeptember,werewellbelowexpectations.Sincestudents
tendtobemorefashionconsciousconsumers,thatmaysignalwaninginterestinthe
funkyiMacandCubemodelsthathavebeenthecompanysrecentsalvation.

Inasense,Applefindsitselfavictimofitsownfashionablesuccessandmustnowwork
furiouslytokeepitsproductslookingcuttingedge.Ifitfails,itcouldloseahardcoreof
customers,namelystudents,whothecompanyisrelyingonasitsnextgenerationof
users.ShouldthetrendycomputergeeksabandonApple,thecompany'sshare
certificatesriskbecomingcollectorsitemsalongsideitsfirstMacintosh.

PublishedSept.29,2000

MISSEDOPPORTUNITY
ByRobCox

SteveJobsmaybeavisionarywhenitcomestotechnology,buthisfinancialforesight
maynotbesokeen.Sure,hisstakeinPixarAnimationStudios,whichWaltDisneyis
reportedlyinterestedinacquiring,iscurrentlywortharound$3.6billion.Thisisnota
badreturnontheroughly$60millionJobspumpedintothebusiness.Andheissetto
receiveawindfallofnearly$800millionwhenhis10millionsharesinAppleComputer
STEVEJOBSANDAPPLE

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vestinMarch.YethadJobsnotexchangedamuchbiggerchunkofunderwaterstock
optionsforthesesharesafewyearsback,hewouldnowbesittingonanApplefortune
worthnearlyasmuchashisPixarpile.

InJuly1997,Jobsreturnedtotheflounderingcomputerbusinesshehadcofoundedtwo
decadesearlier.Afewmonthslater,rivalcomputermogulMichaelDellsneeringly
suggestedthatApplebecloseddownanditscashreturnedtoshareholders.Lastweek,
whenApple'smarketcapitalisationforabriefmomentsurpassedDell's,Jobsgloated
thathisrivalhadn'tbeen"perfectatpredictingthefuture."YetJobshimselfwasn'tmuch
betteratanticipatingiPodmaniaandtheextraordinaryrevivalofApple'sfortunes.

Inearly2000,asthetechbubblewasreachingitspeak,theApplebossreceiveda
controversialstockoptionspackagewortharound$548million,accordingtocompany
accounts.This40millionsplitadjustedoptionspackagehadanexercisepriceofaround
$22.In2002,Mr.Jobsreceivedanotherpackage,with15millionstockoptionssporting
anexercisepriceofaround$9.Afterthesegrants,theApplesharepricedeclined
precipitously.

That'swhenJobslosthisnerve.InMarch2003,asthestockhitanear5yearlowof
around$7.50,Jobstradedinhis55millionunderwateroptionsforalessriskybut
smallerpackageofrestrictedstock,thenworth$75million.

Inretrospect,Jobs,whodeclinedtocomment,couldn'thavechosenaworsetimeto
exchangehisoptions.Apple'ssharesarecurrentlytradingataround$80.True,the
restrictedstockisvaluedatmorethan10timesitsoriginalvalue.Buttheoptionswhich
Jobsdivestedwouldbenowinthemoneytothetuneofmorethan$3.3billion.Sohe
effectivelykissedgoodbyeto$2.5billion.

Still,Jobshashis$3.6billionPixarstakeforconsolation.Theonlyrealloseristhatother
Californianvisionary,GeorgeLucas,whosoldhimthecompanythatbecamePixarfor
$10millioninthefirstplace.

PublishedJan.20,2006

STEVEJOBSANDAPPLE

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CULTOFPERSONALITY
ByRobertCyran

Howsickisthedearleader?Partyofficialsarentsaying.Outsidersparseeverygaunt
appearance,orlackthereof,atpartycongressesforsignsofseriousillness.Insiders
cannotimaginelifewithouthim.Supportersputonshowsoftechnologicalforcewhile
talkswirlsaroundtherelativestrengthandofficialtitlesofhiserstwhileheirapparent.

ThatsumsupthesituationinPyongyang.Butitcouldequallyapplytogoingsonin
Cupertino,California,homeofApplethecompanythisweekatthecenteroffervent
speculationinthemarketsandmediaoverthehealthofitsvisionaryfounderSteveJobs.

Admittedly,itsafarstretchtocomparethegovernanceofoneofthemostsuccessful
technologycompaniesintheworldwiththemostbizarreandparanoiddictatorshipon
theplanet.AndeventhoughJobsisbelovedwithinthecompany,evenApplewould
neverattributesuperhumanfeats,suchasshootingmultipleholesinonetheveryfirst
timeheplayedgolf(oneofKimJongIlsmanyreputedaccomplishments),tohim.

YetpronouncementsfromAppleregardingitschiefexecutiveshealthhaverepeatedly
provenoverlycheery.FirstJobshadavirusinJune2008.InJanuaryofthisyear,hehada
hormoneimbalance.Aweeklater,hewasgoingonsixmonthmedicalleave.Nowithas
emergedhereceivedalivertransplant.Meantime,goodnews,suchasJobsappearance
atworkonMonday,quicklyappearsinthepress.

Theriskofsuchselectivesilenceisthatitcreatesunrealisticexpectationsforits
foundersabilitytogovern,whilemuddyingsuccessionplanning.

Makinganappearanceatheadquartersandrunningacompanyaretwodifferentthings.
YetthecompanystillmaintainsJobswillsoonbebackinthesaddle.Livertransplantsare
trulyanamazingscientificadvance.Butrecipientsmusttakeharshimmunosuppressant
drugs,whichcancauseserioussideeffects,fortherestoftheirlives.WhetherJobscan
fulfillthegruelingdemandsofbeingthefulltimechiefexecutiveisntclear.

WhileitishardtocontemplateJobsmortality,avoidingtheissuedoesntmakeitgo
away.About30percentoflivertransplantpatientsdiewithinfiveyears.Jobsfight
againstcanceraddsfurtherrisk.Appleshouldhaveaclearsuccessionplaninplace.Yet
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theexecutivecurrentlyrunningthecompany,TimCook,didnotevenreceivethe
honorificofinterimchiefexecutiveofficerduringJobsmedicalleave,includingwhilehe
wasundergoingsurgery.

Jobsisanextraordinaryexecutiveandinnovator.ButforshareholderssakeApplehasto
belarger,andhopefullymoreenduring,thananyoneman,includingitsfounder.The
company,anditsboardofdirectors,shouldhavetheconfidencetoproclaimasmuch.

PublishedJune25,2009

Steve Jobs stands beneath a photograph of him and Apple co-founder Steve Wozniak during the
launch of the companys iPad in San Francisco, California, Jan. 27, 2010. Reuters/Kimberly White.
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ADHOCINFINITUM
ByRobertCyran

AppleneedsamoreformaldelegationofSteveJobs'power.Thetechgiant'schief
executiveishandingdaytodaycontroltoChiefOperatingOfficerTimCookdueto
healthissues.YetheretainshisCEOtitle.Thisisthethirdsuchmove,andthistimethe
handoverisindefinite.Howeverpainful,amoreformaltransfertoanactingCEOwould
havebeenbetter.

Boththecompanyanditsshareholderscantakecomfortfromthefactthatthelasttwo
transfersalsotoCooktookplacesmoothly.Apple'soperationsshowednosigns
whatsoeverofimpairmentundercaretakermanagement.CookhasworkedatApplefor
morethanadecadeandhasbeenCOOforseveralyears.He'sclearlyasafepairof
hands.Moreover,Jobshaspromisedtoretaincontroloverbigstrategicchoices.

ButJobs'fitnessis,sadly,anincreasingconcern.Thecompanyhasn'tsaidexactlywhat
thematteris,butthislatestsetbackfollowsprevioustreatmentforpancreaticcancer
andanorgantransplant.Furthermore,theopenendednatureofJobs'currentrespite
willaddtotheworryforemployeesandinvestorsalike.

Inthesecircumstances,ApplewouldhavebeenbetterservedbyexplicitlynamingCook
asactingCEO.ThatwouldleaveJobsaschairmanwherehecouldretainsayoverApple's
strategicdirectionwithoutthegruellingdailychoresofrunningthecompany.Thatis
whereheismostvaluableanyhow.SuchadivisionwouldprovideclarityandgiveCooka
propermandate,giventheresponsibilityofoverseeinga$300billiongroup.

JobsplaysanoutsizedroleatApple.Heisarguablythebestexecutiveintechnology.But
hisreputationalsodependsonkeepingthecompanyonthesoundestfootingpossible
evenifthatmeansformallylooseninghisgrip.

PublishedJan.17,2011

STEVEJOBSANDAPPLE

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CREATIVECONSTRUCTION
ByRobertCyran

LosingavisionarylikeSteveJobsaschiefexecutiveisreasonablecauseforshareholder
concern.ButApplewouldntbethefirstlargeandinnovativecompanytoweathera
difficultsuccession.IBM,WalMartandGeneralMotorsshowhowanobsessivefocuson
design,customerneedsandtightcontroloversupplychainscanbeingrainedinaculture
byitscreator.Buttheseexamplesalsoprovidewarningsignsabouthowthosewho
followSteveJobscouldgowrong.

ThomasWatsonwasasimilarlyiconicfigureatIBM.Whenhejoinedin1914,he
establishedanearreligiousatmosphere.Salesmenworebuttoneddownvestments,
engineerprieststoiledawayinlabsandtherewasevenacorporatemantra:THINK.This
virtuouscombinationhelpedthecompanychurnouthighqualityequipmentandgaina
hardwonreputationthatIBMcouldntbethewrongchoice.PostWatsonleadersstuck
totheformulawithgreatsuccessforseveraldecades.

WalMartalsoshowedthevalueofwashrinserepeat.Themegaretailerdidntskipa
beatwhenfounderSamWaltonsteppeddownin1988.NewCEODavidGlasswisely
didnttinkerwiththerecipe:setupshopoutsideasmalltownnotwellservedbyrivals,
embraceeconomiesofscaletosellgoodscheapandusetechnologytokeepinventoryat
remarkablylowlevels.WalMartssalesare26timesaslargenowastheywerewhen
Waltonsteppeddown.

EvenGeneralMotorsthrivedforatimeafterAlfredSloangaveupthereinsinthemid
1950s.Underhisrule,thecarmakersetupasystemofdistinctbrands,dealersto
supportthemandasystematicapproachtomanagementbefittingitsengineering
culture.GMstayedonautopilotafterSloanleftandthecompanyretaineditssolid
positionintheU.S.carmarketintheensuingyears.

Whileallthreeenjoyedsuccessaftertheirlargerthanlifefiguresretired,theirplaybooks
alsopavedthewayforstagnation.IBMsbuttoneddowncultureandfocusonbig
businessmeantitwasslowtothePCrevolution.GMstechnocraticsystemfailedwhen
thefirmbecameincreasinglyscleroticandbeancounterstookoverfromtheengineers.
WalMarthasstruggledtoexportitsmodelandhasexperiencedpersistentlabor
problemsathome.
STEVEJOBSANDAPPLE

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AsthenewAppleboss,TimCookwillhavehisworkcutoutavoidingsuchpitfalls.But
historyalsosuggeststhattrailblazerslikeJobsleavebehindsomeworthyblueprintsto
follow.

PublishedAug.26,2011

GREATERTHANGRAVITY?
ByMartinHutchinson

SteveJobsleavesbehindacompanywithahuge$350billionmarketcapitalization,butit
isactuallymuchbiggerthanthat.Apple,whichJobscofoundedandranthroughmostof
itshistory,haschangedtheworldseveraltimes.

ThecompanysfirstgreatdevelopmentwastheAppleII,whichmadepersonal
computerseasytouse.ItworkedespeciallywellwithDanBricklinsVisiCalcsoftware,
thefirstsuccessfulspreadsheetprogram.Nowautomaticrecalculationandeasy
adjustmentsaretakenforgranted,butthentheywererevolutionaryforanyonewho
workedwithnumbers.

ApplelostthePCmarketingwarstoIBMandMicrosoft,butremainedthetrendsetter.
The1984Macintoshspointandclicktechnology(partlyderivedfromXeroxs1970sPalo
AltoResearchCenter)reducedtheneedtorememberinnumerabletrickytouseDOS
commandsandbroughtoutthevisualandtactilepotentialofcomputers.Therivalsonly
fullycaughtupadecadelaterwithWindows95.

TherevolutionscontinuedwhenJobsreturnedtoAppleafter12yearsaway
(revolutionizinganimationatPixarwhilehewasgone).TheiPodsetanewstandardfor
storingandplayingmusicdigitally,butApplesgreatesteffectontheworldcamewith
theiPhone.

Theleapofimaginationthecombinationofmobilephoneandcomputingcapability,
mixedinwithcooldesign,andfuntousestillseemsawesome.Theculturaleffect
cannotbemeasured.Itleveledtheworld:eventhemostremotetribesmanwitha
smartphoneisconnectedtotheInternetcloudasifhewereinaNewYorkoffice.Apple
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islosingshareinsmartphones,butstilldeservesmostofthecreditfortheir
development.

Jobsgeniusfordesignandunderstandingoftheneedsofnontechnicalusershashelped
makethetechsectoraconsumerbusinessandtherebyrevolutionizedtheeconomy
andthelivesofalmosteveryone.ThelatesteffortistheiPad.FrankJ.Fleming,afan,
calledittheonlythingthatsmetmychildhoodexpectationsofwhat2011wouldbe
like.Itishardtoargue.AnearlierappleissaidtohavespurredIsaacNewtontodiscover
gravity.ThisApplemaybejustasimportant.

PublishedOct.6,2011
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THEPRODUCTS:CREATIONANDDISRUPTION

OUTOFTHEPOD
ByRobertCyran

WithcustomersqueuingaroundtheblockfortheiriPod,it'snosurpriseApple'snet
profitrosefourfoldinthelastquarter.TheU.S.computergroupsold4.6millionofits
iconicdigitalmusicplayersinthequarter,morethansixtimesasmanyasitsoldinthe
sameperiodlastyear.Buttherealimportanceofthequartercamefromthefactthat
iPodsalesappeartobedrivingsalesofitsMaccomputers.Thegroupsawitsfirst
increaseinmarketshareforcomputerssince2000.Andthistrendlookssettorun.

ThecaseagainstApple'scomputershasalwaysbeentwofold.First,unlessonedoesa
lotofgraphicsoraudiowork,there'slittlereasontopreferaMacoutsideoftheirnice
looks.Second,Applechargesasubstantialpremiumforitscomputers.Thesetwo
objectionsnowlookabitoutofdate.

Digitalcamerasarerapidlysupplantingfilm,whichisincreasingthenumberofpeople
workingwithimages.AndApple'sintroductionofa$499computeralbeitwithout
monitor,keyboardormousemeansthegroupnowhasacomputerinthesub$1,000
range.Themajorityofcomputerssellunderthisbarrier.

ThrowinthefactthatMacscurrentlyhavefewproblemswithviruses,andtherenow
appearstobeatailwindasiPodusersswitchtoMacs.Andevenasmalldifferencein
marketsharewillhaveadisproportionateeffectonthegroup.Apple'sshareofthe
computermarketisaround2percent.Every1percentincreasetranslatesintoabout$2
billioninrevenue.

Ofcourse,thesesortsofprojectionsarealwaysdangerous.Biggainsinmarketshareare
ratherambitiousforacompanywithalonghistoryoflosingmarketshare.Andentering
lowerpricedmarketshasitsownproblems.Thegroupcurrentlyhasanoperatingmargin
of12percent,whiletheaverageconsumerelectronicsfirmearnslessthan5percent.
Marginsarelikelytofallasthegroupentersmorecompetitive,cheapermarkets.

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ButApplehasnowshownthefirstrealsignofturningaviciouscircleintoavirtuousone.
Andifthisisthecase,therecouldbemanymorequarterslikethelast.

PublishedJan.13,2005

PUSHYCALLER
ByRobertCyran

Applemaycarryselfpromotiontoextremes,butitslongawaitedcellphonelooksallit's
crackeduptobe.Thetechcompany'siPhone,unveiledTuesdaybySteveJobsathis
annualMacWorldlovefest,islikelytograbasizeablechunkofthemarket.Itwillalso
irritatetelecomoperatorsintheprocess.

Thephoneiscertainlyimpressive.ItrunsonApple'seasytouseoperatingsystem.In
additiontoofferingbasicphoneservices,itactsasaniPodmusic/videoplayer.Itsultra
thin,highdefinition3.5inchscreencanbeturnedsidewaystowatchvideo.Inshort,it
looksasstunninglyfreshastheiPoddidwhenitwasintroduced.

Ofcourse,nobodycangeteverythingright.Allthesefeaturesmakethedeviceanenergy
hogthebatterylastsjustfivehours.It'salsopricythe8gigabyteversionruns$599,a
lotofmoneyfornotmuchmemory.Finally,thelackofakeyboardmakesitvisually
stunning,butitstouchscreenmayfrustrateusers.

Butthesearequibblescomparedtothewowfactor.Users,andespeciallyApple's
maniacalfanbase,arelikelytoflocktothenewphone.Apple'swillingnesstogowhere
otherhandsetmanufacturershavegonebefore,andfailed,suggestsasmuch.

Duringthetechbubble,NokiastartedClubNokia.Itletusersofitsphonesdownload
games,ringtonesandothercontent.Thiswasn'tpopularwithoperators,whosubsidise
anddistributemostphones.TheyresentedNokiamusclingintowhattheyconsidered
theirownturf.Nokiaultimatelybackeddownin2003.LikeNokia,Appleisencouraging
iPhoneuserstobuymoviesandmusicfromiTunes.

Intriguingly,theiPhoneisn'tusingthemostadvancedwirelesstechnology,3G.Oneof
thebigreasonsoperatorsarerollingout3Gistoselltheirownservicesandcontent.
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Nonetheless,carrierCingulariswillingtoplayalonginexchangeforanexclusiverightto
markettheiPhone.IfApple'slatestgadgetisassuccessfulastheiPod,otheroperators
mayhavenochoicebuttofollowitslead.

PublishedJan.10,2007

Steve Jobs holds the new iPhone at the Apple store in central London, Sept. 18, 2007.
Reuters/Alessia Pierdomenico.

THEYREINiSUITCASES
ByRobertCyran

WherearealltheiPhones?Applesold3.6millionofitshitmobilephoneslastyear,but
itsofficialpartnersonlyregistered2.3millionnewcustomers.Meanwhile,manyofits
U.S.retailstoresarehavingtroublekeepingthehithandsetsonshelves.InManhattan,
forexample,dailyshipmentsaresoldoutbeforeitstimeforasecondcupofcoffee.
Appleistightlipped,butthetwostoriescouldberelated.
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TheiPhoneisusuallytiedtoasinglephonenetworkineachcountry.IntheUnited
States,softwarelocksusersintoAT&T'snetwork.SimilaragreementsexistinFrance,
Germany,IrelandandtheUK.Inexchangeforthisexclusivity,Applegetsacutofusers'
monthlyfees.Theproblem,atleastfromApplespointofview,isthatthesoftwarecan
berelativelyeasilytweakedtoallowthephonestorunonotheroperatorsGSM
networks.

ChinaMobile,oneoftwomobileoperatorsinChina,doesn'thaveanydealwithApple
butstillreckonstherewere400,000iPhonesonitsnetworkattheendof2007.That
numberisprobablymuchhighernow.Thosephonesmusthavebeenbought
somewhere.

That'swherethestoriescometogether.ThefactisthatiPhonesmugglinghasbecomea
lucrative,iflegallyquestionable,wayfortravellingstudentsandflightattendantstoearn
abitofextracash.AniPhonecosts$499plustaxintheUnitedStatescallit$550.
Unlockit,for$50orless,andyoucansellthesamephonefortheequivalentof$900or
soinEurope.Themorethedollarfalls,themoreattractivethisarbitrage.

PerhapsitsnocoincidencethatiPhones,unavailableinApplesManhattanstores,arein
stockinBuffalo.Manhattanisfulloftouristsarmedwithstrongeuros,roublesand
Brazilianreais.FewofthemvisitpostindustrialcitiesinupstateNewYork.

Ofcourse,therecouldbeotherexplanations.Applecouldbeclearingthedecksfora
moreadvancedversionoftheiPhone.Oritcouldhavesimplymisjudgeddemandorrun
intopartsshortages.ListentotheBabeloflanguagesinApplesNewYorkCitystores,
though,anditseasytoimaginethemissingphonesinsuitcasesflyingoverseas.

PublishedApril4,2008

BIGAPPLE
ByRobertCyran

ApplesiTunesmilestoneproveswhospiper.Thetechgiantjustsoldits10billionthsong
online,andthepaceofdownloadingfromitssevenyearolddigitalmediaservice
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continuestoquicken.Ittookthreeyearstogettoabillion,oneyeartogetfrom1billion
to2billionandnowiTunessellsabillionsongsabouteverythreemonths.

ThemoresongsApplesells,themoreitentrenchesitself.Ithasusedmusictomakeits
variousgadgets,andthesoftwarelinkedwiththem,sopopular.Eventhoughallsongs
purchasedfromiTuneshavebeenplayableonnonAppledevicessince2009,the
formativeyearswhenthiswasntsohelpedestablishthesitesdominance.The
continuedeaseofconnectingtotheonlinestoreandthevolumeofmusicavailableonit
meanscustomersfindthemselvesincreasinglybuyingfromApple.

GrowingevenmoredependentonApplethanconsumersistheentertainmentindustry.
Thetechcompanyretainsabouttwothirdsofthemusicdownloadmarket,andone
quarterofallsongsarenowsoldfromtheiTunesstore,accordingtoresearchoutfitNPD
Group.Apple'stryingtoduplicatethestrangleholdonthemarketforTVandmovies.

ContentprovidershavefoundiTunesawelcomesourceofrevenue.Illegaldownloading
hasguttedthemusicindustryandisstartingtoeatawayatvideosales.Unfortunately
fortheindustry,it'sincreasinglycleartheyhavetodancetoApple'stune.

PublishedFeb.25,2010

HALOINTHECLOUDS
ByRobertCyran

Appleholdsitsannualdevelopers'conferenceonJune6.Ashappenedwithprevious
newproductintroductions,likethatoftheiPad,thetechgroup'sobjectivewillbeto
triggeravirtuouscirclewherebywhatevernewgadgetitunveilstendstoencourage
consumerstobuyotherAppleproducts.Expandingitscloudofferings,wheredataand
programsarestoredremotely,couldsetoffmorefavorablefeedbackloops.

ThecompanysaysChiefExecutiveSteveJobscurrentlystillonmedicalleaveis
addressingthecrowd,andwilltalkaboutwhatitcallsiCloud.Characteristically,Appleis
keepingitscardsclosetoitschest.Butthisappearsamajoreffortintoprovidinglots
moremusicandcomputingservicesremotelyviatheWeb,insteadofbeingstored
STEVEJOBSANDAPPLE

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locallybytheuser.Thecompanyhasbuilta500,000squarefootdatacenterinNorth
Carolinaandsigneddealswithmultiplemusiclabelsinpreparationwiththelaunch.

Puttingmusic,moviesandotherprogramsonthecloudoffersafewobviousbenefitsto
Apple.Itscomputers,tablets,andphoneswouldpotentiallyneedlesslocalmemory.
Thatmeansdevicescanbecheaperorsimplyhighermarginyetslimmerandmore
attractive.That'simportantforthedesignconsciousApple.

Butthesecondaryeffectsaremoreimportant.Ifusersstoredataandprograms
remotely,devicesblendtogether.Buyasongonceanditcanbelistenedtoonany
gadget.Likewise,editaspreadsheetonthecloud,andthechangescanbeseenand
modifiedonmultipleplatforms.Thatmakescustomersmorelikelytostickwithasuiteof
Appleproducts.

Andthere'sanadditionalplus.Cloudserviceseatupbandwidth.Telecomcompaniesare
hungryforrevenuefromdatatransmission.Thatmakesthemmorewillingtosubsidize
iPhonesalesinexchangeforlockingcustomersintolongtermcontracts.IfAppleusers
startneedingmoreexpensivedataplans,thencompanieslikeAT&TandVerizonare
morelikelytofundthepurchaseofApplegadgets.

Applerevenuegrewby83percentinthelastquarter.Thatmusteventuallyslow.Butits
iCloudserviceshaloaffectcouldkeepgrowthhummingalongawhilelonger.

PublishedJune3,2011

PLEASESIR,NOTANOTHER
ByRobertCyran

Applehasanastonishingabilitytocasuallyunleashcreativedestruction.Itslatest
iPhone,the4S,offersfasterdataprocessinganddownloads,aswellasvoicepowered
software.Thismaynothaveliveduptothemostfeverishexpectationsofinvestors:
Applesharesfellwhilethemarketrallied.Butitwilldomorethanenoughtocreate
headachesforcompaniesrangingfromResearchInMotiontoAmericanGreetings.

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Smartphonesstartedbydevouringthepersonaldigitalassistant,asanyformerPalm
Pilotaficionadocantestify.Theyterrorizedthemarketforfixedlinephones,whichare
nowinsharpdecline.Applesnewestgadgetshowsjusthowhungrysmartphone
makers,andAppleinparticular,aretoeatrivalslunches.

ThenewiPhonescameraofferssharplybettervideo.Thatwillfurtherhurtsalesof
digitalstillandvideocameras.ItssoftwareallowseasyandfreetextingtootherApple
devices.Thatsbadnewsfortelephoneoperators,whomakefatmarginsonsuch
services.InstantmessaginghasalsobeenthekillerappforBlackBerryusers.

Applealsounveiledafunctionthatletsusersdigitallycreatetheirowngreetingcards
andsendtheminphysicalform.ThatmaynotexciteApplesmostardentfans,butitwas
enoughtosendsharesofcardmakersAmericanGreetingsandInternationalGreetings
reeling.Oh,andthenewiPodNanoallowsrunnerstotracktheirperformance,whichwill
takeachunkoutofthemarketforpersonalfitnessmonitorsandshoeswithsensors.

Inasense,though,thesearetheeasilyquantifiableeffectsofthenewiPhone.The
devicealsocomeswithvoicepoweredsoftwareallowinguserstosearchtheInternet,
answerqueries,takedictationorsetupphonecommands.Itshardtojudgehow
effectivethissoftwareisuntilitactuallyhitstheshelves.Butinvestorsonthelookoutfor
Applescreativedestructiveimpactaresurelydrawingupanewlistofvictims.

PublishedOct.4,2011

STEVEJOBSANDAPPLE

21

THECOMPANY:VALUEANDTHEFUTURE

THISISGOINGTOHURT
ByRobertCyran

Applesold3.3millioniPadsinthelastquarter.Thatsoneofthebeststartseverfora
consumerelectronicdevice.Itwillprobablysell25million,ormore,tabletsnextyear
basedonthetrajectoryofpasthitconsumergoods.WhileAppleanditssuppliers,like
partsmakerSamsung,arecelebrating,manyfirmswillsuffer.Breakingviewshas
compiledalistofthepotentiallosersfromtheobvioustotheindirect.

PCmakersandsellers:ItstandstoreasonthatifcompaniesandconsumersbuyiPads,
theywillcutbackoncompetingelectronicitemsduetolimitedbudgets.Thiseffect
probablyhasntfullykickedin.Earlyadoptersaremorewillingtosplurgeonanew
gadget.YetBarclaysCapitalpointsouttherearealreadysignsofcannibalization.The
numberoflowerpricednetbooksfell19percentinJunecomparedtolastyearaccording
toNPD.HP,DellandAcerearnlittlemoneyonsellingthesedevices.ButiftheiPadstarts
tocannibalizehighermarginitems,sellingPCscouldbecomearecipeforlosses.Dell,for
example,ekedoutlessthana3percentnetmarginlastyear.

Microsoft:ItdoesnttaketheIQofBillGatestofigureoutthatreducedsalesof
computersrunningWindowswouldhurtMicrosoft.True,thecompanysmostrecent
quarterlyfigureswererobust,asusersupgradedtoWindows7.ButifPCcannibalization
occurs,itwontbepretty.ThecompanysWindowsdivisionhasastonishinglyhigh
marginsitaccountsforroughlyaquarterofsalesbuthalfofoperatingprofit.Asmall
fallinrevenuewouldleadtoadisproportionatelylargehittoearnings.

IntelandAMD:Likewise,ashiftfromPCstotheiPadwouldhurtthetwochipmakers.
InsteadofusingachipwhoserootslieindesktopcomputingwhereIntelhasits
stronghold,Appleusedonefromthecellphoneworld.Intelmaycatchupindesigning
lowpowerchips,butitcouldloseitsquasimonopolystylemarginsifitdoesnt.AMD,
whichperenniallychasesafterIntelyetnevercatchesup,wouldtakeaharsherhit.

Softwaresecuritycompanies:Applesdevicesaregenerallyperceivedashavingfewer
securityholesthanWindows.WhilemostPCusersinstallantiviralprograms,manyApple
STEVEJOBSANDAPPLE

22
usersdontbother.SoaniPadshiftwouldhitsoftwaresalesatsecuritycompaniessuch
asMcAfeeandSymantec.True,themorepopularApplessystemsbecome,themore
effortcriminalsandhackerswillmaketocrackthem.Butoverall,antiviralvendorslook
likepotentiallosers.

Harddiskdrivemakers:Applewasoneofthefirstcomputermakerstoeschewfloppy
diskdrives.Likewise,theiPadcouldleadthechargeawayfromharddiskdrives.The
deviceemploysNANDflashmemory,whichissmalleranduseslesspowerthanthehard
drivescommonlyusedinlaptopsanddesktops.IftheiPadcannibalizesthesemarkets,
companieslikeWesternDigitalandSeagatewouldsuffer.Moreover,Appleisalready
rumoredtouseathirdoftheworldssupplyofthismemory.Ifitdemandsmore,
companieslikeSamsungwouldbeencouragedtorampupproductioninmoreadvanced
plants.Thatsalmostalwaysarecipeforaneventualpricecrashandconsequentuseof
NANDinmoreconsumerdevices.

Cellphoneproducers:ApplesaysabouthalfofFortune100companiesaretestingthe
device.AT&Tsaysbusinessdemandforthedeviceisrobust.SincetheiPadandthe
iPhoneessentiallyusethesameoperatingsystem,thetabletcouldactasaTrojanHorse
forthehandset.Letemployeesuseoneandyoumightaswellletthemusetheother.
AndsinceapplicationsdevelopedfortheiPadoftenworkequallywellontheiPhone,the
platformismoreattractivefordevelopers.NokiaandResearchInMotionappearin
dangeroflosingtheappbattleiftheirphonesareregardedasundifferentiated
commoditiesbyconsumers,theirprofitmarginscouldvaporize.

Bookstores:Otherformsofcollateraldamagemayseemsurprising.Takebookstores.It
seemsclearthatmosttextswillbeeventuallysoldandconsumedelectronically.
Amazon,Barnes&NobelandBorderssellelectronicdevicesspecializedforreading.Yet
theiPadslaunchsetoffaviciouspricewarinereaders.Thatsuggestsconsumersprefer
gadgetsliketheiPadthatcanreademail,playgamesanddownloadappsthatperform
othertasks.True,thebookretailershaveiPadappsthatallowforeasypurchaseof
electronicbooks.Butconsumerscandownloadseveralandeasilycompareprices.
Increasedcompetitionmeansmarginsonelectronicbooksarelikelytofall.

PublishedJuly30,2010

STEVEJOBSANDAPPLE

23
GRAVITYSRAINBOW
ByRobertCyran

WhenshouldinvestorssellAppleshares?Thegroup'spushoverseasandintothe
businessmarketstillholdspromise,asdoesthesteadystreamoffreshgadgetssuchas
AppleTV,unveiledbyChiefExecutiveSteveJobslastweek.Apple'strajectoryshould
continueforsometime,soitsstockwhichhasgainedmorethan40percenteachyear
forthepastfivelooksattractiveat15timesestimated2011earnings.

Butnocompanycangrowsalesatthatpaceforever.Whileitmaysoundprematureor
evenchurlishtodoso,Breakingviewsoffersupsomestrategiccuesthatcouldactas
warningsignsforinvestorsthatApple'sgrowthisslowing:

Discounting:WhileApplecomputersandhandsetsaccountforlessthan5percentof
globalunitsales,thecompanyracksupextraordinaryprofitsonthem.Itsreputationfor
producingqualitygadgetsmeansApplecanchargeapremiumovercompetingproducts.
Itsoperatingmarginisalmost30percent.Evensmallgainstoitsmarketshareresultin
superchargedprofitgrowth.

Applehasusedthesocalledhaloeffect,ratherthanpricecuts,togainmarketshare.Its
devicesworkwelltogether.AnduserswhotryoneoftenadoptApple'sotherproducts.
Thiscanbeseennowintheenterprisemarket,whereApplehastraditionallybeenweak.
TheiPadappearstobeabighitamongcorporateexecutivesandprofessionals.This
shouldincreaseadoptionofiPhonesandMacs.Moreover,Appleappearstohave
avoidedthediscountstypicallyofferedtobigcustomers.IfsalespeoplewantiPads,
there'snowhereelsetoturnbutretail.

Applecouldboostmarketsharequicklybyofferingdiscountsorcheaperdevices.While
thiswouldbumpupprofitsintheshortterm,itwouldbeaflashingyellowlightbecause
thehighendofthetechmarketisdisproportionatelyprofitable.

WhileApplecouldprofitfromsellinglotsoflowendgadgets,it'satoughplacetomake
abuckbecauseofgreatercompetitionandlowercapacitytodifferentiateproducts.
Nokia'soperatingmarginonphonesisaround11percent.ThoseinthecommodityPC
marketaren'tbetterDell'sarearound5percent.There'sabigrisk,too,thatselling
cheapergoodscouldtarnishthebrand.Alossinthecompany'sabilitytochargean
Applepremiumorasmallfallinmarketshareatthehighendwouldhitprofitshard.
STEVEJOBSANDAPPLE

24
Raisingtolls:OnewayApplehasmaintainedpremiumpricingforitsgadgetsisby
improvingthemeachyear.InthecaseoftheiPhone,alargechunkofthisimprovement
hascomefromtheincreasednumberofapplicationsthatcanrunonthehandset.

Partnerswhodevelopthesebearmuchofthecost.Applevetstheapplicationsand
distributestheminexchangefor30percentofsales.Applehasn'thistoricallyrunits
onlinestorestomaximiseprofits.Instead,thegoalhasbeentomakethedevicesmore
valuableandentrenched.Theresultisavirtuouscircle.Consumerslikethegadgets
becausetheyhavebecomeincreasinglyuseful,andsoftwaredevelopersfollowthe
customers.Applecould,theoretically,extractbiggertollstake50percentofrevenue
fromsales,forexample.Thatincreasedrevenuewouldfallrighttothebottomline.

Yetdeveloperscouldeventuallyturnelsewhere,andusersmightfollow.Google,for
example,planstotakeonlya5percentchunkofsalesongamesthatitsellsonline,plus
asmallprocessingfee.Second,ratchetingupthetollmightinviteregulatoryattention,
becauseitsmacksofanticompetitivebehavior.Whileraisingitsrevenuesharecould
generatesomeshortrungrowth,itwouldbeabadsignforthecompany'sfuture.

Bigacquisitions:Applehas$46billionofcashandinvestmentsonitsbalancesheet.Jobs
mayfindthisfastgrowingstashcomforting.Butitisn'tearningmuchinterest.Applehas
wiselyavoidedbigacquisitions.Whenmanycompaniesseetheirgrowthslowing,
however,theyoftentrytobuyitthroughtransformativeacquisitionsinthewayIntelis
purchasingMcAfeeorHPbuying3PAR.Apple'scashcouldbuyamajorityofcompanies
intheS&P500.Surelyitcouldfindabigfirmthatwouldgenerateabetterreturnthan
whatitearnsinthebank,right?

Don'tcountonit.Integratingtwobigcompaniesmoreoftenthannotresultsin
unproductiveexecutiveinfightingandbloatedexpensesinsteadofvaluablenewproduct
innovations.Mostdamningly,sellersusuallyextractthegains.JustlookatCisco.Thefirm
isanefficientM&Amachine,yetitsshareholdershavereceivedlittlebenefitoverthe
pastdecadefromCEOJohnChambers'shopping.IfAppleeverheadeddownthisroute,
itwouldbeasignthatthefirmhastransformeditselfintoalessercompany.

PublishedSept.6,2010

STEVEJOBSANDAPPLE

25
NUDGED
ByRobertCyran

Applehastakenapreemptiveantitruststrike.U.S.regulatorshavegrownincreasingly
worriedbyApple'smonopolisticpotentialinthemobilephonemarket.Thecompany's
decisiontopublishrulesgoverningitsonlinestore,greenlightGoogletoadvertise
withinapplicationsandallowdeveloperstouseAdobemayforestallgovernmentaction.

ThecompanyrunbySteveJobsdoesn'thaveamonopolyinthesmartphonemarket.But
someofitsbehaviorseemedtosuggestitwasgettingthere.Applebarredbigrivalslike
GooglefromplacingadswithinappsrunningonApple'sdevicesliketheiPhone.

Inaddition,AppleprohibiteddevelopersfromusingpopularAdobeFlashtoolstobuild
appsamovethatcouldhaveforcedsmallcompaniestochoosewhethertoproduce
programsforiPhonesorhandsetspoweredbyGoogle'sAndroidsystem.Andthe
company'sopaquestandardsforwhatcouldbesoldinitsonlinestoreresultedinsome
curiousdecisions,suchasApple'srejectionofGoogle'sVOIPtool.

Yettechnologytrustbustingisatrickything.Onceestablished,monopoliesaredifficult
todislodgeasthehistoryofMicrosoftandIntelhasshown.Themorepeopleusea
giventechnologicalstandard,themoreusefulandentrencheditbecomes.Andthe
monopolistusuallyhasthefinancialclouttopunishanyrivalthatdaresenterthe
market.

BypokingaroundAppleearlierthisyear,theFederalTradeCommissionandDepartment
ofJusticeappeartohavenudgedthecompanyeversoslightlytowardmoredesirable
behavior.ThethreechangesannouncedonSept.9certainlyhelpdevelopers.Theyhave
additionaltoolsforcreatingapps,moreclarityonhowtogettheirproductsinApple's
storefront,andagreaterchancetoearnabitofadvertisingrevenue.Consumersshould
alsobenefit,sincetheyshouldhaveevenmoreprogramstorunontheiriPhones.

Apple'sclimbdownmaybeawkward,butitcan'treallycomplain.Ifthemovesmakeits
devicesmoreattractivetodevelopers,thatshouldbenefitsales.Moreimportantly,they
mayreducethechancesofgovernmentalinterference.Trustbustersmaynotbe
particularlyeffectiveintechnology,butJobspresumablywouldpreferspendingthenext
decadetalkingtoApple'sengineers,designersandfansinsteadofitslawyers.

PublishedSept.9,2010
STEVEJOBSANDAPPLE

26
MYSTERYOFTHEFAITH
ByRobCox

ThemystiquethatApplecloaksitselfinwhenlaunchingsnazzygadgetshasservedits
bottomlinewell.Butthatsameopacitydoesn'ttranslatewelltocorporategovernance.

IttookApple'sboardfartoolongthisweektorevealthat,withitsvisionaryleaderSteve
Jobssick,30percentofitsshareholderswantedmoreinformationonhowthecompany
wouldberunintheeventhedoesnotreturntohisposition.GivenApple'sstunning
success,thelowprofileofthepensionfundproposingthemeasureandtheboard's
recommendationagainst,thatshouldsendapowerfulmessage.

LateThursday,Appledroppedintoaregulatoryfilingthefactthat172millionshares
werevotedinfavorofaproposalputforwardbytheCentralLaborers'PensionFund,
whichhasunder$1billionofassets,callingforthecompanytoadoptanddisclosean
executivesuccessionplanpolicy.With400millionsharescastinopposition,or70
percentofthevote,thecompanyclearlyprevailed.

Butamoremainstreamgovernanceproposalfromafarlargerinvestor,the$200billion
plusCalpers,didgetpassedagainsttherecommendationoftheboard.Andevenwith
theCLPF'seffort,it'srarefornontraditionalproposalsfromrelativelyunfamiliarspecial
intereststocapturesomanyvotes.That'sparticularlytruewhenboardsingoodstanding
withtheirstockholdersrecommendagainstthem.Appleshareshave,afterall,roughly
doubledineachofthepastfiveyears,soshareholdersshouldbehappy.

ThesupportfortheCLPFsuggestsmanyinvestorsdowantthecompanytobemore
forthcoming.ThatmightalsoapplytothemannerinwhichApplereportedthevotingat
Wednesday'sannualmeeting.Atthetime,itsaidshareholdersdefeatedthesuccession
planningproposalbutitdidn'trevealthevotetallies,somethingthatisstandard
procedureatmanybigcompanieslikeFordMotorandGoldmanSachs.

AppleinsteadslippedtheresultsintoafilingwiththeSecuritiesandExchange
Commissionthefollowingday.Thatsmacksofunnecessaryreluctancetokeep
shareholderspromptlyinformed.WhateverhappenstoJobs,thecompanyneedstodo
betteratseparatingthejustifiedsecrecyofitsproductlaunchesfromkeeping
shareholdersinthedark.

PublishedFeb.25,2011
STEVEJOBSANDAPPLE

27

WHATSINANAME?
ByRobertCyran

Measuringabrand'sworthisanimpreciseart.Apple'shasneverthelessbeendeemed
theworld'smostvaluable.At$153billion,accordingtoanewsurvey,itaccountsfor
abouthalfthecompany'smarketcapitalizationandnearly10timesitsestimatedvalue
fiveyearsago.Techcompaniesalsopopulatethetopranks.Therearegoodreasonsthey
dominatethelistandwhythey'repronetobigswingsinvalue.

Thesurvey,byasubsidiaryofWPP,estimatedtheearningsresultingfrombigbrandsand
attemptedtoputamultipleonthemtoaccountforfuturegrowth.Theresultisatech
heavylist.Google's,at$111billion,rankssecond,IBMisthirdandMicrosoftfifth.This
notonlyreflectsthegrowingimportanceofhardwareandsoftwareontheeconomy,but
alsohowconsumersspendmoretimeonlinesocializingandshopping.Facebookscored
thebiggestincreaseitsvaluenearlytripledto$19billion.AndAmazon'sbrand
overtookWalMart's.

STEVEJOBSANDAPPLE

28
Therearealsoeconomicreasonstechfirmsratesohighly.Alargechunkofwhatthey
makeisintangible,andthereforehardtocaptureonabalancesheet.Codingskillsand
patentsarevaluable,butnoteasilymeasured.

Further,technologyisoftenawinnertakeallgame.Networkeffectsmeanpeoplewant
tousethesamesoftwareorsystemsastheirfriendsoremployer.Thathelpsexplainwhy
Apple'sdistinctlabelaccountsforsomuchofitsworthcomparedto,say,ExxonMobil,
whosenameisestimatedtorepresentjust4percentofits$414billionmarketvalue.

Brandcalculusneverthelessremainsasquishyconcept.IsMicrosoft'sreallyworth$78
billion,ordoesitsextraordinarymarketpoweraccountforthebrand'svalue?Yetthere's
obviouslysomethinginaname.JustlookatthepremiumpricesApplecantackontoits
computersorgadgetsorhowcarefullyitguardstheuseofitsname.

Appleisn'talone.Google'smostvaluablerealestateisitsfrontpage.Itonlyputsitsown
logothere,insteadofads,toavoiddilutingorsullyingitsownbrand.

Timesstillchange,however.Andevolutionhappensfasterintech,withnewinvasive
speciespoppingupregularly.Nokialostmorethanaquarterofitsbrandvalueinayear,
accordingtothesurvey,asusersswitchedtoAndroidbasedandApplehandsets.Yes,a
namehasvalue,butitisfarfromtimeless.

PublishedMay9,2011

PIRATEBOOTY
ByRobertCyran

Applehasthrownthemusicindustryanotherlifevest.ItsnewiTunesMatchservicelets
userslistentosongsonanydevicefor$25ayear.Significantly,italsoworksasan
amnestyofsortsforcustomerswithillgottentunesintheirharddrives.Itlooksa
concessiontopiracybutitatleastoffersapathtomorerevenue.

Whileothermusicservices,suchasAmazon's,allowcustomerstostoremusicremotely,
Apple'soffersaclevertwist.Itcomparesdigitalsignaturesofmusicalreadystoredby
customerstothe18millionsongsitsellsoniTunes.Ifthere'samatch,theusergets
STEVEJOBSANDAPPLE

29
rightstolistentothatcontentonanydevice.Thatmakesitquickerandeasierthan
servicesthatrequirefilestobeuploaded.Italsodoesn'tdistinguishbetweenlegaland
illegalcontent.

Applewillhandover70percentoftherevenueitgeneratesfromtheservicetothe
musicindustry,accordingtopeoplefamiliarwiththeplans.Labelsandsingerscoulduse
themoney.Digitaldownloadshaven'tcomeclosetomakingupforthecliffCDsales
wentover.Thevalueofrecordedmusicsoldgloballyhasshrunkby40percentoverthe
pastdecade,toabout$16billion,accordingtotheindustry'sglobaltradegroup.

ItisnoteworthyApplecouldevensignadealwithmajorrecordcompanies.Theindustry
hasfoughthardagainstpiracy,filingexpensivelawsuitsagainsteveryonefromNapster
togeekyteenagers.Itcouldofcoursecontinuetopursuesuchcases.Butofferingapath
forpiratestogolegitalsolookslikeapragmaticwaytocashin.

Apple'shistorycertainlyhelps.Digitalrevenuehasbeenoneofthefewsourcesof
growthformusiccompanies.AndthecompanyledbySteveJobshasplayedahugepart.
TheiTunesstorehassold15billionsongssinceitsinceptionin2003.AndApple'sU.S.
shareoflegallydownloadedmusicisabout70percent,accordingtoNPD.Whether
Matchwillbeahitremainstobeseen.ButApplemayagainbetherecordingindustry's
bestchanceforanotherplatinumseller.

PublishedJune6,2011

COGNITIVEDISSONANCE
ByRobertCyran

CouldApplebeworth$1trillion?Itsconceivable.The$342billioniPhoneandiPad
makerbecameifonlybrieflythemostvaluablecompanyintheUnitedStateswhenit
surpassedExxonMobilonAug.9.Yetitssaleshavebeensurging80percentayear,and
profitfaster.AndAppletradesroughlyinlinewiththegrowingU.S.marketandatless
thanhalfthepricetoearningsmultipleitfetchedin2006,whenrevenuegrowthwas
muchslower.

STEVEJOBSANDAPPLE

30
Applenowtradesatabout11timesestimatedearningsforthefiscalyearending
September2012.TheS&P500Indexisvaluedatabout10timesnextyearsearnings.But
Applessalesgrowthisnotfaroff10timesfasterthanthatoftheaveragecompany.The
gadgetproduceralsositson$76billionofcashandinvestments.

Togetatthisdissonanceanotherway,considerApplesPEGratio.Thishintsattheprice
ofgrowthbydividingacompanysPEratiobyitsprojectedpercentageearningsgrowth.
Asmallerfiguresuggestsacompanyischeaper.Applesis0.2.Thatslowcomparedto
growthdarlings.BurritopurveyorChipotleMexicanGrill,forinstance,comesinat2.1,
andSalesforce.comat13.2.PandoraandLinkedInarentevenexpectedtomakemoney.

Alternatively,putAppleonthesamePEmultipleittradedonin2006,anditwouldbe
worthalmost$900billion.Apremiumfortodaysfastergrowthcouldgetitto$1trillion.
ApplecantbesocheapjustbecauseSteveJobsisinprecarioushealth.

True,Applealreadysellsmoreperquarterthanitdidinalloffiscal2007,andittakes
moreandmoresuccesstomovetheneedle.Growthcouldeasilyslow.Yetthe
smartphoneandtabletmarketsareyoung,thecompanyscustomersshowremarkable
fidelity,andareassuchastelevisionareripefornewgadgets.Moreover,Applesreturn
onequityisalmosttwicewhatitwasin2006,suggestingithaspricingpower.

Maybeinvestorssimplycantfathomsolargeacompany.A$1trillionApplewouldmean
addingallofMicrosoft,Google,IntelandAmazonandmoretothefirmscurrent
marketcapitalization.PerhapsAppleiscorrectlypriced,themarkettooexpensive,and
growthstocksgrotesquelyso.Butsomethingdoesntaddup.Inrelativeterms,Apple
shouldbeworthfarmore.

PublishedAug.9,2011

WELLSEEDEDORCHARD
ByRobertCyran

FewcompaniesareasindeliblylinkedtoanindividualasAppleistoSteveJobs.Notonly
oneofthefounders,heledthecompanyfromnearbankruptcytobecomeoneofthe
mostvaluablecompaniesintheworld.NewsonWednesdayofhisretirementfrom
STEVEJOBSANDAPPLE

31
runningdaytodayoperationsisablowevenifitwasbothinevitableandexpected.
ButinvestorshaventyetwrappedtheirmindsaroundthepowerhouseJobsbuilt.

Forthetimebeing,ApplewillstillbeabletocallonJobsuncannysenseofconsumer
tastesandshrewdmarketingskills.Hewaselectedchairmanoftheboardandwill
presumablyguideandadvisethecompanyaslongasheisphysicallyable.Its
neverthelessreasonabletosurmisehisillnesses,firstdisclosedsevenyearsago,are
takingahardertoll.Meanwhile,hisreplacement,TimCook,isnotjustcapablebuthas
hadseveralstintsintheCEOsseat,duringwhichtherewerenonoticeablehiccups.

CookmaynothaveJobsabilitytomarrydesignwithtechnologyortoinspireengineers
toextraordinaryheights.Nobodydoes.ButthefactJobsanointedhimsuccessorshould
addabitoflustertohispersona.Moreimportantly,Cookhasprovenhecanmanage
astonishinggrowth.DespitethatApplenowsellsmoreperquarterthanitdidperannum
justafewyearsago,itisstillincreasingrevenueatanannualrateofmorethan80
percent.

Thisgrowth,inaway,showshowhardithasbeenforinvestorstoseparateJobsfrom
Apple.Despiteitsextraordinaryexpansioninsalesandprofitability,thecompanyis
valuedataboutthesameearningsmultipleastheS&P500.Thatmakeslittlesense,
unlessitreflectsworriesaboutJobshealthor,worse,arepeatofthetroublesApple
experiencedafterJobsleftbackin1985.Whatsmore,followingthenewsthatJobs
resignedasCEO,inafterhourstradingAppleshedsome$20billionofmarketvalue.

Oncetheinitialshockwearsoff,however,investorsshouldbeabletofocusonjusthow
goodAppleis.EachofitsstableofiPads,iPhonesandMacsfeedsthegrowthofthe
others.Applescustomerbaseisgrowingandloyal.Thesmartphoneandtabletmarkets
haveyettohittheirfullstride.NewgroundinTVisboundtobebroken.

HavingJobsaroundtoleadthe$350billioncompanythroughthisnextphasewouldbe
preferable.Butsoonenough,itoughttobecomeapparentthatCookandJobslegacy
willbeaprettypotentcombination.

PublishedAug.25,2011

STEVEJOBSANDAPPLE

32

Apple COO Tim Cook (L) and CEO Steve Jobs remove their microphones after a news conference at
Apple headquarters in Cupertino, California, July 16, 2010. REUTERS/Kim White.
STEVEJOBSANDAPPLE

33

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