Apple: A Question of Leadership

Based on the last news reports, without Steve Jobs, the multi-billion-dollar enterprise that is Apple (AAPL) would simply cease to exist. Every new report of his health is followed in the market, and Apple’s stock price takes corresponding hikes and plunges.

But Apple isn’t the only corporation with similar founder/leader issues.

Berkshire Hathaway (BRK.A), and DELL, for example, both have stocks tied to the brandname of their founders - Warren Buffett and Michael Dell.

And when investors worry about the health of these figureheads, they send the stock price plummeting. But does this mean that the fundamentals of these companies are also in danger?

Far from it.

Microsoft (MSFT) hasn’t collapsed since Bill Gates stepped down. Martha Stewart’s Martha Stewart Living Omnimedia (MSO) hasn’t gone under because of her legal troubles. And Sam Walton’s Wal-Mart (WMT) is up 324% since his death in 1992.

Too many investors still believe that if something happens to their stock’s leader, the company will fail. But, in fact, operations will continue, dividends will be paid, profits will be made and the stock will correct itself.

A smart investor will use these irrational plunges to buy these companies when emotion, not logic, spins out of control.

Comments

[RomanFinancial:]

Preposterous article. Steve Jobs has been on the innovative side of nearly every move in a heavy market share transition period for Apple. When Bill gates left the company, it had reached it's optimum market share. Apple on the other hand has a long way to go. Plus Apple's appeal is more on new groundbreaking products, not the case for Berkshire Hathaway, Walmart, Microsoft, and DELL. These companies thrive off of basic neccessity products. You don't need an IPOD but you need Walmart's cheap prices, a computer with solid OS, and coke.

Jan 06 12:05 PM

[Perki:]

I do see a valid point here. The most valid notion is that a company is still very profitable after the peak interest in a product. Valuation is down due to the loss of the innovator, yet due to sheer inertia, the sales volume is good, though dropping, many costs have been fully amortized, and the company is "coasting" down the demand curve.

In marketing, this is known as the "cash-cow" phase. The most profitable phase. A phase that investors in high-tech outfits disdain--so programmed they are to look for the next "hot thing" they miss the most profitable "cash-cows".

Microsoft has a good number of years as a cash-cow, as long as the management does not waste capital in fruitless efforts to make the company an innovator again. IBM did it to some extent; Microsoft cannot.

Best to return to the investors the most possible return while realizing that a big company cannot innovate in the face of lots of very nimble competition. A good anology here is a large oilfield, it will decline, profitably, in production. You can do a few cost effective things to tweak production, but you can never bring it back to its maximum rate of production. Oil executives know this.

Frankly, a good oil executive would be a good person to run Microsoft, and in the future, Apple (Yeah, I know, the Pepsi guy wasn't so hot).

Apple too is moving into this phase. The lack of innovative new products recently can be traced directly to Steve Jobs health. His declining input since his health problems began (years ago) are starting to show in the current low innovation. See this article to get an idea of his impact on a new product. www.wired.com/gadgets/...

It is not all about health, it is about energy. Bill Gates lost enthusiasm without losing health, after the most remarkable journey from entrepreneur to successfully running a very large company every seen in the history of business.

I wish Steve Jobs well and say "well done". He is leaving a good company for investors that see a value in "cash - cows". When AAPL is falling from favor with the Valley-set, and the 8-10 times earnings prices set in, I will be there.

Jan 14 11:40 PM