Apple Will Still Thrive Post-Steve

Over the past year, there has been a lot of talk about how Apple (AAPL) will perform "P.S" (Post-Steve). I believe that Jobs is likely the most influential CEO in the US, when it comes to the influence that one person can have over their organization. Can this company survive (and more importantly, continue to bring out the ground-breaking products) after he moves on? I think that it won't be easy, but Apple won't be hurt as much as most people think (or at least as much as what investors think, based on the Sell action that happened upon his leave of absence announcement).

History shows that companies can thrive after the departure of an "All-Encompassing" CEO, but there is usually some stumbling along the way. In terms of Jobs, it is important to look at what he has brought to Apple, and what things can be duplicated easily after he leaves. Jobs admittedly does not have much influence on much of the Operations and Finance portion of the business. Sure, as the CEO he is responsible for them, but he has a great COO in Tim Cook and a great CFO in Oppenheimer. So, Jobs tends to focus most of his time on what he knows best, enhancing the products and the user experience. Unfortunately for Apple, it is likely these two areas that have provided most of the drive for the company's success. Jobs' "almost insane-like" level of commitment to Product Quality/detail, his ability to know how to take ideas (Apple's, or others) and improve on them and his incredible eye for how to market a product will be tough to duplicate. Notice I said, "tough to duplicate", and not impossible.

Having said that, I still think that Jobs' demise has been overstated. He is still a young man, and may still return once he gets his health in order. As well, the recent health scares in the past couple of years have likely opened up Apple's eyes even further as to how to prepare for the P.S. Days, which may end up helping them in the event that he does not return. Finally, Jobs has created a great culture at Apple, and that Culture can still carry on, even P.S.

It is unlikely that his leave (or even departure) will have an immediate effect on the actual earnings themselves. What usually suffers after a Superstar CEO leaves is that the market will often dramatically reduce the P/E Multiple. In many cases where Dominant CEOs have left their post - the two that I look at are Jack Welch from GE and Sam Walton from Wal-Mart (WMT) - the companies were still able to grow their earnings at a decent clip for years, but since the P/E Ratio was so high in the first place, the stock suffered for a while. To be fair, in some cases, a large part of the P/E drop may have been repricing of the overall market, but nevertheless, the impact was felt.

Finally, Jobs may be the most Influential CEO in the US, but I don't believe that his departure will result in the largest drop in evaluation felt by the loss of a CEO. I think that award will be given to Berkshire Hathaway (BRK.A) when the duo of Buffett and Munger finally relinquish complete control of their baby. For Berkshire, I think that will provide a great entry point, as they have had many years to prepare any future successors on how to do things their way.

So, is Apple a buy, sell or hold now? I would rate it a hold, as many projects that Jobs was working on are still to come out, so the product pipeline is likely ok for a while. The rating will change based on when Jobs finally returns, and how the market handles the share price over the next few months.

Disclosure: long

Comments

[tufdaawg:]

AAPL will survive without SJ. Before his return, they were in dire straits, but now they are just fine and have a good management team and development team and will survive for many years to come.

Jan 15 03:09 PM

[sheldon1:]

I believe APPLE will aggressively address market needs especially during this period when Jobs is out. That is for 2 reasons, first they have already positioned themselves for new product expansion and second to demonstrate that APPLE is much more than just Steve Jobs. I will bet that within the next few weeks we will see action to demonstrate the solid base of leadership and products at APPLE.

Jan 15 03:19 PM

[Hayweed:]

People tend to forget that when Jobs left before, Apple had all kinds of issues. They were dependent on the PowerPC chip, they were only in computers, the balance sheet was mediocre and the products were more expensive but the performance was less.

Now they use intel chips like Dell and HP thus they get access to the same chips. The have dropped computer from the name and now are a consumer electronics company with computers, phones, music players, retail stores, music and video online stores, networking products, and software. The balance sheet is pristine with more cash than Microsoft. The products now are premium products that command higher prices. Much like a BMW sells for more than a Ford or GM Car.

Apple is vertically integrated with computers and software, ipod and software, phone and software all tied together by itunes an internet application that connects everything. No one else has this model and no one else will as it is too hard to set up. MSFT has tried but the Zune is almost dead. MSFT, Dell, Palm, HP, Netflix, Blockbuster, Acer all have parts of the chain but not all of it.

Jan 15 05:37 PM

[bobbobwhite:]

Apple and Jobs cannot ever be compared in any way with GE and Walmart other than for the dynamism of their departed CEO's, which is a good comparison. I am at odds with your statement that GE stock "suffered for a while" after Jack Welch left...get real, as GE stock is at a 12+ year low and the company will most probably have to be split up to do OK again, or perhaps even survive. Depends a lot upon how long this econ downturn lasts.

(Walmart does well selling its Chinese-made junk to poor folks at rock-bottom, fire sale prices. Poor people are always a great sucker market, even though their buy cheap concept is bad longterm economics as top quality is always cheaper in the long run. But, they have to spread a little money a long way, so Walmart it is! I detest the place and that concept.)

Jan 16 11:20 AM

[Larry Belle...:]

Thanks for your comments everyone...

Bob -- When I said that GE suffered for a while, I was more referring to their performance in the immediate period (say 2001 to 2004) following Welch's retirement. Immelt continued to grow the earnings at a nice rate, but due to a variety of factors (some related to GE, others to the market correction itself), the P/E ratio was never what it was when Welch was running it. In terms of the performance as of late, yeah, it has been a tough ride for GE shareholders, no doubt about that.

Whether or not you approve of Wal-Mart's business model is an opinion that you are entitled to have. The reality is that they are still selling the same stuff that many other stores sell, and have a unique way to sell it that appeals to many people. I believe that in his own way, Sam Walton was as a great of an innovator as the business world has seen, and the comparison to Jobs is accurate. Jobs excels at knowing what the market wants, which is exactly how Walton drove his business. I do agree that Jobs is unique in finding a way to make people buy premium products while feeling that they got full value....

Jan 17 11:03 AM