Is Apple Losing Its Glossy Shine?

Feb. 7.11 | About: Apple Inc. (AAPL)

By Tony D’Altorio

In Silicon Valley, many companies have extraordinarily close ties to their founders.

Take Apple (Nasdaq: AAPL), for example. Last month, news of Steve Jobs’ latest health-related leave of absence sent shares tumbling about 7% in a week.

That’s because Jobs is widely credited with lifting Apple out of irrelevance into the second most valuable U.S. company, behind only ExxonMobil (NYSE: XOM).

He personally oversaw the introduction of the iPhone, iPod and iTunes, among other products. Their popularity transformed the hand-held computing, mobile phone and digital download markets.

Jobs is also the driving force behind the iPad. In its first year, the device captured 90% of the tablet computing market and spawned a host of imitators.

With all that to his name, it’s no wonder the man is seen as the guardian of the powerful Apple brand and the visionary of a successful melding of digitized content with reliable consumer electronics products.

And that’s all well and good, but what happens when he’s gone?

Apple’s Lack of a Clear Succession Plan

Apple has been heavily criticized for not making a clear plan of succession public.

For now, Chief Operating Officer Tim Cook will run the show. That happened during Mr. Jobs’ prior leaves of absence as well.

With Apple since 1998, Cook learned the value of instinctive decision-making straight from Jobs himself. He now has to balance that skill with his engineering, manufacturing and business background.

And make no mistake: Apple faces a crucial period as it bets on its new wave of technology. That includes a new iPad and an iPhone capable of running on a second major wireless network.

In the short term, the company should continue to flourish.

Its second-generation iPad debuts in a few months, and Apple is already the leading platform for portable device applications. It’s even gaining market share in the PC market.

Based on his prior stints running Apple in 2004 and 2009, Cook will likely do a fine job this time around. But while Apple shareholders have little to worry about right now, the interim CEO still has a lot to prove if he has to take over Jobs’ role long-term.

Does Apple Need a “Great Person”?

Whether Tim Cook or somebody else ultimately takes over, shareholders will probably have a hard time adjusting. Corporate history tells us that the more creative a business is, the more important a visionary executive becomes.

Look at Walt Disney (NYSE: DIS). In 1984, the entertainment company was faltering badly. Then Michael Eisner and Frank Wells arrived on the scene, turning it around. Over the next 10 years, its stock compounded at an almost 30% annual rate. Then after Wells’ death in 1994, Disney again seemed to lose its bearings.

Likewise, many Apple shareholders can’t imagine that anybody but Jobs could have brought the company from near extinction barely a decade ago to a market cap over $300 billion. They also can’t imagine it staying on top without him.

These shareholders love it when the man in black presents another whiz-bang device. They truly believe in the “great person” theory of business.

Apple’s PR Machine Created a Monster…

But how should those who don’t have a cult-like obsession with Steve Jobs view Apple?

The man’s true importance really isn’t knowable yet. Apple’s PR machine created a monster by allowing the perception that Steve Jobs IS the company to go this far.

No man, no matter how talented, can run such a business alone. And some of Apple’s best ideas actually originated well below the CEO.

All along, Jobs had the help of Tim Cook and others. The only difference now is that Cook is the point man instead.

And even then, he’ll have plenty of help. Industrial Design Chief Jonathan Ive, Marketing Chief Phil Schiller and other talented executives are still on board to do their part too.

In fact, some former employees think the decision-making process might be even smoother now than with Jobs as CEO.

A look at Apple’s stock shows it trades at about 18 times 2011 earnings, which is high but not ridiculous for this type of company. Apple is still growing strongly and has 30-odd percent operating margins that are the envy of other phone and PC makers.

So for now, any weakness in Apple’s stock looks like a buying opportunity. And that’s especially true if the man in black makes another return.

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