The Void Within Apple

| About: Apple Inc. (AAPL)

Summary

Apple's products have been criticized lately for lack of innovation as in the iPhone 7.

The latest MacBook Pros have been criticized for innovations that customers don't want, such as replacing traditional ports with Thunderbolt 3.

There seems to be a need for a product architect, a role once performed by Steve Jobs.

We've been hearing more criticism lately that Tim Cook has failed in his leadership of Apple (NASDAQ:AAPL), that Cook hasn't been able to fill the shoes of Steve Jobs. The expectation that Cook could become another Steve Jobs was never realistic, but there's an important role that Jobs performed that needs to be filled by someone at Apple. That's the role of product architect.

Source: Apple

Product Architect Wanted

What's a product architect? It's actually difficult to answer, and I find myself wanting to say "it's what Steve Jobs did." Elon Musk of Tesla (NASDAQ:TSLA) has the title of Chairman, Product Architect, and CEO. Clearly, Tesla's products bear the imprimatur of the tastes and judgment of Musk, just as Apple's products once did of Jobs.

Product architects are generalists, not specialists. They may have a technical or engineering background, but they also have a wide range of interests beyond that. The key role of the product architect is to figure out how to turn innovative technologies into successful products.

First and foremost, there has to be an understanding that innovative technology doesn't guarantee a successful product. Products that feature innovation for its own sake often fail in the marketplace, because they don't address a need of the consumer.

On the other hand, product architecting is not simply a matter of doing a market survey, asking consumers what they need, and then giving it to them. Invariably, such surveys fail to identify unmet needs or opportunities of new technologies to create needs where none existed.

The ability of Steve Jobs to see the product nascent in a lab experiment was his true genius, but he also had the ability to guide product development efforts (such as the development of the Mac, iPod, iPhone, etc.) making crucial technology decisions along the way.

A famous example of this guidance is the decision by Jobs to use a glass screen for the first iPhone, as described in an article in the NY times:

In 2007, a little over a month before the iPhone was scheduled to appear in stores, Mr. Jobs beckoned a handful of lieutenants into an office. For weeks, he had been carrying a prototype of the device in his pocket.

Mr. Jobs angrily held up his iPhone, angling it so everyone could see the dozens of tiny scratches marring its plastic screen, according to someone who attended the meeting. He then pulled his keys from his jeans.

People will carry this phone in their pocket, he said. People also carry their keys in their pocket. "I won't sell a product that gets scratched," he said tensely.

The decision to go with scratch resistant glass rather than plastic was probably critical for the success of the iPhone. Up to that point, virtually every cell phone or smart(er) phone from the likes of Nokia (NYSE:NOK) or BlackBerry (NASDAQ:BBRY) used plastic.

Filling the Void

When I think about Apple's management team, I really don't see anyone who fulfills the product architect role. Jony Ive? Maybe it was intended that he perform that role, but if you look at his job description (on Apple), it's not quite the same thing:

Jonathan Ive is Apple's Chief Design Officer, reporting to CEO Tim Cook. Jony is responsible for all design at Apple, including the look and feel of Apple hardware, user interface, packaging, major architectural projects such as Apple Campus 2 and Apple's retail stores, as well as new ideas and future initiatives.

If Ive was intended to be the product architect, I'll be blunt. He isn't cutting it. The architect operates at a somewhat higher level. Product architecture combines many elements including marketing, technology and design. But it's not primarily about aesthetics.

The lack of a product architect is perhaps most visible in the new MacBook Pros. Although the Touch Bar is innovative, certain design decisions have aroused a lot of complaints from traditional Mac users.

Equipping the Pros exclusively with Thunderbolt 3 ports makes the systems a little harder to use in a mobile context. Apple could have deleted two of the T3 ports in the 15" Pro and provided an SD card slot and standard USB 3 connector instead.

Touch Bar-equipped Pros have both the flash storage and RAM soldered onto the main board, so there's no possibility of upgrade. Not allowing user upgrade of storage seems a slap in the face to professional users.

And then there is the 16 GB cap on RAM, which has been very controversial. SVP Phil Schiller responded to objections to the RAM limit:

To put more than 16GB of fast RAM into a notebook design at this time would require a memory system that consumes much more power and wouldn't be efficient enough for a notebook.

Schiller is essentially correct, but glosses over much detail. For the type of RAM Apple is using (LPDDR3), the on-board memory controller of the available Intel (NASDAQ:INTC) processors can only support 16 GB. In this case, it really is a limitation of the Intel chip, which would have been very difficult to work around.

This only points to a more fundamental architectural decision, that of continuing to use Intel Architecture processors for the Mac. While switching to Apple's ARM custom processors has been much discussed, it would be a tough decision that would have consequences. But it would at least allow Apple to be fully in the driver's seat when it comes to its Mac designs, and likely prevent the kind of issue as the memory limit in the new MacBook Pros.

These are the kinds of decisions that the product architect has to make. Is there anyone at Apple even willing to make such a decision?

Investor Takeaway

Any computing device that Apple or any other company makes involves design and engineering compromises. So no device is going satisfy all consumers in every respect, and any device will necessarily be subject to some criticism.

The fact that there's been criticism of the MacBook Pros, or any other Apple products doesn't necessarily indicate the lack of a product architect. But who is the product architect?

The situation at Apple appears to be that the hardware lead, Dan Riccio, makes decisions about electronic design. The software lead, Craig Federighi makes decisions about operating system design. And Jony Ive makes decisions regarding... design. But no one seems to be in overall charge of the product.

There is no unifying product vision anymore, or if there is, it's a vision by committee or consensus among the key leads. That will tend to lead to bland, consensus-driven products. Many might argue that it already has.

Apple's stock price is only up about 4.4% YTD, a disappointing performance in my view. This has some roundly condemning Tim Cook and his management team. I think Apple has a very good management team, except that it's missing a key member. Finding the right person to fill the product architect role now appears crucial to the future of the company. Doing so would unlock a lot of growth potential as well as potential value for shareholders.

Cook is now faced with either selecting that person himself, or having the selection done by his replacement. But it must be done, and I'm convinced it will be. The only question is how painful the process will be. Because I see so much untapped potential within Apple, I remain long, and recommend Apple as a buy for investors with a 3-5 year investment horizon.

Disclosure: I am/we are long AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.