Apple's Clash: Rising Stock Price Vs. Declining Company Superiority

Mar. 09, 2012 4:40 AM ETApple Inc. (AAPL)117 Comments
John Tobey, CFA profile picture
John Tobey, CFA

Picture of gathering storm cloudsLast October, I reviewed Apple's (NASDAQ:AAPL) situation without Steve Jobs and with a rare, under-expectations earnings report. I likened those negative items as strikes one and two, but leaving Apple in the game.

Strike three? I believe it has occurred, not as a single event, but as a combination of Wednesday's new iPad announcement and some uncharacteristic, growing concerns about Apple's ability to continue its high profit margin growth. These items add up to the beginning of a decline in Apple's superiority.

The new iPad and its announcement

From the iPad event, we get a view of two key measures of Apple's skills: (1) product development and (2) company management. The overriding question is, "Are they Jobs-level quality or, at least, close?" The disappointing answer is, "No," on both counts.

The new iPad has more robust features, but lacks dazzling or compelling improvements. Even the press viewed the changes as a competitive move (think defense), not a product advancement (think offense). For example, The Wall Street Journal (in "Apple Tries to Keep Edge with New iPad") describes the iPad tablet as "updated" and its goal as "Apple … strives to stay ahead of competitors and prove the devices can trump personal competitors."

What about Tim? Is Steve's handpicked successor highly capable? Well, yes, but in a more normal way - understandably, because Jobs was so unique. To me, the best example of Tim's "normality" is his use of a traditional management's favorite accomplishment: The mission statement. From the article above:

… Apple executives now describe the company as an enabler of a broad array of digital devices central to consumers' lives….

Cook reinforced that message at Wednesday's iPad event, along with this odd (ill-advised?) pronouncement:

The PC is no longer the center of your digital world but rather just a

This article was written by

John Tobey, CFA profile picture
I am the founder and editor of Investment Directions. My career has been managing and consulting to multi-billion dollar funds. Using the widely accepted “multi-manager” approach, I have worked with top investment managers throughout the country, gaining a high level of expertise. My career has spanned many market environments, and I have hands-on experience searching out opportunities and avoiding risks in all of them. I now devote my time to Investment Directions, with the goal of helping investors further their understanding and improve their investing skills. I am currently serving on: The AAUW Investment Advisers Committee and The City of Vista Investment Advisory Committee.

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