Apple's Attempt at World Domination…without Steve Jobs?

August 24, 2011

Apple's Attempt at World Domination…without Steve Jobs?

It is truly amazing that not one day goes by without Apple appearing in the news. Clearly, I, myself, am getting fascinated with this organization seemingly eying world domination. Apple's pursuit of lawsuits/litigation (see Apple: Litigation as Business Strategy) gains momentum on a daily basis, as evidenced by today's ruling against Samsung in a Dutch court. Galaxy tablet sales had already been banned in Australia, and today, Samsung was informed it can no longer sell smartphones Galaxy S, S II, and Ace because of similarities in the screen scrolling function with Apple's iPhones. A strong win for Apple.

Tomorrow, Samsung will find itself in court in Germany, trying to defend its technology. One of its arguments will be that Apple stole/copied the idea for the iPad from the 1968 movie "2001: A Space Odyssey." [The famous YouTube video everyone is talking about can be found here.] The goal is to prove that the external appearance was not first invented by Apple "and this may be enough to prevent Apple from enforcing its alleged intellectual property rights in relation to the physical appearance of its latest tablet." Go for it, Samsung. [This is turning into some sort of "reality show" and nobody can look away. Investors just seem to be wanting more, and more, and more…]

The same day Sprint announces that it will be able to make the new iPhone 5 available to its 52 million subscribers come mid-October 2011. The third-largest wireless carrier appears thrilled to add the iPhone to its portfolio and avoid customer attrition, but will have to accept a change in cost structure; Apple demands high margins. The new iPhone will supposedly be even lighter, thinner, with an improved camera and operating system. Another strong win for Apple.

So, on the same day, Apple claims victory over one of its rivals and announces a new ally. Even though, the term ally may be an overstatement. I find it hard to believe that the wireless carriers consider their Apple agreements as true alliances and partnerships instead of simply a "must-do" at "nearly-all-cost".

And then,…on the day when Apple appears to be just one step closer to world domination, the feared announcement is finally made: Steve Jobs resigns as CEO. Tim Cook, who previously served as COO, is reportedly taking over the reigns. While T. Cook has been in charge of managing operations, sales, etc. it has always been S. Jobs, who has been the visionary at the company, who created the dream [occasionally destroyed others'], set R&D priorities, and called the shots. Of course, Apple has faith in its new leader. The news seemingly came so late that it did not impact daytime trading: the stock was up. In after hour trading, the share price dropped. As of 9pm EST it was down 5.07%. In the official company press release, Apple quickly pointed out that Steve Jobs will take on the role as Chairman of the Board, and "will continue to serve Apple with his unique insights, creativity and inspiration.” Of course he is; imagine how investors would react if he was not going to remain engaged. Jobs himself was reportedly clever enough to reaffirm that he believed the most creative times were still ahead of Apple. AAPL After hours: $357.10 (-19.08; -5.07%). This is called situation management; dealing with the unavoidable. [Note: The man has accomplished great things and I do wish him well.]

I doubt that this announcement was truly news to anybody. Jobs had been on a leave of absence because of his health for quite some time. It was simply a question of how the succession would be managed and announced. I wonder how and if this announcement will impact the litigation in German courts tomorrow. The company is too strategic and smart for all of this to be coincidental. Some litigation wins were made, the ink dry on the agreement with Sprint. A good time to announce the change.

If Steve remains in the role of Chairman of the Board, I doubt that too many changes will take place in the immediate future. Operations and innovation will proceed as they did before; all in all, the focus will shift to Tim Cook for a natural phasing out of the brand Steve Jobs had built for himself. We may not notice any changes for a couple of years.

So will this impact Apple's path to World Domination? If they haven't gotten there by 2014, they probably never will.

Image: http://techicon.files.wordpress.com/2010/05/apple_world.jpg

Google's War Against Apple

August 17, 2011

Fun fact: You think this was a pricy acquisition? Not even close… The most expensive acquisition I could identify was Vodafone Airtouch acquiring Mannesmann in 2000 for $202.8 billion followed by AOL acquiring Time Warner for $181.6 billion in 2001.

Google's War Against Apple

The 63% premium Google is offering to acquire Motorola Mobility has caused quite a stir; the pending merger of "Motorolans with Googlers" [Googorlas??] has opened conversations about the value of IP and patents, the escalating number of lawsuits due to patent infringement, as well as the question about the future of the open Android operating platform. It is hard to filter out what analysts/investors really think about the deal by looking at share price activity during the day, given the instability in the financial markets right now, but here are the facts. At 3:30pm EST on 8/17/2011...                

Google (GOOG): -1.21%

Apple (APPL): -0.14%

Microsoft (MSFT): -0.87%

$12.8 billion is a hefty price tag and a 63% premium is steep. Google is gaining access to 17,000 patents. There were discussions in the Financial Times and New York Times about the new valuation of patents and a new focus on IP. But is that really true? Maybe in this particular space, analysts have not paid much attention to patent portfolios, and only now that litigation is publicly escalating and M&A activity between these tech giants is rising, they are beginning to take a closer look. The actual competitors in this space have always had a strong eye on IP. Certainly in other industries, patents have been essential and key to M&A valuations and acquisition premiums. Look at the pharmaceutical industry. Talk about the need to patent your formulations to guarantee future revenue streams.

Of course, ownership of patents during this time seems to be more relevant than ever considering that seemingly new litigation is filed every day and everyone is going after each other, like children on a playground…fighting for world dominance (see Apple: Litigation as a Business Strategy). In general, patent infringement suits are warranted, but the recent escalation is not only consuming tremendous financial resources, but also stifling innovation due to concern over legal action among smaller entrepreneurial businesses.

Another point that has been heavily debated back and forth since the official announcement of Google's acquisition, is the future of the open operating platform, Android. In its official investor relations' announcement, Google stated that it is firmly committed to its current Android partners and the "vibrant open source community". Some analysts have speculated that going forward, Google will give Motorola Mobility handsets some kind of exclusivity. Why risk having Google's current partners switch to a Microsoft-based operating system for their smartphones? Nokia may be a bit too optimistic assuming that "the acquisition will play into the hands of Microsoft platform."  Google will have to be careful in how aggressively it pursues direct competition with its current partners. There should be plenty of room for additional customer segmentation.

Initially, I believe there is truth in one assessment, which is that Google is indeed defending Android and its partners (FT: Lex Column). The acquisition was pursued as a means to "protect profitability of the handset manufacturers that deploy Android." In reality, this may be an opportunity for Google to build a stronger core (no pun intended) against Apple, based on existing and acquired patents, but also an opportunity for further innovation.  Together with all Android-partners, which may become loyal soldiers/allies if executed correctly, they can build one united front against Apple.

So yes, I do believe this is war against Apple…

[P.S. My husband says I am a cynic and should write about more positive things. There is always next time…]

Image: http://wpuploads.appadvice.com/wp-content/uploads/2011/08/google-android-motorola.jpeg

Apple - The Happy Brand

July 25, 2011

Apple: The Happy Brand!

Talking about Apple these days is hip. Writing anything about Apple will almost always guarantee readership. In fact, you probably will not be able to open a newspaper without finding at least one article on Apple or the man himself, Steve Jobs. [Is he really being paid $1 in total compensation?] I will agree, the company and the man are equally fascinating. The 10-K reads like a mystery novel, with interesting detail on units sold, cash on hand. The company is bold, creative, and seemingly full of financial wizards. So Jobs himself gets paid an annual salary of $1. In January, it was reported that he held 5.5 million shares of Apple stock, which right this minute is valued at $398.63 (up +1.36% today). Ergo, his stake is worth over $2 billion (according to the calculator on my iPhone). An article in the Associated Press from January 2011, claimed that Tim Cook's compensation, who currently serves as COO received $59.1 million in total compensation (including bonuses, etc.). Fascinating has also been to watch the insider trading activity at Apple. Senior Vice President of Operations, Jeffrey E. Williams, stands out with more than 7 transactions since the beginning of April as part of which he exercised stock options and sold stock worth over $8 million. According to Form 4, the stock option exercise price was roughly $46 versus the current share price of over $300. Happy times at Apple.

Company sales have increased  $19 billion in fiscal 2006 to $65 billion in fiscal 2010. 44% of net sales stem from the U.S. 39% of total sales are generated by iPhone related products and services, which equaled $25 billion in fiscal 2010. According to the 10-K, Apple sold roughly 40 million iPhones in fiscal 2010 and 7.5 million iPads. As of late September 2010, the company maintained a total of 317 retail stores of which 233 are located in the U.S. and 84 internationally. On a side note, I have seen the Apple store in London…it is almost intimidating. Much like one of the seven world wonders. It is very evident that Apple places a lot of emphasis on the buying experience in its stores. The Annual Report states that it is key to attracting and retaining customers… "genius".

But is there a worm in the apple? Without a doubt, when you grow as fast as Apple has, sustainability of that momentum is in question, and should the momentum slow, Wall Street will be ruthless. We have seen it before!!

Steve Jobs has been on and off on medical leave, smartphone adoption is outpacing adoption of Apple iPhones, and according to the WSJ today, Apple appears ill-equipped to address the low to mid level tier of cell phones. Analysts are expecting this market segment to be the future growth drivers in the space. If true, so the article, Apple's share of the smartphone market may have reached its peak.

Apple invested roughly $1.8 billion in R&D in fiscal 2010. One can only imagine what the engineers are dreaming up. But from my perspective this is a real dilemma. The Apple iPhone brand has developed into something elite, high-end, so have the companies computers (at least from my perspective). And quite frankly, the brand here has become a huge sales driver at this point, without a doubt. How do you bring that to the mid or low cost level without losing the brand equity that the iPhone has established for the Apple name? I wonder what the Apple brand is worth?  I am sure a business school case has been written on this topic. [Let's call HBS and find out.] Clearly, Steve Jobs gets it and does not allow any tarnishing of the Apple brand. An article published in Fortune earlier this year in May, clearly highlights the unforgiving and ruthless culture and importance of public image to the CEO and co-founder or the organization. [Love the org chart that was published as part of the article.]

Maybe the solution would be to develop a separate business unit and brand for lower-cost products that remains disassociated from the corporate Apple brand. Pharma companies have done so in order to develop and sell generic drugs without negatively impacting the image of its branded products.

The Apple brand is still strong despite its share of negative associations. Articles appeared on child labor employed at supplier companies as well as the poisoning of workers by n-hexane in factories in China. Yet the brand stays strong. Today, news surfaced that both Kobo, Inc. and the WSJ halted direct sales on Apple applications in rebellion against Apple's seemingly ever tightening rules regarding the sale of digital content. Let's just hope that Apple can withstand the current glory without developing a "God-complex" and remain creative and bold enough to protect its brand. Happy times at Apple.