Tim Cook’s job as Chief Executive of Apple (NASD: AAPL) is growing increasingly difficult. The shadow of Steve Jobs remains looming over the firm, and the firm’s recent results suggest sales for existing products are leveling off. The tech giant needs a game changer, similar to what the iPad, iPhone, and iPod all did for the firm over the past decade.
Apple’s earnings were flat last quarter despite selling more iProducts than the year before. In a nut shell, as Apple churns out more iProduct, it makes less money per item. Adding up the quarter’s iPhones, iPads, iPods and computers, Apple sold an aggregate 87.5 million iProducts. During the year-ago quarter, Apple moved 73 million. Yet, in both quarters, Apple earned $13 billion. (If you want to get even more bummed out, operating income actually dropped by $100 million this quarter.)
Apple’s unit profits are unsustainable at their current level. have already fallen by 22%. Apple’s future earnings are vulnerable to sinking unit profits, and can only offset that through the launch of truly new and innovative products – not just marginal upgrades over existing ones.
Before the Mac came out, people said that Apple was dead, and then Jobs and his team recreated the personal computer. Before the iPod came out, people said Apple did not have anything going for them, and then they recreated the entire music industry. Before iTunes, the iPhone, the App Store, and the iPad all came out, people thought that Apple was finished. As long as they continue to innovate and affect the market, Apple will be a winner in the long term. Apple has a huge competitive advantage from its competitors. The Apple brand symbolizes perfection, beauty, and products that are simple and elegant. Apple fell more than 12 percent the day after the earnings, and the various financial analysts covering the company responded in a similarly disappointed fashion, racing to cut their bullish price targets and recommendations.
Cook is passionate about Apple, as is obvious when hearing him speak at Apple keynote events. He’s an honorable and honest CEO, as was seen when Apple messed up the Maps App on the iPhone, Cook apologized and told investors he made a mistake, rather than covering it up. Cook also has big plans for the company, with rumors of an Apple TV set to invade the living room. The television will be critical to the firm’s rebound from its recent decline, and may be exactly what market participants are clamoring for to obtain returns investors have become used to from the firm.
