On Monday, 55-year-old Steve Jobs, the legendary CEO of Apple, disclosed that he will be going on medical leave. He was diagnosed with a rare form of pancreatic cancer in 2004, and he had a liver transplant in 2008. He said he will continue as the company’s CEO and be involved in major strategic decisions, but COO Tim Cook will be handling the day-to-day operations. Jobs has taken Apple to the peak of high-end technological innovation and fashionable design and in the process made it the world’s most valuable technology company, surpassing Microsoft. On Tuesday, Apple reported yet another stellar quarter that was beyond all expectations. The near-term future also looks bright, with the iPhone soon coming to Verizon, which has a subscriber base of 93 million. It looks as though Apple does not need Steve Jobs to sustain its momentum, at least not for the moment.
Apple reported record revenue of $26.74 billion, up 71% in the first quarter. Net profit was up 78% to $6 billion, or $6.43, per share from $3.38 billion, or $3.67 per share last year. Gross margin was 38.5%, down from 40.9% last year but up from 36.9% last quarter. The company ended the quarter with $50.7 billion in cash.
Apple sold 4.13 million Macs during the quarter, up 23%, and 19.45 million iPods, down 7%. It sold 7.33 million iPads with distribution in 46 countries by the end of the first quarter. The sales value of the iPads was over $4.4 billion, which yields an ASP of about $600. During a quarter driven by holiday sales, Apple sold 16.24 million iPhones, up 86%, with ASP of $625 and sales value of $10.1 billion. iPhone distribution was through 185 carriers in 90 countries.
For the second fiscal quarter of 2011, Apple expects revenue of about $22 billion, compared to $13.5 billion last year. It expects EPS of about $4.90 and gross margin of 38.5%.
Apple without Steve Jobs
Bobbie Johnson on the BBC traces Jobs’s 35-year relationship with Apple: how the company was founded in 1976, its initial popularity and subsequent decline after Jobs left Apple and founded NeXT. In 1996, he returned to Apple and brought NeXT into its fold. Since then, Apple has been churning out a string of innovative products like the iMac, iPod, iPhone, and iPad, which are known for their exceptional quality and design.
Jobs’s real genius is in reinventing new categories – not necessarily even inventing new categories, just repackaging them. There were tablets before the iPad and smartphones before the iPhone, but the consumer electronics and design/user experience focus is uniquely Jobs. And the true successor there is Jonathan Ive, Apple’s senior vice president (SVP) of industrial design.
Apple has a deep bench of executives who have been around since the company’s reinvention in 1997 and, together with Jobs, have made Apple the company it is. Apart from Jonathan Ive, this team includes Philip Schiller, SVP of worldwide product marketing; Scott Forstall, SVP of iPhone software; and Bertrand Serlet, SVP of software engineering.
At the moment, I see no problem with Apple even if Jobs is on medical leave. They have a superb product portfolio and very small market penetration. They are going to sell to the Verizon customer base and simply mint money for the next few quarters. Over time, they will start penetrating the emerging markets with the same product portfolio – iPad, iPhone, iPod, iTouch, and so on. None of this requires Jobs’s daily presence. Apple just needs to keep executing, building great products, and increasing their channels. Tim Cook can do all of this with the rest of the Apple management team.
Apple will do fine without Jobs for a while on the strength of its existing products, but it is in defining and redefining entirely new categories of products where it may flounder, which may not be such an issue in the short term (say, three years). Deal-making may be an issue – Jobs is very good at deals with Hollywood, the media industry, and publishers. But there are other savvy deal-makers out there, and Apple needs to recruit someone spectacular in that domain to plug the gap.
There is no dearth of talent in Apple or in the market that cannot be found to replace Jobs’s various talents. But it is perhaps his approach that will be hard to replace. This approach was driven by his understanding of the frailty of life. In 2005, following his brush with cancer, Jobs said:
Remembering that you are going to die is the best way I know to avoid the trap of thinking that you have something to lose. You are already naked. There is no reason not to follow your heart.
Apple stock is trading around $338.84 with market cap of about $312 billion. Annual revenue in 2010 was $65 billion, and Apple hit a 52-week high of $348.481 on January 14. The stock price dropped this week after Jobs’s news, but the spectacular results helped to allay concerns about Apple’s prospects. And if Apple keeps delivering on the numbers, the stock will eventually stabilize as the market learns to live with an Apple that does not have Jobs but is still performing spectacularly. Apple now has such momentum that it can continue along the path of success for a long time. Jobs has created not just exemplary products but also an exemplary company that should continue to delight people with its products. In Daring Fireball’s John Gruber’s words,
“… the most important product Jobs has created since his return is not any of the sleek devices people line up to buy. It’s a company that can not just survive after he’s gone, but keep making a dent in the universe.”
But what about the technology industry? Jobs is one of the greatest visionaries of our time. He has led not just Apple but the entire industry, acting as a role model to other innovators and an inspiration to many of us. It is that role – that enormous shoe – that will be hard to fill. Yes, Mark Zuckerberg has vision about social media. Yes, Larry Page and Sergei Brin have vision about search. But none of them have quite the level of personal presence to move our industry the level Jobs has done time and again.
I hope Jobs takes the time to heal and to recover from whatever he is suffering from. Apple is fine. He need not worry. But in the end, it will be nice to have Steve around the industry, and to have the benefit of his immense instinct, insight, synthesis, clarity, and imagination for us to ascend to greater heights.
I hope you get well soon, Steve.