In the final months of his life,
Apple (Nasdaq:
AAPL
)
CEO Steve Jobs worked hard to ensure a vital future for his
company. He prepared his management team to stand on its own, and
they have exceeded almost everyone's expectations. In fact, in the
year since Jobs' death, Apple's stock has surged far higher.
The fact that Apple has boosted itsmarket value by nearly $300
billion in Jobs' absence is really a testament to a management team
that has learned to "stay the course." In fact, much of Apple's
success in 2012 is attributable to plans and goals laid down by
Jobs several years ago.
Analysts expect Apple to boost sales another 24% in thefiscal
year that just began this week, to an eye-popping $194 billion.
Projected sales gains are solely attributable to new levels of
success for the iPhone and the iPad, along with the rumored
launch of an Apple-based television set -- another Jobs concept.
Of course, new CEO Tim Cook has a large staff of engineers to help
keep Apple on the cutting edge, but the company's product
development labs aren't quite as large as you might think.
Google (Nasdaq:
GOOG
)
, for example, with more than $5 billion in annual Research &
Development spending, has twice the engineering budget as Apple.
Instead, Apple tends to focus its resources on marketing and brand
building.
That's a path followed -- with great success -- by firms like
Coca-Cola (NYSE:
KO
)
and
McDonald's (NYSE:
MCD
)
. Notably, these firms continued to simply execute the visions of
Asa Candler and Ray Kroc, who created great buzz for Coke and
Mickey D's when those businesses were launched.
Yet it's also important to heed the lessons of other companies and
see how they fared after the baton was passed from a charismatic
leader to a team of department heads. Often times, the transition
from an entrepreneurial operating environment into a mature
steady-as-she-goes enterprise can prove quite bumpy.
Just ask the Ford family.
When Henry Ford passed away in 1947, his heirs got off to a
terrific start. World War II had only recently ended and returning
GI's made a beeline for car dealerships. That helped
Ford (NYSE:
F
)
and
GM (NYSE:
GM
)
to repeatedly set sales records throughout the 1950s and they
pushed their brands into dozens of new markets around the globe.
Yet the strong sales growth at Ford masked an underlying problem:
The automaker no longer sought to sharply innovate and grow content
to peddle mass-market vehicles that became undifferentiated in
themarket place. That set the stage for a long decline, not
necessarily in terms of sales, but surely in terms of profits. The
Ford family grew content to simply reap big dividends from their
stock ownership and lost sight of an increasingly bloated
operation.
Fast-forward to 2005 and Ford would be on the cusp of four straight
years of operating losses. How bad did it get? By 2006, when the
auto industry was seemingly booming on the back of an economic
bubble (that eventually crushed the housing and auto markets), Ford
generated just $3.4 billion in gross profits on $160 billion in
global sales. And as Henry Ford would have noted were he alive
today, 2% gross margins are miserable -- in any industry.
A $16 billion operating loss that year eventually led to a deep
management shake-up, and new management led by CEO Alan Mulally has
Ford back on top of the industry. Though sales had fallen to $136
billion by 2011, Ford squeezed out $19.3 billion in gross profits
and an impressive $7.6 billion in operating profits. When
theeconomy re-strengthens, Ford is likely to post record levels of
profitability. But the company had to undergo traumatic change
before that could happen.
Even in the consumer electronics biz, Apple investors have reason
for concern. This is an industry known for once-hot brands that
eventually grew cold.
Sony (NYSE:
SNE
)
failed to ride the success of its Walkman to leadership in the iPod
era;
Nokia's (NYSE:
NOK
)
once dominant role in the cellphone industry has been eclipsed by
Apple and Google; and Nintendo's Wii was a must-have product just a
few years ago. But not anymore.
Action to Take -->
This doesn'tmean Apple will soon be in trouble. It means only that
the stunning rise in its stock -- after Jobs' passing -- shouldn't
necessarily be seen as a harbinger of even better days to come.
Indeed, Apple's new management team has littlemargin for error and
will need to keep delivering home-run products if the always-hungry
competitors are to remain at bay.
This article originally appeared on InvestingAnswers:
Apple One Year later: Without Steve Jobs, What's The
Stock's Future?
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.