By Lou CoveyEditorial Director, Footwasher Media
In the outpouring of grief over the death of Apple founder Steve Jobs has been an underlying meme of concern regarding not just the future of Apple, but the potential for disaster in the semiconductor industry. On one side are those people whose fortunes ride on continued success of Apple, while on the others are those that would prefer the current Apple leadership on consumer electronics and applications be blunted in favor of their own. It makes it difficult to have an objective opinion one way or another.
One of the issues to consider is that Apple is now the largest buyer of chips in the world. If Apple falters significantly in the near term, there is concern that the current growth of the chip industry could falter as well. But is that true?
In June 2011, Apple surpassed HP as the largest buyer of chips, without a significant reduction in the amount purchased by HP. What wasn't widely correlated was in July, Amazon also surpassed HP, driving the latter to third. The phenomenon of Apple's iPhone and iPad has launched a massive buying season by other companies working to take a bite of Apple. Should Apple's sales falter in the near term the market demand for competing products will probably take up the slack.
Another meme is disappointment in the latest announcement of the iPhone 4s, which turned out to be nothing but the speculation of uninformed bloggers, and the continued "delay" of the iPhone 5. Apparently, the buying public wasn't as disappointed as pre-orders of the 4s have topped that of the 4 announced last year. However, pundits seem to be missing critical pieces of information that could explain why Apple made an incremental rather than a radical advancement.
First, is the issue of Samsung.
Samsung, the largest tech company in the world by sales, is competing directly against Apple in both the tablet and mobile phone markets and is probably the leading competitor depending on who you talk to... but it is a distant competitor. And Samsung's profit forecasts are tied directly to that competition in two ways: as a competitor and a partner. Samsung also manufactures the A4 chip for both Apple's product lines. Samsung downgraded its projected profit forecast at the beginning of summer in phones and tablets anticipating sales chilling from the iPhone 5. When it was revealed that the 5 was yet to come to the market, Samsung's profit forecasts and actual profits rose. Second, there's the investment Apple has made in the current design. A source close to Apple said the company invested $1 billion in manufacturing for the iPhone 4 and 4s. So walking away from a manufacturing investment and then announcing a new product that would hurt an important supplier, doesn't make a lot of sense -- especially when the current product, with minor tweaks, is blowing the doors off everywhere with the help of three distribution channels (AT&T, Verizon and Sprint).
So the "failure" of Apple to deliver the next generation of its killer product line does not portend the ultimate failure and beginning of the end of its dominance. It's merely a smart business decision.
Finally, and the biggest question of all has been: "Can Apple actually survive, much less thrive, without Steve Jobs calling the shots." The reality is that Jobs has not been calling the shots on his own for quite a while now. A team of people, hand picked by Jobs prior to his first medical leave, have been the overall leadership. During that process, Tim Cook emerged as the successor, just weeks before Jobs succumbed to his illness. Many are blaming Cook for the less than stellar reception to the product announcement, but if the truth be told, there were moments as early as 2005 where even Jobs' decisions were questioned and identified as the beginning of the end for Apple's success.
A closer analogy to Apple's situation is when Bill Gates stepped down and installed Steve Ballmer as the new head of the company. Many questioned that move, as well, but were comforted that Gates continued as Chairman of the Board. With Gates keeping his finger in the pie while Ballmer led, Microsoft has lost half its value. The difference between the two situations is Apple now has a clean break from Jobs' leadership allowing Cook, et al to create a new future for the company.
There is not enough data to determine if any one event, even one as earth-shattering as the death of a charismatic and visionary leader, will mark the finale of a remarkable business run, but this is what we do know: Apple has products in completion to launch for the next 5 years; they have $76 billion in cash reserves; and have the largest valuation of any US company. With that kind of foundation, the odds are that any speculation that focuses on one event or issue is as sure as a throw of the dice in a back alley craps game.