The Tim Cook Earnings Show Needs an Edge
Tim Cook may not be Steve Jobs, but Jobs never had to deal with the challenges that Cook is now grappling with at Apple. This week's earnings call, which actually had some good sales news to report, was a chance for Cook to get a little edgy with naysayers regarding the stock. Instead, Cook spent half the time patiently saying everything was fine -- and the other half talking up stock buybacks and 15 percent dividends.
Apr 25, 2013 5:00 AM PT
I admire Tim Cook's unflagging patience with investors and analysts during quarterly conference calls. However, I'm starting to wonder if his subtle digs and point-by-point comments are enough for a guy who's stuck on the biggest tech company stage in the world right now.
I just wish he would conduct these calls while languidly sharpening a knife.
In fact, I want the guy to pull out a freaking sword -- a metaphorical sword, of course. I want him to use that sword to eviscerate the asinine complaints, potshots, and manipulations that have been floated in our new social world of blogs, tweets, "investors," and guys with nighttime dreams of a failing Apple.
This is why I'll never be the CEO of a very large publicly traded company: I'd drop the F-bomb. I'd ridicule dummies and chide the analysts I actually like when they ask, quarter after quarter, the same questions. They would ask despite knowing that I would not reveal specific product plans and launches and dissipate the magic.
Part of problem is this: The shrill Apple naysayers are busy throwing stones at the company's glass headquarters from afar. They whip themselves into hysterics over the lack of cheap products and the need to gain marketshare at the low end. When Apple does release cheaper products, like the iPad mini, they gloat over the reduction of profit margins.
These are not the guys asking questions on the investor calls.
For the most part, Apple enthusiasts ignore these other guys. Sometimes, though, the sheer magnitude of the "complaints" -- few of which have any real teeth -- eventually make a guy like me want Tim Cook to bite back.
For better or worse (probably better, I must admit) Cook is not the type of guy to heap scorn on the analysts, and he's not the kind of guy who can shrug it off as it were nothing but a mosquito to be shooed away or ignored outright.
Steve Jobs seemed to gaze past the little bugs, all the while evoking the sense that, if he actually noticed you -- a little mosquito -- his laser eyes might zap you into oblivion if you even thought of taking blood that didn't belong to you. Never mind the shares you supposedly own of his stock.
At the same time, Jobs never had to deal with the scale of scrutiny thrust upon Tim Cook. Apple is larger than ever. Apple covers more markets with more products.
Here we are now with the Tim Cook show, patient but telling.
A Closer, Sharper, Wishful-Thinking Look
Cook introduced this week's earnings call in the usual way, then pointed out that Apple has introduced and ramped production of an "unprecedented number of new products" and set new sales records, noting, "Despite producing results that met or beat our guidance as we have done consistently, we know they didn't meet everyone's expectations."
That was a classic passive-aggressive dig. We're doing what we said we would, and still, you expect something different. Love it.
Apple's revenues grew about $13 billion in the first half of the fiscal year (admittedly, Cook spread the scope of the discussion), which was a setup for this: "Even though that is like adding the total first half revenue of five Fortune 500 companies, our average weekly growth slowed to 19 percent, and our gross margins are closer to the levels of a few years ago."
Cook admitted a slowdown in growth, but pointed out that compared to other large companies, Apple is kicking butt and taking names. Without naming names. He's such a nice guy. Sheesh.
Meanwhile, he pointed out that comparisons to last year's quarter reflect a different set of realities, like currency differences, channel inventory differences, and a mix of higher margin products. Then he noted the iPad mini, saying, "which as you know, we strategically price at a lower margin."
I'm not sure that Cook speaks in italics, but I used it on purpose, Cook had implied, "Hey, about the margins, we're smart enough to know what we're doing, and you know why -- so back off already on margin talk."
Cook then pointed out that the decline in stock price has been "very frustrating to all of us," and while I'm sure Apple execs with stock options would prefer a higher share price, I doubt they are doing the job just for the money. In fact, I'm sure they've been approached by other companies trying to poach them.
However, they stick with Apple. Probably because of Cook's next statement where he pointed out that Apple can't control currency fluctuations, the economy, or some cost pressures, "but the most important objective for Apple will always be creating innovative products, and that is directly within our control."
We will continue to focus on the long-term, he said, and Apple remains optimistic. Apple is participating in "large and growing markets." He invoked the strength of the Apple ecosystem, hinted that yes, Apple is working on new services and expanded distribution, and -- drumroll, please -- noted that Apple has plans for "the potential of exciting new products categories."
But What About Shiny New Products?
Of course, Cook had to address concerns that Apple seems to be just adding new paint and tires to existing products -- products that Jobs still seems to get all the credit for. Cook flat-out said that teams are hard at work on "some amazing new hardware, software, and services" that Apple can't wait to introduce this fall and throughout 2014.
Then he poured on a litany of Apple strengths and said that Apple is "distinct and unique" in that it is "the only company in the industry with world-class skills in hardware, software, and services." Not quite fightin' words, but still, it was nice to hear Cook characterize Apple's identity as a company. He subtly implied that Apple isn't a Samsung or Google. Apple does it all pretty well, just not one piece.
He invoked worldwide App Stores, iTunes stores, hundreds of millions of iCloud users, and most importantly, the "highest customer loyalty and customer satisfaction rates in the business."
Some might have viewed Cook's next statement as shrill, but I have to believe most Apple watchers see it more as the patient repetitive mantra needed to drill home a key Apple point:
"And of course, we have a tremendous culture of innovation with a relentless focus on making the world's best products that change people's lives. This is the same culture and company that brought the world the iPhone and iPad -- and we've got a lot more surprises in the works."
Cook is basically saying, "Come on guys, we haven't changed. You might have changed, but we're still the same company no matter how you're trading our stock."
I would have laced it with some dripping sarcasm, but I'm not nearly as patient as Cook. Still, I'd like to see some sharp edges, perhaps cast as questions thrown back in their faces: "So what do you want? Massive marketshare or low margins? You can't have both. Well, this is the way we're going to do it, and this is what you're going to get."
The Pesky Business of the Cash Hoard
Apple has nearly US$150 billion of cash sitting in various banks around the world doing nothing. Investors are right to wonder about that. It is a lot of excess money for a public company. Apple needs to do something with it, and the best thing would be to return it to shareholders.
So what does Cook do? He said Apple will increase its current dividend by 15 percent, which gives the company one of the highest dividends in the industry. Not bad, but not exactly a cash windfall for investors.
What else? Apple is increasing its share buyback program to the tune of $100 billion through the end of 2015.
On one hand, Apple is saying that everything is fantastic. On the other hand, Apple acknowledged some of the issues with market perceptions of its stock -- but ultimately addressed the issue on Apple's terms by reinvesting in Apple stock.
Cook deadpanned, "As the board and management team deliberated among various alternatives to returning cash, we concluded that investing in Apple was best."
Then Cook turned the call over to CFO Peter Oppenheimer, who took Cook's wide-ranging intro and applied third-party facts and percentages to characterize Apple's financial performance. Oppenheimer became a virtual fact stun gun, firing off marketshare and loyalty rates. (To listen to the call replay, check out the links on Apple's investor pages.)
Will any of this bring down the wattage of the spotlights focused on Cook and Apple? Maybe. I doubt it, though -- until Apple reveals an "exciting new product."