Steve Jobs and Tim Cook, “War and Peace”?

Figured I’d just take a humble home gamer’s look at just one quote that got my attention from Daisuke Wakabayashi’s July 7, 2014 article on Tim Cook. (Not really a critique of the piece/author, mostly focusing on the quote.)

Via WSJ:

“Steve was a wartime CEO, while Tim is a peacetime CEO,” said one former employee.

Well, no question about that first part (in the 90s and early 2000s, anyway). But how about that second part?

Well, if Steve was a ‘wartime CEO’, that makes Tim a ‘wartime COO’, right? So unless that same former employee would like to clarify his or her remarks in the future, we’re left to ponder the meaning of “peacetime”.

Just me, but I interpret it two ways:

(1) “Circumstances” – Apple’s now at a place (Microsoft-ian, even!) where the atmosphere is no longer that of crisis, desperation, hoarding, and major initiatives generally aimed at critical mass growth/ensuring survival (to use a really bad analogy, getting past the second tier of some corporate equivalent of Maslow’s Hierarchy of Needs).

(2) “Mentality” – Cook has more of a “peacetime” executive stance. So…what’s that mean? Cook no longer feels Apple is “at war” with its competitors? Or that Cook and maybe some of his lieutenants don’t feel the need to be as “warlike” in its business strategies to continue on a positive trajectory?

Interpretation (1) doesn’t really work, because Apple greatly exceeded “the survival threshold” during the iPod era. Granted, Apple wasn’t anywhere near as big then. But in fiscal 2006, Apple turned in revenues of $19.3B; gross margins of $5.6B (29%); net income of $1.99B; no corporate bond issues; $10B in cash. Oh, sure, ambitions as far as the eye can see and all that. But indisputable that Apple was doing far better than “just fine”, even as that “challenges loom” narrative never fades away.

Interpretation (2) doesn’t really work either. At all. (Never mind that Cook’s repeated vow to create new product categories speaks to Apple’s growth ambitions and militates against a “peacetime” interpretation of leadership.) To give some examples:

• Cook is rather infamous for NAND flash prepayments which have the side effect of constraining overall market supply – and it goes far beyond flash memory. And I doubt Cook brushes aside the incidental benefits of constraining the competition’s supplies.

• As of its 2013 Annual Report (Page 37), Apple had $18.6B in purchase obligations due in less than a year, with little detail as to what they were for – oh, and there’s zero reported purchase obligations for later timeframes. Doesn’t sound very “peacetime” to me. Especially to any of Apple’s suppliers/production partners who might be interested in purchase commitments a little more, y’know, long-term. Maybe “just-in-time” is a better fit.

• “Cook’s Apple” bought Authentec (late July 2012). No licensing as with Nuance, an outright acquisition. Based on Touch ID vs. Samsung’s implementation, it’s rather obvious he isn’t interested in sharing. And given what we saw at WWDC 2014 (adding third-party Touch ID support), the leveraging of Touch ID is just beginning. (As an aside, who knows what Apple has planned for PrimeSense.)

• iCloud Drive has native support for iOS, OS X, Windows – and not Android.

• Apple will pre-pay GT Advanced (“the sapphire guys”) up to $578M (calendar Q1 2014 10-Q, page 5) for some mysterious sapphire-related production purpose. And while GT Advanced is happy to market its snazzy new 165kg sapphire boule furnace, that more industrial-strength version? The “more advanced ASF technology capable of producing boules significantly greater than 165 kg”? That technology would be “captive for some extended period of time”. Hmm, I wonder who it could be for. Doesn’t sound terribly “peacetime” of that client.

• Apple recently “wasted its time” getting a second, $119 million (net) verdict against Samsung in a trial starting April 2014 for a lawsuit filed in February 2012. As a reminder, Cook succeeded Jobs as CEO in late August 2011. And supposedly, Cook didn’t want to sue Samsung to begin with.

• Apple’s $130B capital return program (of which $90B is buyback authorization) looks like an olive branch, but it’s its own kind of aggression. A strong defense against absurdly low stock valuation (remember the trailing P/E multiple of below 9, before backing out cash?) and stock-price-linked employee morale (reminder: AAPL was trading at 55 about a year ago, currently trading over 95). A high-dollar measure to attract dividend investors (mutual funds to hedge funds to giant pension funds), improve Wall Street relations and, incidentally or otherwise, attract outsiders with vocal support for the company (hello, Uncle Carl). A declaration that if Wall Street undervalues Apple Inc., the company will continue to invest in itself, which it could probably currently do at the rate of $20B per year indefinitely (bond issues/cash repatriation barriers notwithstanding).

Locking up billions of dollars in components and production capacity. Maintaining and growing a technology lead. Captive equipment agreements. Keeping up the legal fight, because Apple basically has to in defense of its IP and (in my opinion) per its corporate value system. Greenlighting a completely new programming language, vertically integrating Apple’s software stack more than ever. Going for a 7-for-1 stock split when investors might have previously dreamed of 3-to-1.

So…words vs. deeds? OK, how about the words?

We like competition, as long as they don’t rip off our [intellectual property], and if they do, we’re going to go after anyone who does. […] Don’t want to talk about any specific company, just making a general statement. We are ready to suit up and go against anyone. However, we will not stand for having our IP ripped off and will use whatever weapons we have at our disposal.

Tim Cook, Q1 2009 conference call (via iMore).

I’ve always hated litigation and I continue to hate it. We just want people to invent their own [stuff]. If we could get to some kind of arrangement where we could assured that’s the case and a fair settlement on the stuff that’s occurred, I would highly prefer to settle versus battle. But the key thing is that, it’s very important that Apple not become the developer for the world.

Tim Cook, Q2 2012 conference call (via Morningstar transcripts).

WSJ: Does market share in smartphones matter to you? You often say Apple wants to make the best, not the most?

Cook: I look at the mobile phone market as having three kinds of phones: feature phones, smartphones that function as or are used as feature phones, and real smartphones. I care about the market share of the last one. I don’t care how many feature phones are sold. The more that are sold I look at as good because those are all potential future customers for real smartphones. The same thing goes for the second category. I’d like to convert as many of those as possible to real smartphones.

Once again, I do care about that last category and you want to be relevant. (Among true smartphones), we’re number one in the U.S., we’re number one in Canada, we’re number one in Japan, we’re number two in Western Europe, we’re number two in Eastern Europe. We’re number two in Asia when you take Japan out. So in most geographies, in most major regions of the world, we’re one or two. Would I like to be one in the places where we are two? You better believe it. If there is a way we can do that without changing where our line is on a great product, then we’re going to do it. But what we’re not going to do is we’re not going to make junk. We’re not going to put Apple’s brand on something someone else designed.

I don’t view that as being satisfied with being small or however you want to define it. It’s not saying that market share is irrelevant or not important. I’ve never said that. I just always tried to say that the macro thing for us is to make a great product and we must do that.

WSJ, Daisuke Wakabayashi’s interview, 2/7/14 (Emphasis mine.)

Maybe it’s not colorful language that “the previous CEO” Jobs was said to have used. But I think one can easily see the fire of a very competitive leader, even it presents in more mellow-sounding tones.

Now being a complete outsider, obviously, I have no idea if Tim Cook’s “other words” as heard by the “more than a dozen current and former Apple employees” in the July 7 Wakabayashi interview conflict with what we in the general public have heard him say. (Though I would point out no one in the article, or any other articles I can readily recall, ever said that Tim Cook was inconsistent.)

Well, how about this. What if a typical megacorp CEO has a hard time communicating or fostering a vision for the company – or what if he just seemed a little too “peacetime” (conciliatory, passive, perceived as lacking conviction) to his employees? You’d figure that would induce doubt, various degrees of paralysis, indecision, discord or “rogue actions” amongst the ranks. Which, particularly as Tim Cook enters his third year as formal Apple CEO, would manifest in lower-level leadership, which will manifest in product planning, which will manifest in product/marketing, which will manifest in results. (Just ask Samsung about how quickly growth trends can change.)

For now, given Apple’s recent products, what we know/think we know of its product direction, its financial trajectory, its somewhat-lesser-known operational/componentry strategies, and those rare moments – however scripted and carefully managed – where leadership puts itself in the public eye, I’ll have to agree with Tim Cook’s statement to Brian Williams in early December 2012, back when AAPL’s downtrend was still more than six months from ending: “Don’t bet against us.”

Rather confident and even “forceful” for a peacetime CEO, I’d say.

 

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