Steve Jobs and the miracle of Cupertino
MarketWatch
12:13 PM ET
SEATTLE (MarketWatch) -- Apple announced stellar fourth-quarter earnings on Tuesday in a report that was tinged with sadness over reports of its founder's ebbing health. The company's amazing journey over the past three decades reminds us of the mythic Greek story of Marathon, in which a triumphant long-distance runner falls exhausted into the arms of a grateful city after completing an epic task.
The success of virtually every arm of Apple in the past quarter has been detailed elsewhere, but what jumped out at me was how different this could all have turned out. The company's commercial victories were anything but pre-ordained, and if you swing the clock back 10 years I don't know of many people who would have forecast that mercurial chief executive Steve Jobs would one day lead the second most valuable firm in the United States, after energy giant ExxonMobil .
Think about it: Back in the mid-1990s, the most innovative and exciting mobile phone company, by a mile, was Nokia . Slaughtered since. The next most important mobile communications company was Motorola . Buried. The most important chip provider was Intel . Dead in the water. The most important personal computer maker was Dell . Dead in the water too. Microsoft ? Better, but not by much.
So how did the Apple miracle occur? You have to point to one man, and that is Jobs, who may have sacrificed his well being to bring his company to this height. Strip away the numbers, and what's left is one person's vision, taste, engineering, ambition and charm that created two multibillion-dollar success stories -- animated film maker Pixar, sold to Disney awhile ago, was the other -- that defied conventional wisdom and Wall Street expectations at every turn.
Of course, it wasn't always this way. Apple was an also-ran for almost 20 years, spending most of the 1990s and the first half of the 2000s in investors' dog house. If you just started to invest in the past five years, it may be hard for you to imagine but Apple for years was always like the loner, snooty, hipster kid at school that the in crowd mocked.
Sure the artists loved Apple's pretty white boxes and graphics software, and cooed about the long-haired, ethereal Jobs at the helm. But as a company and as a stock it could never get any respect. It seemed like whenever Apple did manage to bring out a product that looked promising, it could never produce enough of them, fast enough, to have its design prowess turn into earnings growth.
Investors shunned the stock, and, by 2001, it was actually trading for less than the value of the cash on its books. I will never forget running into a friend who was one of Jobs' marketing geniuses that same summer. We were taking a break from cycling on Lake Washington Boulevard and as we downed espressos he lam ented that he could not figure out why Wall Street would not give the company credit for all that it had accomplished throughout the years. The Street literally determined that Apple was worth more dead than alive.
My friend said he thought that Wall Street's perception would change once they saw a new project that they were working on. He couldn't tell me any details but he hinted that it was a new type of MP3 player. I nodded my head appreciatively, but in my mind I had the consensus view: Even if Apple did turn out to have some secret weapon, you could count on them to screw up the manufacturing or the supply chain.
Well that device turned out to be the iPod, and if you think about it now it's amazing that the company started its surge to the top ranks of American business with a little white device that only played music. There were a lot of player competitors at the time, but the iPod was different enough to catch your eye. The capacity was larger, it was easier to operate and it just felt very cool.
Suddenly Apple would be out of the domain of art directors and put its impeccable taste in the hands of consumers. That was Jobs' vision, and that was his contribution. He had a vision that design mattered, and that consumers would beat a path to his door if he could manufacture and market beautiful objects that performed a useful function at an affordable price. The brilliant effort to disintermediate the music industry from the album-selling process was another stroke of genius, as the 99-cent song and iTunes formed the foundation of the iPod franchise.
It actually took a long time for investors to appreciate this vision, and Apple shares did not start to take off until 2004. The reason was that people remained skeptical that Apple could match manufacturing and distribution prowess to its design success. After the company managed to bring out successive iPod models on time and without a hitch, shares broke out over their all-time high in early 2005, and then it was off to the races.
The iPhone came along in 2007, and the initial reaction was muted. Wireless pundits could not figure out why Apple would want to take on the handheld device world which was low margin and packed with dozens of competitors. But again Jobs' design vision -- one button?! -- and marketing cunning won the day with consumers, and the company's newfound ability to manufacture in Asia effectively won the respect of its Wall Street critics. The cycle of skepticism, cynicism and then awe has been played out repeatedly now with successive Apple products, as the iPad was subjected to the same doubts.
Now investors apparently assume that Apple is a one-man show, with a single individual guiding every aspect of this product development, operations and marketing. This makes sense, since Jobs has been the man out front all this time.
But insiders report that Tim Cook has been running the retail and operational show behind the scenes for more than five years now, and that Jonathan Ive continues to be the design genius most responsible for the engineering for which Jobs gets credit. They are confident that Jobs -- while irreplaceable -- has prepared the company for his eventual exit, which has been expected for the past half-decade since he was diagnosed with cancer.
Jobs will go down in the history books as the equal of Thomas Alva Edison, who founded General Electric; Henry Ford, who founded Ford Motor; John D. Rockefeller, who founded Standard Oil; and J.P. Morgan, who started a certain eponymous bank. None of these gentleman had their success handed to them on a silver platter, but persevered with a vision and business proposition that was uniquely suited to their times.
Cheap lights, cheap cars, cheap gas, cheap money -- and now cheap music and not-so-cheap, but still beautiful and ubiquitous, mobile communications and entertainment. All these companies survived their founder, and so will Apple.
In the meantime, we are lucky to have had an opportunity to witness Jobs emerge, grow and cast his spell in our lifetimes, and I certainly wish him a speedy recovery. And as for the stock, well, Apple has been one of the few great holds of the past few years. Yet it also regularly provides new entry points. The next buying opportunity should emerge this quarter.
