The late Apple (NASDAQ: AAPL ) CEO Steve Jobs had a zeal to protect the
company's secrets that bordered on the obsessive. His successor, Tim Cook,
appears eager to continue the tradition, which is a pity for shareholders.
Shares of the Cupertino, Calif.-based company are getting hammered because the
company only sold 17.07 million iPhones instead of the 20 million Wall Street
analysts had expected . As a result, Apple, which gets about 39% of its revenue
from the iPhone, posted its first disappointing quarter in at least six years.
Most other companies in the same situation would have informed the public ahead
of time that it would miss earnings estimates. Apple, as it has been said many
times, is not like most companies. Under Jobs' leadership, Apple usually kept
its secrets better than the mafia or the CIA. Instead of speaking for itself,
the company relied on surrogates in the technology press and analyst community
to speak for it. That strategy was effective for years and helped Apple create
an aura of hipness about its products that helped justify to consumers
including this one the premium prices the company charges. Apple's umbrella
of secrecy began to be punctured by the rise of the Google (NASDAQ: GOOG )
Android operating system, which now powers most of the world's smartphones.
Expectations were high that the new iPhone would be the " iPad-inspired
Droid-stomping iPhone 5" instead of the iPhone 4S, which got positive reviews
but left many disappointed. Again, this is a situation that would have been
avoided if Apple gave a clear and coherent reason for its product development
strategy, as most public companies try to do. The secrecy, which helped give
Apple a bigger pile of cash that's bigger than the U.S. government's, is not
going to work any longer in the post-Jobs era. Investors were willing to cut
Jobs some slack because he was one of the most brilliant executives of the
modern era. Cook, though an able CEO, does not have the same cache with the
public as Jobs. He will have to do a better job explaining why the company does
what it does because its inevitable things will not go as planned at some point.
Apple does not have to reveal all its secrets, but it seems reasonable for it to
provide investors with timely updates on the development of important products.
Had Apple been more forthright, investors would have paid more attention to the
many things in the last quarter that went right . They might have even taken the
company's claim that its current quarter, which includes the holidays, would
be its best ever more seriously. Even though iPhone sales were disappointing,
they were not bad either. They represented a 21% increase over the year-ago
quarter, which is a remarkable feat given that many Apple fans were waiting for
the iPhone 4S to launch which it did after the quarter closed. Apple also
posted a 26% increase in Mac shipments and a 166% increase in iPad shipments.
Not surprisingly, iPod shipments fell 27% as more people opt for iPhones which
can store music and act as a phone, among hundreds of other things instead.
Apple's many pals on Wall Street rushed to the company's defense as if it
were a damsel being tied the railroad tracks in a Wild West melodrama. Fortune
does a good job in assembling the mountain of verbiage written on the topic that
is filled with tortured metaphors about hiccups, black swans and mountain
climbers taking a breather. The true test of Apple's management team, though,
will come when the next thing goes wrong. People will wonder what Steve Jobs
would have done to avoid whatever calamity has befallen the company he
co-founded. Shareholders will demand answers, and Apple will have little choice
but to give them. As of this writing, Jonathan Berr did not own a position in
any of the aforementioned stocks. Follow him on Twitter at @jdberr.
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