$AAPL – Or do you want to come with me and change the world?

by Dan April 27, 2016 3:45 pm • Commentary

Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?

Steve Jobs to John Sculley (1983)

Tuesday on CNBC’s Fast Money, former Apple Computer CEO John Sculley called in to weigh in on our panel discussion of whether or not the company’s best days are behind it, watch here:

There was a lot of Twitter hate thrown our way for having Sculley on. After all, he’s the guy who effectively fired company founder Steve Jobs in 1985. Most of the tweets went something like this:

But this historical view is sort of fascinating, because while we know Steve Jobs was a unique visionary, was he a great CEO for most of his career? What’s indisputable is that Jobs tenure at Apple (in a CEO capacity) in the early 1980s, despite some critical success with the Macintosh in 1984, was heading the company into financial ruin. And his performance at NeXt, (the computer company he founded in 1985 after his ouster from Apple) wasn’t exactly deserving of books and movies. It was Jobs’ triumphant return to the company in 1997 as adviser and eventual CEO (occurring out of desperation by both parties really, when Apple bought NeXt for $429 million) that the stuff of legend was made.

Yes, Sculley was a failed CEO of Apple, presiding over a lost decade. So was Steve Jobs the first time around. Jobs obviously saved the company years later with the iMac, iPod Macbook, iTunes, iPhone & iPad. But there’s the possibility that none of it would have happened if Sculley had not orchestrated the ouster of Jobs (was fired himself in 1993, and followed by two other failed CEOs) and at least kept the lights on before the company eventually aqui-hired Jobs with NeXt.

Back to the interview. While I don’t exactly agree with Sculley that a $200 billion revenue company like Apple (even in Silicon Valley) can pull genies out of a bottle on demand, his point about Facebook CEO Mark Zuckerberg’s 10 year plan, just laid out at their F8 developers conference, got me thinking about road-maps. It’s my view (and was my question for Sculley) that with investors concerned that the company has hit an innovation wall (only incremental upgrades to iPhone, declining growth in iPads, tepid Watch sales, slow uptake in services) with no new products to pick up slack of declining iPhone sales and the strong potential for product cannibalization in multiple categories, that a succinct product vision from the company, looking out a decade might very well excite investors. How does the company view the cloud, cars, the living room/smart home/IoT, fitness, social media, messaging, VR, AI etc, etc? And how do they view their positioning in these emerging technologies and others we may not even have thought of?

For the time being, what we mostly get from Apple are overproduced and under-delivering product launches (see their March iPhone SE & Watch band event, really??). They’re still trying to capture the magic of Jobs’ launches. But the big problem is that Apple’s last hit product, the iPad, came under Jobs, launched 6 years ago. Granted, since Cook became CEO in 2011, the company has doubled their sales from just over $100 billion. But that was Jobs’ $100 billion from his 10 year plan. Cook was a huge contributor before Jobs’ passing, and can take plenty of credit now, but the fact of the matter is that even Marissa Mayer could have executed Jobs’ ambitious iPlan.

The obvious problem is that Steve Jobs isn’t walking onto that stage anymore, which means no more reality distortion. Even if most sell side analysts, financial media and retail investors are still under the spell. There are no meaningful product surprises. And secrecy that used to be perceived to be about protecting great product ideas is now perceived as protecting the lack of new ideas.

If I am to become an Apple investor during this cyclical downturn, I’ll first want to have a better idea for their long term vision. Their reliance on one existing hardware product for two thirds of their sales has very recently become a liability for investors. Sculley kind of agreed.

That segment got some push-back from people I like and respect, like this tweet from one of CNBC’s Tech reporters, Jon Fortt:

But my point may become critical if I am correct about the course of Apple’s iPhone ASPs (due to the adverse effects on gross margins and pricing headwinds in growth markets like India (read here and here)). If that’s the case, communicating a longer term vision will be crucial., because on the product front, it seems that the only people on this planet who remain surprised and awed by Apple’s “clandestine” device updates are tech journalists and bloggers, and I’m beginning to think they’re faking it.

Apple stock’s steady downtrend from last Spring’s all time highs, down about 30% while the S&P 500 is flat, is no coincidence. The big money has been hip to the slowing of the smartphone cycle in the developed world and the challenges of maintaining margins in new growth markets like India. That relative weakness comes despite the company’s massive free cash generation, fortress balance sheet and dirt cheap valuation:

from Bloomberg

Lastly, a quote from Walter Isaacson’s approved/commissioned biography, the self titled Steve Jobs. In it Jobs describes his heir apparent, Tim Cook, (in chapter 35, page 458) as “not a product person, per se”. Sculley wasn’t a product guy either.

Apple is now run by a guy who’s far closer to John Sculley than Steve Jobs. Investors are bored. And the company may need to be more transparent about their vision for the future. The clock is ticking, and sadly its not doing so on an Apple Watch.