What’s Next For Apple and Tim Cook

The Original Apple Logo. That’s Isaac Newton.

Tim Cook has juste celebrated his 10 year tenure at the helm of Apple. Under his reign Apple’s market cap went from $350 billion to $2.4 trillion. No other CEO has created more absolute value for shareholders. Sales went from $108b to $274b in 2020. Net profit went from $26b to $57b.

Before him Apple was being run by co-founder Steve Jobs. Not the smallest shoes to fill. Do you remember what was being said back then? Steve Jobs was Apple. Steve Jobs was the guy behind the 2nd coming of Apple. Steve Jobs was behind some of the most iconic innovation in consumer electronics. Steve Jobs was one of the greatest business man ever. Steve Jobs was celebrated. Steve Jobs was bigger than life.

So who’s Tim Cook? The supply chain guy? Not exactly the profile you look for when trying to inspire employees to create “insanely great” products. The Apple fanboys weren’t thrilled and worried that the company was destined to decline.

After ten year, Tim Cook can look back with satisfaction. Tim Cook has created more value than Steve Jobs. The question now is who is worthy enough to replace Tim Cook when he’s done? Who can take a $2.4t company to the next level? I’m sure they are looking at the supply chain employee list.

Tim has maintained Apple’s record of innovation and its brand. He took Steve Job’s creation and made it better and bigger. This is definitely a business school case study. This is the greatest business transition of all time.

Under Tim Cook, Apple exploited four trends:

1. Global supply chain – it has built an immense production network with China at the center.
2. Chinese consumers – $60b in sales, 5x what it was ten years ago. China loves Apple and Apple loves China.
3. Government were lax about tech giants with high market share – 60% revenue market share in America and a dominant position in OSs. Just look at the nice billions ($8b-$12b annually) it gets from Google in return for making it the iPhone’s search engine.
4. Low taxes – Thanks in part to legal structure using tax havens, Apple’s tax rate was around 17%

However these four trends are becoming less favorable.

1. Geopolitical tensions threaten global supply chains.
2. China under President Xi Jinping is becoming more unpredictable. His policies makes it less attractive to rely on Chinese consumers for 19% of sales.
3. Governments around the world are targeting big tech. Big tech are easy targets for regulators and politicians.
4. The tax bill is going up. A deal brokered by the OECD may gradually forcer multinationals to pay more tax.

The next ten years won’t be easy for Apple and Tim Cook. What’s the plan? Apple will continue to shift towards being a subscriber-based firm. It has over 1 billion users who enjoy an array of services (21% of sales). They have one of the most beloved brands. In a toxic digital world, people can trust Apple. Apple is still about beautiful designs and high-quality manufacturing. They will continue to advance and push innovation. The iPhone 13 looks promising (50x faster than the iPhone 4, first iPhone under Cook). They are also pushing deeper into health, news, entertainment, music, gaming and services. And it will continue to try to invent a new generation of hardware. The rumor of a iCar or iGlasses pops up from time to time. Apple is looking into pushing deeper into search.

Apple is also shifting part of their supply chain to America. Long-term assets have risen to 70%, from 38% when Cook started as CEO. I’m sure he’s looking at plans to pivot away from China in case things go sideway. But I think the company has navigated its relationship with China well so far. China is a large market for its product and services, but also Apple creates significant employment in China.

Tim Cook was a big believer in the App Store (Job was ambivalent). Cook understood the importance of network effects. He understood the economic mechanism in digital markets which makes big businesses even bigger. Cook pushed hard on the digital “flywheel”: the App Store attracts more app makers, which attracts more users, which attracts more developers and so on. Today there’s nearly 2m apps, which facilitate $643b in billings. Apple takes a big bite of that.

iPhone 13

A short comment on the new iPhone 13. Every announcement is predictable. There’s no surprises. Every iPhone announced isn’t a huge step up from the previous one. But little incremental improvements, consistently, for a long time is a recipe for success. A faster processor, a better camera, a better battery, higher memory capacity, and more expensive.

I’ve no clue how many they will sell, but I’m sure it will be a lot. There’s a fight among analysts that are trying nail exactly how many people will buy and upgrade their phones. There’s over 50 analysts covering Apple and many more on Seeking Alpha. I don’t have a particular insights. People are looking at wait time on the Apple website for demand signal, or supply constraint. I’m not that guy. All I can say is I’m invested in Apple for more than just a phone cycle and that has worked well.

Summary

There’s no doubt that the next ten years will be tougher than the first ten. How do you keep growing? How do you keep these fat 40% gross margins? The App Store commission are trending downward.

But who would have though that Apple would have been a $2.4t company ten years under Cook? Even $1 trillion was a massive milestone. The Apple today is a better version of the pre-Cook Apple. Tim Cook is likely to stick around until 2025 when his current stock grant fully vest (but I doubt it’s about the money).

Disclosure: Long AAPL