Wednesday 17 January 2018

Twilight of the iGod

As the Apple boss bows out, investors hope he has put systems in place to ensure the hit products keep on coming

This week's resignation by Steve Jobs as chief executive of Apple almost certainly marks the end of one of the most remarkable business careers in modern business history.

Over the past 35 years the former college dropout has presided over a series of innovations that have transformed the world we live in.

While not entirely unexpected, news of his resignation still came as a shock with the Apple share price initially falling by as much as 6pc following the announcement.

Ever since he was first diagnosed with pancreatic cancer in 2003, there have been periodic worries about the impact of Jobs' health on the company's future prospects. Indeed in August 2008 business news service Bloomberg mistakenly published his obituary.

In 2004 Jobs had a tumour removed from his pancreas. Then in 2009 he took a medical leave of absence from Apple and received a liver transplant. Yet despite enduring recurring ill-health over an eight-year period, Jobs remained in situ as Apple chief executive.

The prognosis for pancreatic cancer is typically very poor, with the average life expectancy from the time of diagnosis averaging between five and eight months.

Only five per cent of sufferers survive for five years or more. That Jobs has managed to do so for eight years is truly remarkable.

Until this week, at any rate. On Wednesday, in a letter to the Apple board, Jobs announced his resignation as chief executive.


"I have always said that if there ever came a day when I could no longer meet my duties and expectations as Apple's CEO, I would be the first to let you know. Unfortunately, that day has come", he wrote.

While Jobs will continue as Apple chairman, it is generally accepted that, given the severity of his illness, his time at the company is coming to an end. For a company that was founded so completely in the image of one man -- Jobs -- this inevitably raises questions about Apple's future.

The Irish-American novelist F Scott Fitzgerald once famously wrote that: "There are no second acts in American lives".

Yes there are if your name is Steve Jobs, and third, fourth and many more acts besides. Ever since he co-founded Apple with Steve Wozniak in 1976, Jobs has occupied a central place in American business and culture.

When Apple was first founded 35 years ago the microchip revolution was only just beginning.

Most computers were still the size of small houses and the notion that there would soon be a computer on every desktop and in every home seemed incredibly far-fetched.

Over the next eight years the upstart Apple launched a series of ever-more powerful personal computers culminating with the Macintosh in 1984.

Way back in the early 1980s IBM was the undisputed king of the computer jungle. Stung by Apple's success it launched its own personal computer, the PC, in 1981.

Crucially, unlike Apple, IBM allowed other manufacturers free access to the PC format. This ensured that it was the PC, powered by Microsoft's MS-DOS operating system, rather than the Macintosh which prevailed in the "format wars".

However, without the spur provided by Apple, it seems likely that it would have taken much longer for the microchip revolution to bring computing to the masses.


By doing so, the Macintosh and its predecessors changed our world forever.

Apple grew rapidly and its December 1980 IPO created more millionaires, over 300, than any previous stock offering. Jobs recruited former Pepsi boss John Sculley as chief executive in 1983. The two men quickly fell out and, after failing to oust Sculley, Jobs was fired from Apple in 1985.

His ejection from Apple merely encouraged the driven Jobs to strive even harder. He acquired Star Wars director George Lucas' special effects company in 1986 and renamed it Pixar.

Pixar was one of the pioneers in the emerging field of computer animation producing such box office hits as the 'Toy Story' series, 'A Bug's Life' and 'Finding Nemo'.

The 12 Pixar-produced movies have averaged US box office grosses of over $600m (€414m) each, by far the highest recorded by any studio.

In 2006, Disney acquired Pixar for $7.4bn in an all-share deal.

Jobs, who owned 50.1pc of Pixar ended up with a seat on the Disney board and a 7pc Disney stake, making him by far the largest shareholder in the media group.

Jobs' other major investment during his Apple exile was NeXT, which sought to develop high-end personal and business computers and software.

In late 1996 Apple purchased NeXT for $429m in cash and reappointed Jobs to its board. In July 2007, Gil Amelio was ousted as Apple chief executive and Jobs regained full control of the company he had founded 21 years earlier.

During his second term at Apple, Jobs oversaw the introduction of a series of innovative new products including the iPod, the iPhone and the iPad.

His genius lay in persuading consumers to shell out $500 for new must-have products which they had never previously realised they needed.

The Apple strategy was to eschew the low-margin, mass market and concentrate instead on high-end products. The Apple smartphone and the iPhone are very good examples of this.

According to the latest figures, it holds just over 5pc of the total smartphone market but accounts for 65pc of the profits generated from smartphones by manufacturers.

Or put another way, each iPhone shipped generates something like 25 times the profit earned by competing smartphones from other manufacturers. The success of a series of new products has sent the Apple share price into orbit.

Adjusting for the 2000 and 2005 stock splits, the Apple share price stood at just $3.25 when Jobs returned as chief executive in 1997. Even after this week's fall it still stood at $382 on Friday.

With annual sales of more than $65bn and after-tax profits in excess of $14bn, Apple briefly overtook Exxon Mobil earlier this month to become the world's most valuable company.

And now the company's driving spirit has gone. For most of the past 35 years Apple was Jobs.

The company was a reflection of his obsessive, egotistical personality. He has presided over a secretive and paranoid corporate dictatorship.

Many former employees have described Jobs as the boss from Hell who had no hesitation chewing out those whom he regarded as failing to live up to his impossibly high standards.

Jobs' Apple may not have been a nice place to work, but it certainly delivered the goods. How will the company perform under his designated successor Tim Cook?

While Apple has enough new products in the pipeline to last another 18 months, what happens then?

Apple is in many ways a victim of its own success, stuck on a treadmill needing to maintain a constant stream of innovative new products as the margins on existing product line-ups are gradually competed away by rival manufacturers.

The iPod is a good example of this. A must-have when it was introduced in 2001 it is now rapidly becoming a commodity item.

Investors will be hoping Jobs has put in place the systems to ensure that the hit products keep coming and Apple retains its sure touch under Cook. If it does, that would be Jobs' final outstanding achievement.

Irish Independent

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