It’s been a week of melodrama for Apple, and the company’s investors and potential investors find themselves at a bit of a crossroads.
First came the bad news: On Monday, CEO Steve Jobs announced he was taking a leave of absence to focus on his health. He’s been battling pancreatic cancer and its aftershocks for years, and he’s living on a transplanted liver, so the fact that he’d need to take a major time-out isn’t all that unexpected.
As always, Apple’s keeping details regarding exactly how well or unwell Jobs is very close the vest. All we know is, he’s stepping aside and letting COO Tim Cook handle day-to-day operations, but Jobs will still be making the company’s Great Big Decisions, and he hopes to return to full-time work soon.
Even though Jobs’ health issues have been common knowledge for years, the market’s reaction was sharp and swift. The news came on Martin Luther King Jr. Day, and when trading resumed Tuesday, Apple shares had dropped more than 5 percent. That ended a steady climb investors had been enjoying since about mid-November as their stocks rose to an all-time high near $350 per share.
Just like the last time Jobs had to sideline himself for health reasons, Tim Cook will take over daily operations in his absence. Even though Apple’s lack of a publicly known, set-in-stone succession plan gives some investors the creeps, Cook’s generally viewed as a competent captain who can keep the company on track and follow through on whatever plans it has in store for the coming months.
The question that’s sent some investors running, though, concerns what happens after the next few months if Jobs still isn’t able to return. Planning out and executing the next umpteen generations of iPhones, iPads and Macs is one thing; dreaming up a totally new product that will turn a whole category on its ear all over again is another. Cook can take Apple to iPad 2 and iPhone 5 and beyond, but how well can he and the rest of Apple’s top execs dream up and launch the next iThingy a few years down the road? Can they kick down doors and twist arms with content partners the way Jobs can? Inspire the same maniacal following and get crowds frothing at the mouth every time they unveil a new toy?
Of course, Jobs is still very much alive. For all we know, he could return to top form in a couple of months and keep running Apple for years. But the uncertainty surrounding the company’s perceived visionary is compelling some investors to run far and fast.
Even so, the answers to those questions from before may turn out to be yes, yes and yes. Apple might look like a one-man show — the way all the attention seems to fall on Steve Jobs in a turtleneck demoing the latest must-have gadget in an immaculately prepared keynote or press event. But the team members surrounding him have very big roles as well. They’ve been doing what they do for a long time, and they’ve had practice at making things work while Jobs is away.
Even though investors may see fog in the future, looking back, it’s hard to see how things could have been much better for Apple in its most recently finished quarter, the first of its fiscal 2011. For the quarter that ended Dec. 25, the company pulled in a record US$26.7 billion in revenue. Yeah, the holiday season is typically Apple’s strongest quarter of the year, but look at it this way: Last year at this time, that figure was $15.7 billion. That’s an increase of 70 percent.
Profits enjoyed a similar rise, up 78 percent to $6 billion. Margins were a little weakened, though, which continues the trend we’ve seen in recent quarters. They stood at 38.5 percent, down from 41 percent in the year-ago.
New iProducts like the iPad and iPhone 4 led the charge for Apple’s big quarter, and Mac computers are also bringing in the bucks – Apple sold 4 million of them during the quarter, a yearly growth of 20 percent.
However, Cook admitted that as the company expands to new markets, it’s experiencing a significant backlog for one if its prime moneymakers, the iPhone 4. And that logjam could get even worse as Apple lets Verizon in on the iPhone starting next month.
Listen to the podcast (13:56 minutes).
I Take That Back
A couple of weeks ago, Goldman Sachs went about putting together aplan that would have given its bestest buddies in the world — itswealthiest clients — an unusual and very attractive opportunity. Itwas going to give them a way to invest in Facebook without having towait for the company to go public.
For some of Goldman’s clients, it might have sounded too good to betrue, and this week they found out that’s exactly what it was. Goldmanhas disinvited its U.S. clients from buying in on the deal — theoffer now stands only for its foreign clientele.
The problem was that media attention got way too hot. Facebook is ahot news topic, for good and bad reasons, and Goldman Sachs is a hotnews topic, mostly for bad reasons, and when they get mixed togetherlike that, they tend to become very combustible.
When someone leaked a memo from Goldman to its investors, regardless of whether it was intentional or not, it set off such a big amount of media interest that apparently Goldman started getting worried that people would interpret the situation as a general solicitation for investors rather than a private offer — and it’s illegal to make general solicitations for a privately held enterprise.
Facebook is still widely expected to go public next year, and perhaps then Goldman’s U.S. VIPs will have their chance to buy in, if they don’t mindslumming it with a bunch of commoners.
So Goldman had to call off the show and renege on the offer to U.S.investors. The firm’s already battling the SEC in that civil fraudlawsuit the commission filed last April, and maybe it decided it’sbest to take on just one major feud with the feds at a time.
I guess Goldman can try to spin this as a situation where the companyscored a deal so hot that it was just too much. Or maybe the companyjust got too proud of itself and couldn’t manage to keep a secret.Either way, it comes out the other side looking like it’s much moreworried about annoying the federal government than annoying itsbiggest customers.
I Take That Back Too
Last week, Facebook did something out of character. I’m not talkingabout implementing a new feature that might give users a little moreconvenience but also managed to get privacy advocates foaming at themouth. That happens all the time.
What was weird was that right after the backlash, Facebook backed off.The retreat’s probably temporary; the features will likely returnafter a little spit-shine — but this time, the social network quicklyreversed a policy when confronted with yet another great big privacyoutcry.
Granted, the policy in question pertained to user information many ofus consider pretty damn private: phone numbers and home addresses.Facebook said it was adding that info to its User Graph object,meaning that under certain conditions, it would be made accessible tothird-party application developers.
Not that Facebook was about to toss this stuff around willy-nilly.Users would have to explicitly allow that information to be shared foreach app that asked for it, and there was no way developers couldsomehow access your friends’ numbers and addresses. The whole idea wasto provide more personalized functions to certain apps and make stufflike e-commerce apps a little smoother to operate. I mean, people givethat information and a whole lot more to Amazon all the time, sowhat’s the big deal, right?
But not every third-party app developer on Facebook’s platform is ascareful with customer data as Amazon. Some might be OK, but others areweak on security, careless with the information entrusted to them, oraltogether dishonest, selling whatever info they can get to scammersand spammers. Facebook has its rules and standards, but it’s also hadproblems with third parties who don’t live up to them.
At least Facebook slapped an opt-in policy on this phone-number-and-address-sharing idea, but that didn’t impress some privacy advocates.They complained that the process of asking users whether they wantedto share the info was confusing and might imply that the user had toshare that data in order for the application to work, regardless ofwhether that was true. They also said the space between opt-in andopt-out is a slippery downhill slope when it comes to Facebook.
The timing of Facebook’s announcement was fishy too, almost like itwanted the information to be ignored. It posted its announcement on aFriday afternoon, the magic hour for airing dirty laundry you don’twant anyone paying attention to. Even more magical and dirty: It wasthe Friday before a three-day weekend in the U.S.
Facebook knows how to take a punch from privacy critics, and usuallyit’s pretty hard-headed about it. If it wants to add a new feature, itdoes it. Then it takes its whipping in the media, it loses a couplethousand members out of over half a billion, and it just keepsgrowing.
This time, though, it quickly decided to change course. By early inthe following week, it had announced it would put the decision onhold. We probably haven’t seen the last of it, though — Facebook’sgoing to give the system a few tweaks and updates, and it says itplans to relaunch it all over again in a few weeks.
Just Keep Digging
Last year, former HP CEO Mark Hurd abruptly left the company in the midst of a tawdry little scandal involving a few thousand bucks of fudged expense reports and an alleged improper relationship with a female associate. Not really a blaze-of-glory exit, but at least Oracle was happy to take him once he left HP.
That wasn’t the end of the affair, though, not by a long shot. Aside from the internal investigation that began uncovering Hurd’s dirty business in the first place, the Securities and Exchange Commission has stepped in to look at whether Hurd violated insider trading rules.
And now, HP is launching yet another internal investigation, this time in response to a shareholder lawsuit from HP investors who think the company allowed Hurd to stuff his pockets with freebies on the way out the door. The guy walked away with a severance package of around $30 million in cash and stock options. Golden parachutes are almost standard issue equipment for execs in large corporations, but HP’s angry shareholders say the company had more than enough information to fire Hurd outright and deny him the windfall.
Two relatively new HP board members who stepped in after Hurd took off will join an independent team of lawyers to dig into the matter.
Even though the investigation’s prompted by a bunch of displeased shareholders, perhaps HP’s leadership is in a way glad to get the chance to keep picking at the Hurd affair. Mark Hurd basically shut down the company’s first investigation of him – the one that motivated him to quit – by settling with the woman in question, Jodie Fisher. She received what was probably a nice fat check to keep quiet and move far away.
Now with this big shareholder mandate behind it, HP will continue digging and find out exactly what happened between the two. What its finds could even bump up against the inquiry the SEC is conducting. The SEC is looking into the possibility that Hurd told Fisher insider trading secrets related to HP’s $14 billion purchase of EDS before the deal happened in 2008.
If it turns out that really was what was going on, it’s going to make everyone involved look bad, to one extent or another – Hurd, Fisher, HP and Oracle. But sometimes knowing the bad news is better than not knowing whether there’s any news at all.
Follow the Dirty, Pretty Money
Wikileaks founder Julian Assange has a lot on his plate at present:He’s under the gun for alleged sex crimes in Sweden; various lawmakersin the U.S. want to him to fry for exposing government secrets; andthere are probably a few wealthy individuals who’d seriously considerpaying big bucks to shut him up permanently. Assange has attempted toinsure himself against that last possibility by promising to exposesome scandalous secrets about various power players if anything weirdhappens to him, like a piano falling on his head. One of those peopleis reportedly Rupert Murdoch, though for some people that sounds morelike an incentive than a threat.
Anyway, all those threats and dangers aren’t nearly enough to getAssange or Wikileaks to shut up. The site’s gearing up for yet anothermajor leak, and this time the Swiss banking industry is in thecrosshairs. A Swiss banker named Rudolf Elmer has forked over toAssange two discs of information that Elmer says are chock-full ofdetails about the dirty dealings that go on behind the scenes in thecountry’s famously secretive banking industry. Tax cheats, shadybusiness deals, the financial machinations of organized crimeoutfits — it’ll all be vetted by Wikileaks and, presumably, exposedfor the world to see.
The handoff didn’t happen the same way previous major info leaks havereached Wikipedia’s doorstep. Elmer actually gave the discs toAssange right out in the open during a press conference, andincredibly, nobody had little laser dots on their foreheads and thewater was apparently not poisoned. Once the information gets outthere, it’s quite possible that we’ll hear about some notable nameshaving run-ins with the IRS and other tax agencies.
While Assange has his share of supporters, he’s been vilified in somecircles over how his site exposed secrets of the Iraq War, theAfghanistan War, and sensitive communications between diplomats allover the world. They say he’s weakened national security and damagedties between countries. It’ll be interesting to see whether hedraws the same volume of criticism for exposing a bunch of tax cheatsand money launderers.