What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.”
No, Steve Jobs has not yet learned to speak from the beyond. His words are from a 1995 interview, called The Lost Interview 2. See it here.
In the segment I’ve edited into quotes (which starts at about 38 minutes), Jobs complains how Apple milked the Macintosh for profits and left itself vulnerable to disruption and market share collapse. All that happened, of course.
Connie GuglielmoForbes Staff
Jobs is unnecessarily cruel to his successor John Sculley. The Apple board of directors, recall, picked Sculley over an increasingly erratic Jobs after Jobs forced a him or me decision in 1985. The Jobs we remember as this generation’s greatest CEO only became great in his second go at Apple. In other words, the naturally brilliant and charismatic Jobs matured into the role of CEO only after a stretch of pain, suffering and self-reflection.
But I digress. The main point of today’s blog is that Apple is once again edging toward the danger of milking its cash cow – now the iPhone – too hard and long. This could leave Apple vulnerable to market share stagnation.
You can understand Apple’s conundrum. In 2012, the iPhones’s gross profit margins were close to 55%. That is truly wonderful, but it is also unsustainably high now that Android-Samsung and Windows 8 are getting their acts together. The iPhone profit train now accounts for 65% of Apple’s overall profits.
The math is troubling. Apple is hitched to an unsustainable force. Nearly two-thirds of its profits comes from a product with unholy margins. Such a formula is not built to last. Shareholders are waking up to this fact. This is why the world’s most valuable company is trading at a weirdly low 11 times forward earnings even though it recently introduced a 1.9% dividend.
If you disagree with me, then Apple, which is down 22% in 10 weeks, is too cheap to resist. Back up the trucks and buy as much as you can. But it’s also possible that Steve Jobs might be right once more.
Advice to Apple: Investors have stopped rewarding you for your huge iPhone profit margins. So shift the model. Follow Steve Jobs’s 1995 suggestion and try more aggressively for global market share.