Apple – At the Crossroads

The new cook is confirmed.

• Steve Jobs made it special while Tim Cook made it huge, meaning that John Ternus’ task is likely to be to make the devices so clever that no one would ever think of buying anything else.
• Apple has confirmed the rumour (see here) that Tim Cook would retire in September 2026, with the head of hardware, John Ternus, moving to take the reins.
• I have always thought that Tim Cook was not a very exciting leader, but he has been incredibly effective and was the right leader at the right time.
• Tim Cook became CEO in 2011 when revenues were $108.2bn and the market cap was around $300bn, and in his 15 years, he has quadrupled revenues and increased the market cap more than 10x.
• Whatever anyone thinks of him, he has been an extremely effective CEO and was precisely the right leader at the right time.
• Steve Jobs created the special products, while Tim Cook made sure that the company could make so many of them that everyone could buy one and that Apple would make very large profits while doing so.
• Employees, shareholders and users have all greatly benefited from his tenure, and so I think that his legacy is more than intact.
• John Ternus inherits a company in very good condition and where everything is working well, but it stands at a strategic crossroads.
• This is because the world of technology is rushing headlong into AI, and for the last 3½ years, Apple has sat on the sidelines, making only one half-hearted and dismal attempt to join the fray.
• Apple is really struggling in AI, but for the moment, it does not affect its ability to profit from the sale of consumer electronic devices.
• Apple joined the AI race over 10 years ago when everyone was getting excited about the potential of Siri, Google Assistant, Alexa and so on to add a new dimension to the user experience in the mobile digital ecosystem.
• Back then, the transformer architecture had not been invented, and there were no LLMs, which meant that everyone’s attempt at a voice assistant that uses natural language was pretty awful.
• Apple was worse than everyone else, but because everyone was pretty bad at this, it didn’t matter that much, and life went on with the main use case being setting timers, playing music and turning the lights on and off.
• Even Siri could do this, and so the fact that it was pretty awful didn’t matter that much.
• It still doesn’t, but there are signs that things are changing as LLM-powered assistants are now extremely good at communicating using natural language while Siri continues to languish.
• If voice assistants and agents become important, then Apple is in real trouble and building a dependency on Google is not going to solve the situation.
• Apple needs something high-quality and in-house to defend the ecosystem it has built from the likes of Google and OpenAI.
• This will require a big change in the way Apple thinks about AI, and I have long thought that the company would be best served with a fresh pair of eyes on the problem.
• John Ternus is the fresh pair of eyes, but given his background in hardware, I don’t know if he is the right person to work out where Apple fits in the new AI landscape.
• However, Apple also faces a potentially existential challenge from AI-powered glasses, which are selling like hot cakes and if they become ubiquitous, could replace the smartphone at the centre of the digital universe.
• Currently, Apple is way behind in this race, having gone down the road of virtual reality with the Apple Vision Pro, but this is where John Ternus has experience, and so I have greater confidence in his ability to fix this problem.
• The net result is that Apple’s board made the ideal choice in 2011, and as such, I have some confidence that my AI concerns may be ill-founded.
• Hence, I will reserve judgment until I can see precisely what he intends to do about the AI problem.
• The shares have been treading water for a year, which is not a huge surprise given the 32x 12-month forward PER ratio, and so I remain very indifferent to the shares.