Apple – MasterChef

Looking for a new cook

• Tim Cook has done pretty much exactly what one would have expected since taking over, and he has done it extremely well, but he leaves a company facing potentially existential challenges that he was never the right person to address.
• It looks like Tim Cook will retire sometime in 2026, as he has hit 65 and has effectively been running Apple for nearly 15 years.
• The valuation of the company tells you everything you need to know about his tenure from a market capitalisation of $350bn when he started to around $4tn today, which is a compounded annual return of around 17%.
• Consequently, whether one loves or loathes Mr Cook, he has done a first-class job at taking what Steve Jobs invented and maximising value creation from it.
• However, although the financial statements reveal that Apple is in the best fiscal shape it has ever been, there are two challenges that could completely upend the company.
• These are:
  • First, AI: where Apple is really struggling, 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 think the company would be best served with a fresh pair of eyes on the problem.
  • Second, The Metaverse: which also has the potential to upend the digital ecosystem by rendering the smartphone obsolete.
  • This would be a market disruption similar to the one caused by the smartphone, but here, Apple has already made some attempts to address it.
  • This is the Apple Vision Pro, which is by far the best VR device available on the market, but is so expensive that hardly anyone has purchased one.
  • This gives Apple vital learnings should it ever have to make a move in this direction, but the market is showing signs of life elsewhere.
  • This is the smart glasses segment where Meta and RayBan have really brought it to life through the use of an LLM-based voice assistant, and demand is picking up.
  • Volumes remain a rounding error relative to smartphones, but it is growing triple digits with many new entrants into the space.
  • Taken to its logical conclusion, and should users start to use glasses more than smartphones, then the iPhone would have effectively become obsolete and Apple’s main revenue driver with it.
  • Apple has done some early groundwork on this, but already the Vision Pro is obsolete, and Apple is again playing catch-up in the other categories in this segment.
  • This will also require a big change and a willingness to take a large risk to navigate successfully, which again I think will be best served by a new pair of hands.
• The net result is that Mr Cook has done a great job of bringing Apple to scale, but I have long thought that he is not the right person to deal with these two issues.
• Hence, I will be looking for the replacement to be recruited with these two risks at the top of the recruitment agenda.
• Hence, I think that someone from outside the company is probably going to be a better option as a completely new mindset is needed.
• If the replacement is internal, I will be worried about more-of-same which is not what I think this company needs.
• Apple has been very successfully brought to this crossroads, but something completely new is required if it is to take the right path and maintain its hallowed status.