Article by Henderson Global Investors â
Article by Henderson Global Investors — Reaction to Apple’s CEO, Steve Job’s resignation
Last night’s announcement that Steve Jobs, iconic CEO of Apple, is to resign should come as no surprise.
The Henderson Technology team have long been advocates of Apple having bought into Apple way back when the iPod was a mere twinkle in Jobs’ eye and shares were changing hands for USD$10. Apple represents approximately 10% of the Henderson Global Technology fund.
There’s no doubt the influence of Jobs has been hugely important in making Apple the company it is today. However, we believe Apple will continue its onward march not least because the market has been well aware of Jobs health issues and there is certainly no ‘Jobs premium’ built into Apple’s valuation. Let’s not forget he will continue to play an important guiding role as Chairman. Apple trades on forward PE of 11x which is only a small premium to the market. If you give some value to their huge cash pile on the balance sheet then it looks even more attractive, trading at a PE of 8.5x 2012 ex cash. This is cheaper than the market, cheaper than the Technology sector for a company that is exceptionally well positioned and grew revenues over 80% (year over year) last quarter!
It is not by chance that Apple is the success it is. This is a company that has a strategy well in place for the mid-term, is dominant in the tablet market — a market that has barely considered adolescence let alone maturity. In the smart phone market – though not the leader it still has around an 18 per cent share and we believe they are likely to gain market share through product leadership. It still only has single figure market share in the PC market and we believe they will continue to take share. So, there is plenty of room for growth from a hardware point of view. [Note also recent news that they are developing versions of its iPhone to capture the developing market].
This company does not wait to see what the market wants — it creates what the market did not know it wanted but when it has it, it wants more. It will continue so to do.
In appointing the hugely respected Tim Cook as successor the company should avoid power struggles, often the outcome of CEO changes. Tim Cook has worked with Jobs since 1998 — less than a year after Jobs returned to what was then an Apple in peril, has stood in as CEO on two occasions (in 2004 and 2009) during periods of Jobs’ extended leave. Cook knows the business inside out and has been the guiding hand alongside Jobs as Apple blossomed.
Also remember that this is a company that is extremely well integrated throughout the value chain. From hardware to software to operating systems right the way through to content – Apple is there. This is not just a product company and so has significant barriers to entry not least when you consider iTunes (turning the music industry on its head) and App Store — which has the effect of creating much ‘stickier’ customers. Through being vertically integrated they can now not only produce the best product but can do so at the best prices
Like the careful choreography behind its product announcements so to has this change in leadership at Apple. So, despite last night’s news we believe Apple will continue apace and while many companies may be revising earnings downwards in light of current economic concerns we believe that there is significant likelihood in Apple revising earnings northward.
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