Is Apple without Jobs a compelling story?

Oct 7, 2011

In this issue:
» Bangalore is painful for commuters
» An Indian lesson for US' healthcare troubles
» Is the government to blame for SBI's downgrade?
» Cost of hunger in US was US$ 167 bn in 2010
» ...and more!
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While we were celebrating the victory of good over evil, a legend breathed his last and left the world. We are referring to the legendary Steve Jobs, the co-founder of Apple Inc. While the success of Steve Jobs and that of Apple is not really news for anyone, we'd like to share some very interesting trivia about the legendary icon. For one, he was a college dropout. He started a computer company in his parents' garage at the age of 21. You must note that he had neither formal technical training nor any real business experience. Then what was it that made him what he became?

The thing that made him a legend was his vision. He had an appreciation for technology and a grand vision for computers. He believed that computers could be much more than a hobbyist's toy or a corporation's workhorse.

But the thing that investors of Apple Inc have foremost on their minds now is what next? Will the company survive after Mr. Jobs? Would it continue to be the leading name in technology? No one can be sure of the right answer to this. History has taught us that innovation alone cannot be the key for long term success. See the examples of Sony, RIM (makers of Blackberry) and Nokia. All these companies were the pioneers of innovation in their respective fields. But at some point or the other, they ran out of 'fizz'. A main reason for this is that they became complacent of their success. They assumed they were the best and that would drive their success forever.

We believe that herein lies a very important lesson for lay investors. For being successful, the company needs to have the right combination of innovation and visionary leadership. But if the leadership is limited to just one person, then there is a very good reason to question if the company will even be able to survive let alone replicate its growth in the years to come.

Do you think the companies that are very dependent on key people can remain good investing options for the very long term? Share your comments with us or post your views on our Facebook page

 Chart of the day
Driving to work is increasingly becoming a pain for most commuters who reside in big cities. Ask anyone in Mumbai or Delhi and the reply would be that they would prefer not to drive to work. The reason - the roads, traffic and hassles of parking are just not worth the effort. A recent survey carried out by IBM listed the top cities that are most painful for commuters. Interestingly, Bangalore ranked as the sixth most painful city for commuters. Severe shortage of parking space was a key reason for this. Delhi was the seventh most painful city. Fortunately the listing was not as high as that for Mexico or Shenzhen but unless the issues of road infrastructure are sorted out quickly, Indian cities would start moving up the ranks.

Data source: IBM

India may still be quite some time off from innovating new drug molecules, but it has made increasing strides in the medical devices and diagnostics market as well in the quality of healthcare provided by hospitals. And this has not gone unnoticed by the US. The healthcare spending in the US is one of the highest in the world and this does not bode well in an environment where the country is reeling under the impact of recession and massive debt. That is why many American industry leaders believe that the medical industry can find inspiration in India's ability to provide low-cost, high-quality health care. In this regard, the GE CEO Jeffrey Immelt opines that more medical industry innovations will occur in India than in any other part in the world. In India, healthcare spending largely happens from the consumer's wallet as opposed to the US where it is paid by the government. That fact, Immelt believes, is what has propelled India to come up with low-cost, highly innovative ways to address health care. That the quality of healthcare has improved can be gauged from the various successful surgeries that have been performed at hospitals. Having said that, the Indian government still lags way behind the private players in terms of providing healthcare and some more initiative from the former will go a long way in taking the quality of healthcare to the next level.

Government inaction is not a new phenomenon in this country. Our not-so illustrious history is peppered with such examples. The latest is the recent downgrade of the nation's largest bank by rating agency Moody's. The main reason cited for the same was the State Bank of India's (SBI) inadequate capital adequacy situation. The bank's tier-1 (core capital) ratio stands at 7.6% as of June 2011. The required ratio is 8%. But, SBI cannot be faulted on this account. For almost over a year now, it has been trying to raise about Rs 200 bn through a rights issue. The government has however so far just sat on this proposal. In an uncertain economic environment, a capital cushion is necessary. According to an article in the Hindu Business Line, the government should take the rap for denying its flagship bank the comfort of capital. The bank needs capital, and needs it quickly. Now the Center needs to either subscribe to its share of a rights issue. Or it needs to allow a proposal for its stake in the entity to fall to 51% or lower.

There are various ways in which the rich poor income disparity for a nation can be arrived at. One is of course the inflation. If it is much higher than long term levels, then only a select few seem to be gaining at the expense of many and thus, leading to a growing rich poor divide. Another indicator could be the growth in real wages. If a growth in an economy is not accompanied by a growth in real wages or is leading to much lower growth than the GDP growth, then this could also mean that the gap between the rich and poor is widening. Yet another approach has been identified by the US based Brandels University. And this approach is nothing but calculating the cost of hunger. Using this yardstick, the university has opined that the rich poor divide has widened in the US since the onset of the current recession. This is because the cost of hunger has jumped up to US$ 167 bn in 2010 as opposed to US$ 90 bn in 2005. What more, the number of food hungry and insecure Americans in 2010 rose 30% from 2007. This is one more illustration of the fact that stimuli worth trillions of dollars have done nothing to improve the plight of ordinary people in the US. All it has done is to give a boost to speculative activities rather than create jobs in the economy. We hope the policymakers are listening.

Many have called the Reserve Bank of India (RBI) an extremely conservative central bank. Its 'baby steps' in trying to rein inflation have also been criticized by many. The regulator has very recently become the target of contempt for Indian importers as well. Its wait and watch approach for intervening in the currency markets has dealt a heavy blow to India's trade deficit. The rupee's 11% depreciation against the US dollar in a matter of 2 months has not gone down well with the government. But ex RBI chief Dr Bimal Jalan believes that RBI's intervention in currency markets cannot be in tune with expectations. For if the RBI gives in to those or sets targets for the rupee's exchange rate, there may be speculations. Dr Jalan who presided over the central bank during the Asian Crisis in 1997 believes that the RBI needs to act decisively be it while managing inflation or currency rates. Further the policies need to be flexible depending upon macro indicators. More importantly, there needs to be very little doubt in investor's minds about the RBI's ability to set things right. We think that instead of leaning towards short term goals, investors too need to look at the bigger economic picture and try to understand the RBI's stand.

Due to a vibrant job market, India Inc was grappling with the problem of high attrition levels. Better opportunities elsewhere and high pay packages lured the industry graduates. However, it seems that the current crisis and resultant uncertainty prevailing in the job market has made employees circumspect in switching positions. According to a survey conducted by a hiring agency, attrition level in the second quarter of the current fiscal has declined by about 18%. Although Information Technology and banking services have witnessed double digit attrition rates, even they have declined when compared to the preceding quarter. It is interesting to note that India ranks as one of the top countries in the world as far as employment switchover is concerned. Hence, organizations will have to devise various ways to retain talent apart from tendering the money bait. Engaging in development initiatives could be one such way. If not, the attrition levels may revert to the historical highs once the overall macro-environment improves.

In the meanwhile, the Indian stock markets have been rallying upwards today. At the time of writing, the benchmark BSE Sensex was trading up by 424 points (2.7%). All the sectors were trading in the green with maximum gains witnessed in banking and realty sectors. Barring China, the Asian stock markets too were witnessing strong gains with Hong Kong and Korea leading the pack of gainers. The European stocks markets have opened on a mixed note.

 Today's investing mantra
"Apple has some tremendous assets, but I believe without some attention, the company could, could, could - I'm searching for the right word - could, could die." - TIME Magazine

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3 Responses to "Is Apple without Jobs a compelling story?"

Atul Raval

Oct 7, 2011

Thanks for excellent views on current topics of interest.



Pradeep Doshi

Oct 7, 2011

Visionary leadership and innovation is what made Apple, a miniscule company of 6 billion overtake Microsoft, a 250 billion company (both mcap data of 1995) in about a decade and that too without following traditional marketing principles. Many companies have been innovative, but lacked suatained vision and hence got complacent and lost the race both in terms of business and branding as well as innovation. However, true leaders rub their enthusiasm on their co-workers and generate next generation leaders. Such a company would certainly be worth investing.



Oct 7, 2011

No Take the indian example AM Naik led LNT for years without really creating successors. When he leaves, the people who are going to lead will find it tough because so far AMN was driving them.

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