Apple Supply Chain Mastery Is Key To CEO Tim Cook's Success

By Peter Henderson and Poornima Gupta

SAN FRANCISCO (Reuters) - Tim Cook is no Steve Jobs when it comes to leading Apple Inc. As the debut of the new iPhone 5 just proved, that may not be a bad thing.

The taller, thinner and lighter phone prompted a rush on Wall Street to raise price targets for Apple stock, but the optimism was not because of a big technological advance or design breakthrough; the "wow" factor that was the trademark of the late Apple co-founder Jobs was decidedly absent.

Rather, it was the speed of the global launch that astounded, validating the new CEO's much-touted wizardry at the essential but unglamorous task of managing a supply chain.

"We are positively surprised regarding the pace of the rollout, since we had expected a bigger impact from component constraints," Barclays analyst Ben Reitzes said.

By next Friday, the iPhone 5 will be in 31 countries, and will be in 100 by the end of the calendar year. That would be 30 more than the rollout of the predecessor phone, the 4S, over a similar period, Jeffries analyst Peter Misek calculated.

That means Apple has worked out supply constraints and inked deals now with 240 carriers. It will get enough phones out the door in the next 10 days to have a material effect on earnings.

"His skills fit the time period and the flow of product," said Raymond Miles, professor emeritus at Haas School of Business, University of California, Berkeley, adding that Apple may be at a stage where it needs "someone with a production vision."

The iPhone launch offers some other, subtler indications of how Apple is changing under Cook. In public events, Jobs stood out in his black turtleneck, and performed carefully crafted one-man stage shows. At the press event for the iPhone 5, Cook blended into a pack of executives all sporting a uniform of jeans and untucked casual dress shirt.

Indeed, one might say that practical, low-flash, but high-impact actions are emerging as the Cook trademark. He has introduced a dividend to pay out part of the more than $100 billion cash stockpile, raised salaries for a rabidly loyal but low-paid workforce in the Apple stories, and sped up product rollouts.

Under Cook, more Wall Street analysts have been invited to headquarters to talk to executives, particularly Chief Financial Officer Peter Oppenheimer and head of Internet services Eddy Cue. Cook himself addressed investors at a Goldman Sachs conference, a rarity for Apple executives, and initiated investigations into allegations of labor abuse in its supply chain.


Insiders say he is a refreshing presence after the prickly Jobs, who was admired but feared. Cook is also known for his ability to track vast amount of data and zero in on a critical parameter.

One person familiar with the CEO notes that under Cook, the company has continued to rapidly increase its revenue, retain all the senior executives, maintain its product rollout schedule and avoid huge blunders.

On the flip side, the imbroglio over the sub-par mapping software in the iPhone 5 suggests that Jobs' obsessive perfectionism and attention to user experience is already being missed.

Apple Maps, which offers soaring 'flyover' views of major cities, has displaced Google Maps on the new iPhone software. But the new program has no public transit directions, limited traffic information, and flat-out mistakes, such as putting one city in the middle of the ocean.

"Apple made this maps change despite its shortcomings because they put their own priorities for corporate strategy ahead of user experience," said Anil Dash, a widely followed technology pundit, reflecting widespread annoyance and consternation.

Jobs would have put the whole company to work on the problem, as each negative review of the widely used feature would have irked him, said the person familiar with Apple's inner workings. The issue facing Cook now is how fast he reacts to the Maps problem and how quickly it gets fixed, the person said.

Jobs himself allowed email synchronization software MobileMe to launch in 2008, to deadly reviews. Fortune magazine reported Jobs telling the entire development group, "You should hate each other for having let each other down" and immediately replaced the group's head.

"No CEO, not even Steve Jobs, would be able to catch all the problems in every new feature of a new complicated product, like the iPhone 5," said Harvard Business School professor David Yoffie. "The big question is how will Tim respond now?"

More broadly, there is also the question of whether Apple under Cook can produce products that are revolutionary rather than evolutionary. His products thus far - the iPhone, the new iPod line and an expected iPad mini - represent improvements, rather than game changers.

In the meantime, Cook is topping Jobs' sales record: IPhone 5 preorders hit 2 million in 24 hours, twice the level of the 4S, and analysts expect a smaller iPad mini in October.

Investors do not seem to need much more convincing about Cook's ability to captain the ship: the average price target for Apple stock is now $763, up 6 percent from a month ago, thanks to analysts raising targets in the wake of the "wow-less" launch event.

(Editing by Jonathan Weber and Mary Milliken)

Tim Cook Goes To China

5 Things Tim Cook Is Doing Better Than Steve Jobs

Popular in the Community