Company results season, wealth creators score hat trick against wealth destroyers

By Tom Harris 21 Jul 2010 [0 Comments | 1,381 views]

In some ways the results coming out of Wall Street illustrate the point.

The last few days have seen results from Apple, Google, Yahoo and Goldman Sachs. That’s quite a contrast, isn’t it? What have the profits at the world’s most influential, or is that controversial, bank got to do with the news from the three big techs?

Well, actually, quite a lot.

Apple’s halo has received a nasty shock

The iPhone 4 has been hit by problems that remind one of Apple in the bad old days of the early 1990s. Steve Jobs is on the back foot, and hasn’t dealt with it well. Despite this, profits soar yet again.

The story of Apple, and the up and down career of its boss Steve Jobs, is surely one of the most interesting tales out there. In the early days, Apple did things differently from the rest of tech land. While the rest of the world went IBM compatible, Apple stayed with its proprietary software.

In those days there were two types of people in the world. Those who loved their Mac, and those who just couldn’t work out what the fuss was all about. The one big thing Apple had in its favour was that its products were considered to be the best for the publishing industry. And so it was that its biggest fans were amongst the press.

That’s a nice trick. If you are going to have a small fan club, just make sure it is made up of the media. When opinion formers love you, then you have got something worth holding on to.

You may recall, Jobs got fired from Apple. He managed to lure in a big-wig from Pepsi, John Sculley, as his CEO, but the two men fell out and in 1985 he was ousted from the company he formed by the man he recruited.

It seems unfair, but back then Jobs had a reputation for being difficult. And for years business textbooks cited the story as an example of why a company’s founders are not necessarily the right people to run it when it expands.

But Apple post-Jobs was a mess. At one point it launched an education machine called the Pippin; it was subjected to a blaze of marketing hype, and was a complete, runaway disaster.

In 1996 Jobs was lured back, after Apple bought his company NeXT. It took a few years, but finally with the launch of the iPod the company became the wonder firm it is today. It got itself a halo, and Jobs, or so the world decided, could walk on water. And during those wilderness years, by the way, Jobs bought a company from Lucasfilm and changed its name to Pixar. He did a big deal with Disney, then fell out with the company’s boss, but a boardroom coup at Disney ultimately left Jobs as the biggest shareholder in the famous film/theme park company.

In its latest quarter, Apple made profits of $3.25bn, compared to just $1.83bn this time last year. (‘just’ $1.83bn? It is not that long ago that the company was hailing its first quarterly profits in excess of a billion dollars.) Apple’s growth in profits since the launch of the iPod goes beyond the extraordinary.

But the iPhone 4 has not gone down well. Essentially it is a mobile phone that can act as a computer, but which isn’t very good as a mobile phone. Jobs has not dealt with the problem well. In fact in some ways one is reminded of the old Jobs in the early Apple years. Rather than rushing in to correct the error, making a humble statement and doing all it could to correct the damage to its reputation, Jobs started slagging off the opposition, talking about how bad their phones are.

Apple remains haunted by the problem of proprietary, and is reliant on a continuous stream of innovative designs. Its long-term strength requires the company to gain more corporate supporters. The range of apps that support iPhone is impressive, but ultimately this company’s long-term success depends on other companies selling iPhone compatible phones and computers. And open standards do not come naturally to Jobs.

And that brings us to the other miracle tech company: Google

See: Google, too, sees profits leap and Ya Who?