As you are probably aware by now, Steve Jobs has announced his resignation as CEO of Apple. Yes, the dreaded day has arrived. Unfortunately, his health appears to have deteriorated further. His letter reads:
“To the Apple Board of Directors and the Apple Community:
I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple”s CEO, I would be the first to let you know. Unfortunately, that day has come. I hereby resign as CEO of Apple. I would like to serve, if the Board sees fit, as Chairman of the Board, director and Apple employee. As far as my successor goes, I strongly recommend that we execute our succession plan and name Tim Cook as CEO of Apple. I believe Apple”s brightest and most innovative days are ahead of it. And I look forward to watching and contributing to its success in a new role.
I have made some of the best friends of my life at Apple, and I thank you all for the many years of being able to work alongside you.
Steve”The reaction in the stock is a drop of 20 points (approximately 5%) in after-hours trading. I remind you that after-hours is a very thinly traded market which tends to exaggerate moves. Either way, it is likely to be down a lot. Since April/may we have felt that the market’s risk profile had escalated and we reduced exposure(s) but we didn’t factor a change in Apple’s management. Be that as it may, this transition has been carefully orchestrated and will result in little interruption to Apple’s business. Steve, with the approval of Apple’s board, has chosen Chief Operating Officer, Tim Cook, to become the new CEO. Tim has already run Apple, successfully, for over a year and a half while Steve has been on medical leave. Apple’s stock price has risen while Tim has been in charge.
Next month, Apple will unveil two new iPhones. Recently, they signed up the largest telecom provider in China. They have a new iPad model ready to launch. Hewlett Packard, the world’s largest PC maker, has announced they are exiting the PC hardware business. From a valuation standpoint, I see a company that is trading at a P/E of 11 on next year’s earnings (if back you out $76 billion in cash) for a company that is growing 80% on top-line revenues and 125% on earnings. The immediate outlook for Apple is still very strong. It is tempting to take advantage of any irrational price swings in the next day or two. The biggest uncertainty (Apple’s succession plan) has now been settled, quite satisfactorily.
Disclosure: Alhambra Investment Partners is an owner of Apple common stock on behalf of clients and for its own account.