How Jobs Figures Into Apple's Value (Morningstar)
Morningstar analyst Rick Hanna on the shorter- and longer-term implications of an Apple without Steve Jobs.
Pat Dorsey: Hi! I’m Pat Dorsey, Director of Equity Research at Morningstar. In the wake of Steve Jobs Departure from Apple of this temporally is worth asking, what is he worst to Apple? Is there any jobs premium and does Apple share price now, here and you know high 70’s bouncing around. After his departure, this count adequately whether Steve Jobs will be there over the long hole. With me is our Apple analysts Rick Hanna to talk to this issues. Thanks for joining Rick. Rick Hanna: Thanks Pat. Pat Dorsey: So, bottom line, I mean Steve Jobs leaves it’s you know feuds high force fear every Apples share holder, blah, blah, blah and the stock is down like 5%. Rick Hanna: Right. Pat Dorsey: You mean is just another day of the office right? Rick Hanna: Well, at least that’s been the case so with the last year although it may be 5% today but it really has been valid off within the last year. Every rumor of his debts or departure has move to stock insignificant ways. Pat Dorsey: So, the big question is when we got there share price you know high 70’s, after this quarter is how you make 30 bucks for share in cash. So, you’re only paying you know 40 bucks and you know until 40 or 50 bucks for the business, what trailing six bucks and free casual? Rick Hanna: No, it’s in the 9 to 10 dollar range and the iPhone is a tremendous cash machine as you will know is that it’s subsidies by the carriers so, Apple receives the cash of front and then it’s only recognize in the income statements for the life of the iPhone which is two years. So, last quarter was really to coming out, the iPhone contributed about 50% of the income out cash for the company. We think it’s still on an early stage growth for directory and we would think that we will carry the company very strong with the next year. So, with the metric you’ve announce I think it’s a very solid value story at this point with strong count cash balance sheet very, very good products line up, very good operations and the Operations Chief Tim Cook is taking over the daily responsibilities and his showing himself particularly on debt that may— Pat Dorsey: Sure, you can certainly make the trains run— Rick Hanna: I think so, yes. Pat Dorsey: We’ll get back kind a long run, kind of you know, product portfolio in a moment. So let’s talk about service and quality of this business for a moment, we’ve got, you know 489 bucks you were saying instead of trailing free cash low for share. Now, all you have to lay you know O9 publishing to be is good as O8 for the given to the American consumers whether if they are down for the count and you know iPhone sells is certainly hold up. And much stronger than one might of expected but it seems rational to though expect you know sells of a $300.00 phone with a recently pricy monthly plan to weaken at some point as sale unemployment goes— Rick Hanna: Sure. Pat Dorsey: From you know six to seven, eight to nine. That said would you expect the iPhone on the next of a pick could be even higher than this one for yourself. Rick Hanna: I think the iPhone will curiously certainly for the next one to two years. It’s hardly to call a pick because in my model I’m assuming that they’re going to come out with the range of iPhone products similar to what they did with the iPod. Pat Dorsey: So, possibly to lower the price on this? Rick Hanna: So, potentially lower price point, lower features that’s why—in fact in many ways the iPod touch is that low in iPhone if you will. It has a lot of the same—the touch interface, a lot of the same functionality on the phone with that—the ability to make phone calls. I would look to them to continue to build up that product portfolio and then maybe expanded on the high end. There is a lot of speculation that they’re going to try to fit of between a high in high iPhone and the low in laptops some sort of affordable internet, email certain device. Potentially even subsidies likewise with the carriers, but Apple is notoriously coy about giving a lot of there details about the product plans but a lot of this is kind of speculated not seems to make sense given how a lot of there product lines have evolved overtime. Pat Dorsey: So let’s move back to sort of you know were case scenario GTalk is not come back. You know is not a near termination because they had the iPhone, Apple typically, map saw this product portfolio you know could two to three years in advance. So, I mean they’ve got—this is all kind of it bake then already. You know someone is sitting in there and you know Apple headquarter. What happens that—for that those Steve Jobs doesn’t come back you know do you get the kind of innovation that you have you know three, four or five years from now or do you would that’s one all you that well? They’ve got there iPhone, it’s there knowing else that anything close that’s going to carry them. Rick Hanna: Yeah, I think it’s something like you certainly have to consider and I’m certainly handicap and you know we need at one starts you will know we do some scenario analysis around what the potentials outcomes might be. With Steve Jobs departure, I don’t see much different in the next one to two years just exclusively as a result of him maybe not being with the company. I’m far more concerned about the state of the consumer and its impact on Apples business. But its—it is in that three to five year time frame and the days end really whether in particular forks in a row whether a fundamental strategic decisions that the company needs to face and there’s a few examples in Steve’s history but I think he have been seminal in terms of really where Apple is today. Its operating system strategy, the iPod iTunes franchise that his really developed there adoption of the Intel base microprocessor and most recently the iPhone. I think his played very, very critical rules. It’s hard for you and I to sit here today to say what are the four open roads going to be in three to five years. Pat Dorsey: Sure. Rick Hanna: But I thinks it’s reasonable to assume that given that he was intimately involve in those decisions that you know it maybe the company does and is be you know is that a five percent premium, ten percent its really hard up and down but— Pat Dorsey: But we’re talking that issues that appear on three to four years from now. Even if Steve Jobs doesn’t come back and with you know the company with you know with $30.00 per share in cash you know and trading at a you know are you enabling single digit free casual and multiple. One would argue that a lot of this maybe they can restock it right. Rick Hanna: I absolutely think it is back into the stock and I think that you know a lot of the fear that’s really going into the current stock rise the current market on Apple stock is a little on founded given the fundamental strange of the company in terms of its software capabilities, the design capabilities I mean. I have notice to the last year Steve taking—what I think is more of unintentional—let me build up the lieutenant. I think he realizes that his mortal and I think that as a good executive of course you trying to fight your mortality but also need to recognize that I’ve rather do what’s good for Apple and Apple share hosts. I’ve got to develop my management team around me and I’ve seen some of the secondary in the lieutenants take agree responsibility whether that be keen of presentations would it that be key parts of product demonstrations. I think that will continue and I think that there’s a lot of talent that beyond Steve on me. He had of—he had surrounded himself with this talent and this talent is really don’t know the ones that they help him execute the strategy. Pat Dorsey: Okay, and thanks for joining me Rick! Rick Hanna: Thanks Pat. Pat Dorsey: I’m Pat Dorsey, thanks for watching.