While most of the eastern seaboard was preparing for Sandy, Apple (Nasdaq:AAPL) was busy firing two of its most prominent executives in a move heard around the world. On Oct. 29, CEO Tim Cook dropped the hammer on Scott Forstall, the head of mobile software, and John Browett, head of its retail stores. Any time there's a shakeup of this magnitude, investors go to work assessing the damage of such moves. Is this good or bad for Apple? I'll have a look.
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While its retail stores accounted for just 11.7% of overall revenue in the third quarter, they are a major advertising vehicle for the iPad, iPhone and all the other electronics Apple sells around the world. Any kind of bad press isn't a good thing for Apple and the firestorm Browett created in the past year with his caveman-like view of retail operations simply wasn't right for a firm so fixated on the customer experience. Browett initiated a widespread reduction in employee hours in August intended to boost the retail profitability of its stores. Employees were furious and customer service suffered. He was forced to rescind the moves almost immediately but the damage had already been done. Browett, whose reputation at Dixon's, an electronics retailer in the United Kingdom where he worked before Apple, wasn't flattering, making his hiring by Cook a curious one. Board member Mickey Drexler, CEO of J. Crew and Gap (NYSE:GPS) before that, never even met the man. A retail legend and you don't even bother to vet the candidate with Drexler? It was a rookie mistake by Cook that couldn't continue given its second consecutive soft quarter, at least by Apple's standards. The sign of a good CEO is someone who's able to quickly correct his or her mistakes. Cook has done so with Browett. You can be sure Drexler will be a part of the replacement's hiring. I'd call this a win for investors.
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Speculation as to why software chief Scott Forstall was fired include faulty products such as Siri and Apple Maps, slow development of Apple's iOS mobile operating system and an unbearable ego making it impossible for other senior executives to work with the man. Each of those issues on its own probably wasn't enough to get Forstall fired; however, the combination of all of them likely didn't help. The straw that broke the camel's back was Forstall refusing to sign the public apology letter to Apple customers for the flaws in Apple Maps. Cook signed the letter instead and Forstall's fate was sealed. Forstall knew the mapping software wasn't ready for public consumption and yet he sang its praises at a developer conference in June and then let his boss look really bad at the iPhone 5 launch in September. The fastest way to get demoted or better yet - fired - is making your boss look bad. Getting rid of Forstall is another move in the company's evolution from Steve Jobs to Tim Cook. Cook's vision for the future is a company where everyone works towards its goal of making the best products in the world. Forstall appears to have been operating under his own vision of the future and the new Apple couldn't survive with this kind of political infighting. Although Forstall had become a thorn in the side of other senior managers, the fact that he's not leaving immediately indicates this dismissal was harder to make for Cook.
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The Bottom Line
Tim Cook has taken Apple in a more corporate direction at a time when it needs to be more structured. With Microsoft (Nasdaq:MSFT), Google (Nasdaq:GOOG) and Samsung nipping at its heels, it can't afford to have any loose cannons running around. My brother asked me the other day if he should sell his Apple stock and I told him no, he shouldn't. Tim Cook's vision for the company is just like the Three Musketeers - "One for all and all for one!" Both dismissals support this idea. Long-term, Cook will be happy it was he, and not Forstall, who signed the apology letter. It sends a message to employees and investors alike that accountability matters.
At the time of writing, Will Ashworth did not own any shares in any company mentioned in this article.