Apple’s Ludicrous Secrecy Fetish


The late Apple (NASDAQ:AAPL) CEO Steve Jobs had a zeal to protect the company’s secrets that bordered on the obsessive. His successor, Tim Cook, appears eager to continue the tradition, which is a pity for shareholders.

Shares of the Cupertino, Calif.-based company are getting hammered because the company only sold 17.07 million iPhones instead of the 20 million Wall Street analysts had expected. As a result, Apple, which gets about 39% of its revenue from the iPhone, posted its first disappointing quarter in at least six years. Most other companies in the same situation would have informed the public ahead of time that it would miss earnings estimates. Apple, as it has been said many times, is not like most companies.

Under Jobs’ leadership, Apple usually kept its secrets better than the mafia or the CIA. Instead of speaking for itself, the company relied on surrogates in the technology press and analyst community to speak for it. That strategy was effective for years and helped Apple create an aura of hipness about its products that helped justify to consumers — including this one — the premium prices the company charges.

Apple’s umbrella of secrecy began to be punctured by the rise of the Google (NASDAQ:GOOG) Android operating system, which now powers most of the world’s smartphones. Expectations were high that the new iPhone would be the “iPad-inspired Droid-stomping iPhone 5” instead of the iPhone 4S, which got positive reviews but left many disappointed. Again, this is a situation that would have been avoided if Apple gave a clear and coherent reason for its product development strategy, as most public companies try to do.

The secrecy, which helped give Apple a bigger pile of cash that’s bigger than the U.S. government’s, is not going to work any longer in the post-Jobs era. Investors were willing to cut Jobs some slack because he was one of the most brilliant executives of the modern era. Cook, though an able CEO, does not have the same cache with the public as Jobs. He will have to do a better job explaining why the company does what it does because it’s inevitable things will not go as planned at some point.

Apple does not have to reveal all its secrets, but it seems reasonable for it to provide investors with timely updates on the development of important products. Had Apple been more forthright, investors would have paid more attention to the many things in the last quarter that went right. They might have even taken the company’s claim that its current quarter, which includes the holidays, would be its best ever more seriously.

Even though iPhone sales were disappointing, they were not bad either. They represented a 21% increase over the year-ago quarter, which is a remarkable feat given that many Apple fans were waiting for the iPhone 4S to launch — which it did after the quarter closed. Apple also posted a 26% increase in Mac shipments and a 166% increase in iPad shipments. Not surprisingly, iPod shipments fell 27% as more people opt for iPhones — which can store music and act as a phone, among hundreds of other things — instead.

Apple’s many pals on Wall Street rushed to the company’s defense as if it were a damsel being tied the railroad tracks in a Wild West melodrama. Fortune does a good job in assembling the mountain of verbiage written on the topic that is filled with tortured metaphors about hiccups, black swans and mountain climbers taking a breather.

The true test of Apple’s management team, though, will come when the next thing goes wrong. People will wonder what Steve Jobs would have done to avoid whatever calamity has befallen the company he co-founded. Shareholders will demand answers, and Apple will have little choice but to give them.

As of this writing, Jonathan Berr did not own a position in any of the aforementioned stocks. Follow him on Twitter at @jdberr.

Article printed from InvestorPlace Media,

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