Apple: Losing Talent Along With Its Cool?

Attracting and keeping employees could become an issue

After a multi-year run where Apple (AAPL) could essentially do no wrong, the tech giant now seems to be tripping over its feet with every step.

The company is losing its cool, failing to release new products, suffering sliding market share and shedding value. And for the cherry on top, many are worried that such issues could breed an even bigger one: the loss of its staff.

The Rational Reason Apple Stock Is a Buy
The Rational Reason Apple Stock Is a Buy

So while the one-time tech darling plans to build a new $5 billion headquarters capable of housing 12,000 employees, the question is whether it’s going to have problems filling seats.

The idea that Apple might be facing a brain drain would have seemed ridiculous a few years ago. Google (GOOG) may have been the company that pledged to “do no evil,” but Cupertino was where engineering talent that wanted to change the world went.

In a Forbes article, former Apple staffer Wade Fulton writes of his time at the company:

“I was surrounded by incredible talent, unparalleled passion, undying commitment, and massive brain-power. I learned more working for Apple in less than two years than I learned working for other companies for decades.”

That was then.

A year into Tim Cook’s tenure as CEO, Apple began to experience bad press over treatment of Apple Store employees. Of course, the retail staff is admittedly not as important as the engineers and designers dreaming up the next big thing to blow consumers’ minds and get investors fired up. Sales of Apple gear continued unabated and the company acted decisively on the problem, firing the head of its retail operations John Browett.

But that wasn’t the only issue. Another worrying sign is that legal fees — primarily from suing or defending against rival Samsung (SSNLF) — surpassed R&D spending last year at the company that had innovated its way from being a niche computer-maker to the top of the exploding mobile market. To put it simply: Engineers don’t like it when lawyers take precedence over research.

And then there’s the biggest red flag: constantly declining stock value. This is potentially the most serious threat to keeping critical staff, as a falling stock price often leads to employee turnover. If employees are partially compensated through stock options, those options end up underwater, eliminating a key incentive to stay.

Plus, seeing the company’s stock in the news constantly as it hits new lows can result in the impression that it’s failing — damaging morale and convincing some staff to jump ship on their own terms before layoffs become a possibility.

The two issues — staff retention and diminishing stock price — can become intertwined, amplifying each other. When employees begin to bail, innovation gets tougher as projects lose key personnel … and attracting bright new talent gets tougher too. Without innovation, tech companies turn to incremental updates of their existing products. The stock price falls further as investors decide the company is unlikely to release the next big thing.

Heck, even back in the Steve Jobs era, Apple feared having its employees “poached” by competitors.

Last year, Business Insider published an investigative report showing where Apple had been getting its talent. The list included Yahoo (YHOO), Intel (INTC), Dell (DELL), Microsoft (MSFT) — who each gave in the ballpark of 1,000 employees — along with IBM (IBM) and Hewlett-Packard (HPQ), who lost over 3,000 each.

There’s a pattern to the list. Each of those companies is a tech industry giant whose best days were arguably behind it. Now, Apple may be on the wrong side of the current. According to CNBC, Google, Facebook (FB) and LinkedIn (LNKDhave been hiring Apple employees, as has HP. Can you imagine HP being name-dropped as a threat for stealing Apple’s talent a year ago?

This is troublesome, as Apple definitely doesn’t want to find itself as a training ground for up-and-coming tech companies like Facebook or companies that are seen to push the envelope like Google. And as Apple has become more serious, businesslike and beholden to shareholders, even companies like Twitter that are smaller and more encouraging of experimentation become more attractive to employees, vs. being a small part of a huge team tasked with making an existing product a little better.

Some talented Apple workers have also jumped ship to found their own companies, a prime example being former iPod head Tony Fadell. Fadell was the author of over 100 patents and led the team responsible for 18 generations of the iPod and the first three iPhone models. He left Apple to found Nest, a company at the bleeding edge of the home automation movement with its learning thermostats.

Once again, that’s not to say that there’s a mass exodus of Apple employees underway right now.

But a growing number of factors — less emphasis on R&D, a pattern of incremental product updates, no apparent next “big thing,” diminishing market share and that long and sustained slide in stock price — are sparking fears that employee retention may be Apple’s next big challenge … and possibly the biggest one of all.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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