When Tim Cook took over as permanent CEO of Apple in 2011, he brought his unmatched, incredible decade-long track record as the Mozart of supply chain management. Under Jobs II, Apple got rid of its factories and outsourced all its manufacturing to quicker, cheaper Asian builders. Overhead was slashed, flexibility enhanced. As the iPod business grew into a titan, Cook was striking better deals, setting up faster supply chains, keeping the trains moving on time and frying it up in a pan.
And so when Cook took over as CEO, the fears and warnings were about everything else — how would Apple’s sense of style and design survive without Jobs? What would happen to innovation and creativity? Would there ever be another massively market disruptive product like the iPhone or the iPad again? No one — NO ONE — said wow, I wonder if Cook is up to the task of scaling Apple’s manufacturing and supply chain to deal with its tremendous rate of growth.
And then came the fourth quarter of 2012. Apple had an amazing, record breaking three months but it was not as big as it could have been and not as big as some Apple shareholders wanted. Listen to Cook on the company’s call with stock analysts today¹. What happened with iPhone sales? Supply constraints hampered sales, even of the older models. What about iPads? Couldn’t make enough iPads to satisfy demand. And even the lowly iMac? Took too long to bake ’em.
Cook emphasized the pent up demand. He wants you to think that all those unsatisfied customers are waiting, sitting on their hands (and credit cards) until Apple catches up. And I’m sure that’s true in some cases. But this was the holiday quarter, the quarter with Black Friday so named for as the day when the frenzy of sales pushes retailers into profits for the whole year. A lot of those iPads, iMacs and iPhones that were going under the tree (or the menorah), got replaced with something else, be it a Galaxy Tab, Coach briefcase or North Face winter running outfit.
For what it’s worth, I buy the explanation. I don’t think that the Apple gloom and doomers have it right, at all. This wasn’t the beginning of the end for Apple, not by a long shot. But irony of ironies, Cook aced the innovation, offered much sought after new products (maybe too many, introduced too close to the holidays, though) and then flunked the execution worse than Tom Brady’s fourth quarter comeback attempt against the Ravens last week. Ugly.
¹”We did have significant shortages due to robust demand on both iPad mini and both models of the iMac that persisted the entire quarter. And we are still short of both of those today as the matter of fact. Additionally, supply of iPhone 5 which short to demand until late in the quarter and iPhone 4 was short for the entire quarter, we believe that we can achieve a supply demand balance on iPad mini during this quarter and on iPhone 4 during this quarter. On iMac, we are confident that we are going to significantly increase the supply, but the demand here is very strong and we are not certain that we will achieve a supply demand balance during the quarter.” -Tim Cook, Jan 23, 2013 conference call