• Too early to write off Apple
• Growth, not EU membership is the real problem
• Tax transparency
• Kate Swann’s exit at WH Smith
A little sympathy for Tim Cook, chief executive of Apple, is in order. Following Steve Jobs was never going to be easy, but he has hardly been helped by the hype and expectation piled on the company.
Yes, Apple exploits the mood merrily when it has a new gizmo to flog. But Wall Street as showbiz on steroids can be an absurd spectacle. At Apple, the machine has been in ridiculous overdrive for the past year.
The first sign was analysts’ competition to be the first to predict a $1,000 share price. Brian White of Topeka Capital Markets in the US was the winner, garnering publicity by declaring “Apple fever is spreading like a wildfire around the world”. Others piled in.
Given the size of the company and its weight in various indices, not owning the shares suddenly became a career risk for the average US fund manager. Who would want to be the fool who stood alone against the iPhone 5?
At $700 the stock was clearly priced for perfection. After a small slip – a wonky mapping app – the machine went into reverse. With whizzy technology stocks there is no neutral gear –they are either on their way to the moon, or they are ex-growth companies that have run out of ideas.
So this week’s numbers were greeted as evidence of the latter – a confirmation Apple has peaked. And it is true that quarterly profits were flat year on year at $13.1bn (£8bn) and that the annual outcome could be the first decline for a decade. Higher manufacturing costs are a fact of life and Samsung, which has put in a dent in Apple’s profit margins, is a formidable competitor. The shares fell another 12% to $450.
But take a step back. After the ride on Wall Street’s rollercoaster, Apple’s shares stand almost exactly where they did a year ago. For a company in transition, that is hardly humiliation. The ex-growth label may sting but it is the rate of decline that matters. Middle age comes to everybody and handing out the winnings (Apple has $137bn in cash) in the form of dividends or buy-backs would be no disgrace.
But can anybody really be confident Apple is ex-growth and the 48m iPhones sold in the past quarter represent a last hurrah? It is far too early to judge. The big event is the next product – it always is. Is it television? That has been the buzz for the past year but nothing has appeared. But is that because the in-house tech geniuses have come up short, or because the chief executive knows better than to talk casually? Nobody knows.
But give the guy a break. It is fair to beat up Cook for failing to spot, until now, potential child-labour abuses in the supply chain. But it is too soon to conclude that Apple’s innovation pipeline is broken, or that the firm has lost its appetite for taking development risks. That verdict will have to wait a year or two. In Wall Street terms, that’s an eternity. But Cook would be foolish to try to run Apple to Wall Street’s timetable.
Does a possible referendum on membership of the EU represent a terrible threat to inward investment in the UK? Does half a decade in limbo await? No and no.
OK, an attempted assassination of Ukip is not an uplifting way to launch the EU debate. But the notion that the “uncertainty” over membership is a game-changer for inward investment in the UK isn’t persuasive.
First, there is uncertainty wherever you look on the European battleground. Mario Draghi at the European Central Bank has dampened the flames of the eurozone crisis but only an extreme optimist would say he has extinguished them.
The eurozone is travelling from monetary union to fiscal union. “Ever-closer union” means what it says. Any non-European investor will look at that journey and wonder if, when, at what cost, it will be completed. Will Germany really choose to lock itself into a federalised budget union with Italy, Spain, Portugal and Greece? If it doesn’t, the economics of a shiny new German car factory, say, are very different.
Second, what if the UK did leave the EU? It remains a remote possibility but the terms of the divorce would be critical. Punitive two-way tariffs seem far-fetched since Germany has a trade surplus with Britain. Free-ish trade with Europe seems the way to bet, whatever happens.
Third, David Cameron’s gamble might succeed. From the point of view of business, a reformed EU and a better-functioning single market, with the UK and Germany as closer allies, would be a useful gain.
Yes, the prime minister’s political calculation could backfire. But Angela Merkel’s polite reception to the speech was the important development. In any risk/reward assessment, the chance of helpful reforms to the single market have to be included.
The real threat to inward investment in the UK is simple. Foreign investors are attracted by growth. At the moment, they will see a flat-on-its-back economy and a government short of ideas. A possible referendum, to be held after several more chapters of the unpredictable eurozone crisis, will seem like a sideshow.
Well done, Justin King at Sainsbury’s and Dalton Philips at Morrisons. They seem to be the FTSE 100 chief executives most keen to embrace the idea of companies giving a country-by-country account of where they pay tax. The rest of the bunch, to judge by the letters made public by Conservative MP Stephen McPartland, hate this definition of tax transparency. Ian Livingston at BT does not like the administrative cost, and Rupert Soames at Aggreko thinks giving country-by-country detail is “unworkable” for his company.
At least the prime minister, campaigning against corporate tax avoidance, now knows what he is up against when he raises his plan at the G8. But surely he could start at home. There’s nothing to the stop the UK from obliging companies operating here – say, those with a turnover of £500m-plus – to publish their UK tax details.
The purpose? It’s the pragmatic argument made by King: “Rather than developing a new international accountancy standard, which will take a long time, I strongly believe that consumers are best placed to encourage companies to pay a fair amount of tax in the UK.” That modest idea hardly seems likely to cause a dangerous outbreak of anti-business sentiment. There would be winners and losers – but that is the point.
All change at WH Smith
If “resilient dynamism”, the bizarre motto of this year’s Davos gathering, means anything its quality is probably best demonstrated by Kate Swann, a chief executive unlikely to be found clinking glasses at the Swiss jamboree. At WH Smith, which she will leave in June, Swann has played a bad hand brilliantly.
The high street shops, as opposed to the ones on railway stations and in airports, have reported like-for-like sales declines every year during her nine-year tenure. A relentless focus on costs has saved the day and kept profits rolling.
Good luck to her successor, Steve Clarke, he will need it. Squeezing more juice out of WH Smith looks a very tall order. Swann, one suspects, may have timed her exit perfectly. She wouldn’t be the first in retail-land.