Thursday, December 18, 2008

Steve Jobs: 42% vs. 4%

The oddest news of the week—Bernie Madoff-related news aside—has to be Apple’s explanation of Steve Jobs’ absence from the upcoming MacWorld, in today’s Wall Street Journal:

The company said it was scaling back on trade shows because they have become a “very minor part of how Apple reaches its customers.”

MacWorld is not just a “trade show.” It is a seriously big deal. It’s like Woodstock for Apple users. Just two short years ago Jobs announced the iPhone at MacWorld, setting off a 50-point run in Apple’s stock before the thing even hit the market.

So Jobs not going is no mere casual one-off: it’s like Obama suddenly announcing he has no plans to attend the upcoming inauguration, because, after all, what does it have to do with running the country?

Wall Street, of course, turns to worst-case explanations, including the never-ending speculation over Jobs’ health.

This is no small issue: big as Apple is, it is one of only two companies we can think of that appears to rely on the unique talents of one human being to do what they do especially well. (Berkshire Hathaway is the other.)

Jobs, as everyone knows, had pancreatic cancer. Pancreatic cancer, as everyone knows, is about the worst cancer going. Five year survival rates of the most common (involving so-called exocrine pancreas cases) are 4 in 100.

Fortunately, Jobs had a rare, relatively good form of pancreatic cancer, an islet cell neuroendocrine tumor, for which he was treated with—according to Fortune Magazine—“a variation on the Whipple procedure,”

a complex, Rube Goldberg-type operation in which surgeons remove the right-most section, or “head,” of the pancreas - as well as the gallbladder, part of the stomach, the lower half of the bile duct, and part of the small intestine - and then reassemble the whole thing in a new configuration. The severed surfaces of the stomach, bile duct, and remaining pancreas are stitched to the small intestine so that what’s left of the pancreas can continue to supply insulin and digestive enzymes.

Jobs has reportedly told associates he is cancer-free, and for all the constant speculation about whether or not this is really true, it shouldn’t be any wonder that he looks thinner than before, nor should it be a shock that maybe he’s not up to another MacWorld.

A doctor we consulted described what Jobs had as a seriously difficult surgery, with all sorts of post-surgery issues related to bodily functions nobody likes to think about, even though those issues are well worth the price of surviving pancreatic cancer.

As to those survival rates, according to the National Cancer Institute, “Cancers arising from endocrine elements of the pancreas [as opposed to the exocrine] were much less common and the 5-year survival rate was 42% [as opposed to 4% for the exocrine type].”

It’s been five years since Jobs was diagnosed, and 42% is, of course, much better than 4%.

And that is fortunate not merely for Jobs himself.

While Warren Buffett has added enormous value for thousands of shareholders of Berkshire Hathaway, Steve Jobs has done that and more: he's added enormous value for millions of people's lives.

Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.


smithycroftman said...

A bit harsh at the end there Jeff,

Steve Jobs has certainly brought a lot of joy into the world in terms of music delivery systems and easy operating systems, but Warren Buffett's creation of a truely AAA insurance company has probably saved and helped far more people in far more ways when the rest of their lives are falling apart; would we eally have been better off with Geico being part of AIG?
That does not even include the lives made better by his giving away of the vast majority of his fortune, and the moral suasion of his humility in giving it to the Gates foundation and insisting that it be spent and not set up in perpetuity ( he obviously understands that good works also have a compoiound interest rate).

PS Looking forward to reading Pilgrimage this Christmas.

Anonymous said...

Helping design electronic doodads is more important than taking public stances on DERIVATIVES, pension accounting, executive compensation, board of director composition,etc.? Along with the points made above with regards to the charitable donations(these alone trump a superior music distribution platform), insurance coverage coupled with his TIME imparting life/investment lessons on college students (and the rest of us)? Absurd.
A fine post ruined in a single, throwaway sentence.

Jeff Matthews said...

Smithy: I hope you enjoy 'Pilgrimage'...You're right that Buffett has done more than just build a conglomerate and make a ton of dough for his shareholders.

But as far as the business itself goes, at the end of the day--as Charlie Munger told shareholders last year--Buffett and his partner created one business "from scratch," Ajit Jain's franchise.

Jobs, on the other hand, created a bunch of businesses, and they changed the world.

Buffett is not a risk-taker. That's not his model. Jobs is a big risk-taker. That's his model.

So, Nick: before dismissing those "electronic doodads," you should get an iPhone and see what the future holds.


Anonymous said...

While the thrust of your article seems correct, (it's about Jobs' health), I suspect it is not, and that the analysts do not really understand what is happening here. Tech trade shows go through a life cycle that inevitably ends when the largest companies attending pull up stakes and move on, and in Apple's case I can see three reasons.

Reason #1: Usually what happens is an industry of competition becomes quite bright against the larger firms, when the large anchor exhibitors find themselves targeted at the trade shows with visual inspection of all their latest and greatest products, which summarily get lifted by people representing competitive manufacturers, often offshore companies.

Reason #2: In Apple's case, I have long expected Apple to pull a `Microsoft style' form of new product development by embedding competitors product ideas into the mother ship. Apple is losing billions of dollars a year in lost profits by allowing thousands of other companies to drain away power from the glow of their success. Apple actually created this business by attending the trade shows and selling aftermarket accessory products in their stores. Considering the cost of these products required to sell in Apple stores, it can't be continued indefinitely.

Anyone who has purchased an after market product from an Apple store knows that they are getting charged twice by the purchase: once by Apple's charge to display the product and once by the manufacturer trying to recoup that cost by pricing the product above the price point.

In marketing this process drives the sell price way way out beyond the actual price point (the maximum value a customer will pay).

Reason #3: Apple's no. 1 driver for the next five years will be matching competitive pricing. Competitive products that cost half as much from companies like HP, Dell, Microsoft (Zune), Sansa, and others are getting really good at being better than Apple products, and with Windows 7 coming out next year, there will be less of a reason to buy an Apple product for the operating system. Apple has no choice: dump the trade shows in a virtual world.