“How could you ever divide up Apple—it is like cutting an egg in half”

From Christopher Mims' "Move Over, GE. The Tech Conglomerates Are the New Leaders of Industry." in Saturday's Wall Street Journal:

As General Electric and other old-school behemoths break up, Amazon, Apple, Alphabet, Microsoft and Meta are taking their place as the do-everything companies of the future...

The corporate passing of the torch has been in the making for decades. But this month punctuated the transition, with GE, Toshiba and J&J all saying they would split apart in an attempt to get leaner and more efficient. The same week Amazon boosted its investment in electric truck company Rivian, which went public Nov. 10 and now sports a market cap roughly on par with GE.

But there are important differences between today’s tech conglomerates, which continue to grow in value and scope, and those of yesteryear, say those who study the history of the subject. The way today’s big tech conglomerates glue their products together into “platforms” makes them potentially much more dominant and long-lasting than the industrial conglomerates. In those older conglomerates, sibling businesses weren’t nearly as interconnected or mutually supporting, and instead vied for investment from their corporate parent.

“For Apple, all of its products are plugged into this one platform,” says Kim Wang, an assistant professor of strategy and international business at Suffolk University’s Sawyer Business School. “How could you ever divide up Apple—it is like cutting an egg in half,” she adds.

My take: Apple is the canonical digital-age conglomerate. Less like an egg than a vertically integrated multi-cylinder engine pieced together through the slow, careful accumulation of talent, technologies and processes.

31 Comments

  1. Gregg Thurman said:
    Apple: where the whole is greater than the sum of its parts, that is until WS analysts weigh in with their academia fed biases.

    3
    November 29, 2021
  2. David Emery said:
    A hard-boiled egg is easy to slice. Not sure the metaphor works very well. No one eats raw eggs.

    3
    November 29, 2021
    • Bart Yee said:
      Oh raw eggs are eaten that way. And raw eggs are split all the time into egg whites and yolks, each part is still considered an egg but with different properties.

      Unfortunately, Apple could easily be split up in any number of ways because each product division “could” be a stand alone business supporting a single platform under agreed upon license.

      7
      November 29, 2021
      • Robert Paul Leitao said:
        My gosh, Bart! Please don’t feed the fantasies of regulators! Breaking up the company out of misplaced fears the company is “too powerful” is already being whispered along with anti-trust actions against other big tech entities. As we both know, a breakup of Apple would diminish the aggregate value currently being enjoyed by shareholders. It’s the customer experience and customer relationships that drive Apple’s market value. It would be challenging at best to maintain strong customer relationships if device design and production as well as services are spread across multiple enterprises with different executive teams and different shareholder demands.

        0
        November 29, 2021
    • Jerry Doyle said:
      @David Emery: On days before weight-resistance training and other forms of anaerobic exercises, I consume two raw eggs dumped into a glass of fresh orange juice. Just make sure they are pasteurized eggs. 🙂

      0
      November 29, 2021
    • Gregg Thurman said:
      No one eats raw eggs.

      Then you haven’t seen “Rocky”.

      2
      November 29, 2021
  3. Romeo A Esparrago Jr said:
    Was Claris a full blown spinoff from Apple? (then reacquired and now a subsidiary). And the only one?

    2
    November 29, 2021
    • Robert Paul Leitao said:
      Romeo: As I understand it, Claris International, the publisher of FileMaker, underwent a name change from FileMaker to Claris International. The company is a subsidiary of Apple. The original name of the company founded by Apple was Claris. By the mid-90s FileMaker was the company’s only shipping product and the company’s name was changed to FileMaker. Not long ago the name was changed again to Claris International.

      0
      November 29, 2021
  4. Horace Dediu said:
    The canonical technology conglomerate is Microsoft. Microsoft developed the inter-connected platform and the symbiotic Wintel relationship. It created the ecosystem, lock-in and bundling that cemented a monopoly position in the 1990s. All this happened about 30 years ago. Microsoft pioneered almost everything that is described in the article (and became the most valuable company in the world about 20 years ago.) It went through being sued for anti-trust and had shelves of books written about how it developed and preserved this status.

    An understanding of what Apple is requires far more inspection.

    6
    November 29, 2021
    • Kirk DeBernardi said:
      @ Horace Dediu —

      Curious. Has Microsoft’s “hostage” user base been growing lately?

      1
      November 29, 2021
      • Robert Paul Leitao said:
        Kirk: The market is currently enamored with Microsoft’s primary focus on cloud-based initiatives which currently represent about 65% of revenue. Windows has dropped to about 12% of revenue. Analysts, by and large, have confidence in the company’s growth trajectory.

        1
        November 29, 2021
        • Kirk DeBernardi said:
          @ Robert Paul Leitao —

          So they’re now leasing, instead of selling, a newer kettle of fish in the fish market that they control and it’s now in the ether instead of on the counter.

          So what’s so vertical about this?

          User base growth. Any?

          1
          November 29, 2021
          • Robert Paul Leitao said:
            Kirk: I’m not the one giving MSFT the $2.5T market cap. Looking at one analyst report now from a firm with a 5-star rating on the enterprise, expectations are for greater than 15% revenue CAGR over the next three years inclusive of greater than 30% revenue growth annually from Azure Cloud. Gross margin is expected to reach over 75% by 2024 with operating margin coming in at greater than 50%.

            0
            November 29, 2021
            • Gregg Thurman said:
              Gross margin is expected to reach over 75% by 2024 with operating margin coming in at greater than 50%.

              Therein lies the difference in Investor Sentiment between AAPL and MSFT. Just comparing gross revenue, net income, or EPS doesn’t tell anywhere near the whole story.

              2
              November 29, 2021
              • Robert Paul Leitao said:
                Gregg: That’s correct. However, if given only one choice, I’d happily remain in the Apple camp. The scenery is better and and it’s a lot more fun! In other words, I’m more apt to be a “happy camper” sitting around Apple’s camp fire. I respect MSFT, I just don’t see the same opportunities for long-term growth that Apple provides.

                1
                November 29, 2021
            • Kirk DeBernardi said:
              @ Robert Paul Leitao —

              Operating margin expected at 50%+.

              Market cap at 2.5T

              Ahhh…the blessings of being the first to monopolize and providing maintenance and horizontals to that.

              I ask again — growing user base?

              Please, anyone. Don’t let this slip by with only a “crickets” response.

              0
              November 29, 2021
              • Robert Paul Leitao said:
                Kirk: Growing user base, I’d say “yes” to answer that question. My employer has adopted a Microsoft cloud solution for email communications across several hundred locations. I was logged in a few moments ago. LinkedIn, now owned by Microsoft, is another example of the company’s migration to cloud-based products. Of course, Xbox content distribution is yet another example of its growing business. I wouldn’t characterize Microsoft has having a monopoly in cloud services. Others were in place before them. It’s just been a massive migration from in-house data centers to cloud-based services. Following the acquisition of Red Hat, IBM’s growth in now mostly pegged to its hybrid cloud efforts with the mainframe division delivering modest and highly cyclical revenue growth. The cloud is a massive global market for services and there’s much growth potential as enterprises choose cloud services providers for solutions rather than attempting to scale up their own internal efforts and deal with all of the associated big issues such as security and internal infrastructure costs.

                1
                November 29, 2021
              • David Emery said:
                A lot of universities have outsourced their email to Microsoft. Of course, there’s no guarantee the university IT or Microsoft have correctly configured the service (SPF, etc), so that email looks like the spam I get from outlook.com.

                0
                November 29, 2021
        • Gregg Thurman said:
          Isn’t it ironic that replacing Ballmer with an outsider, someone not beholden to the Windows franchise, would lead to the rebirth of MSFT?

          Remember us saying, “As long as it takes”?

          MSFT’s rebirth has nothing to do with the Windows franchise, it is a rather large orphan, and it’s being surpassed by MacOS and Apple hardware.

          0
          November 29, 2021
      • Kirk DeBernardi said:
        Re: previous comment to Horace Dediu.

        Not hostage. Captive.

        1
        November 29, 2021
  5. Kirk DeBernardi said:
    Re: My Take —

    Bravo PED.

    Spoken like a shareholder.

    0
    November 29, 2021
  6. Miguel Ancira said:
    Why is dividing AAPL an issue? What has the company done to merit this? Is it becaue they are too big? Why is this a problem?

    2
    November 29, 2021
  7. Robert Paul Leitao said:
    GE’s Larry Culp is a very smart guy. The spin-offs and divestitures are long overdue. It’s actually time for the company to change its name. What wasn’t mentioned in the posted snippet is IBM’s recent spin-off of its managed infrastructure business. AT&T is also divesting its media assets. JNJ is following a similar path as GSK, PFE and MRK. Spinning-off lower-margin operations are designed to raise the market multiple of the remaining revenue sources. Not long ago PG sold off over 100 product in pursuit of higher margins and a better return on the company’s massive annual R&D spend.

    0
    November 29, 2021
  8. Robert Paul Leitao said:
    The point is, if the sum of the parts isn’t leading to a higher valuation of the enterprise as a whole, monetizing the lesser-performing revenue sources through sale or spin-off is an appropriate approach for the benefit of shareholders. In Apple’s case, the entire eco-system is integrated and each device line and service component provides enhanced value for the customer and thus a higher valuation of the enterprise as a whole.

    0
    November 29, 2021
  9. Gregg Thurman said:
    What would happen if Apple created an umbrella holding Company with the underlying segments each being traded separately.

    Apple, Inc.

    Apple Computer, Inc.
    Apple iPhone, Inc.
    Apple iPad, Inc.
    Apple Wearables, Inc.
    Apple Services, Inc.

    Personally, I don’t like it. The structure would force the segments to compete for resources, instead of cooperating to a common goal.

    6
    November 29, 2021
    • Robert Paul Leitao said:
      Gregg: In a phrase, confusion and chaos. Your view is correct. There would be conflicting interests in each of the separately-traded entities. Apple’s market value, in my view, is greater than the sum of the individual parts due to seamless integration across device and services lines. It’s the customer that matters.

      6
      November 29, 2021
  10. Robert Paul Leitao said:
    More than a device maker and digital services provider, Apple is a customer relationship continuum. It’s the customer relationships that create the company’s market value.

    4
    November 29, 2021
  11. Arthur Cheng said:
    I don’t see the law makers interested in breaking up the Democrats in Blue states (like MA and CA), or Republicans in Red states (down South). Those are as much monopolies are anything I know.

    0
    November 30, 2021

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