Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. What will Apple look like post Steve Jobs? I'm here today with Grady Burkett, Morningstar's associate director, of technology to take a look at that question. Grady, thanks for joining me.
Grady Burkett: Thanks for having me, Jeremy.
Glaser: So let's start with kind of the immediate question, you know is anything going change, particularly in the short term with Steve Jobs stepping down as CEO, but remaining as chairman?
Burkett: The short answer is no. Steve Jobs will remain in his role as chairman of the board. The board is very strong, there is going to be no change there. Tim Cook is going to step up from his role as COO. He is a very strong operator. He has been with Apple for 13 years, and he has been interim CEO three times over the past 13 years. So really there is no major disruption to the personnel underneath Jobs. There is a very strong management team, a very strong bench.
Glaser: So, I guess that begs the next question: Do you think Tim Cook is up to this job? He doesn't have that kind of cult of personality around him like Steve Jobs does. Will he be able to continue to lead Apple?
Burkett: Absolutely. During the next 18 months, we think that the product launches and the road map are in place. We think that's probably locked in for Apple. Tim Cook is obviously a very strong operator, and so we have no concerns there. Moving out past 18 months and kind of into the long term, that's when you start taking a broader look at Apple, which manages a number of different ecosystems, developers, content providers, and service providers; it does get complex. But certainly during the next 18 months, this is an execution story, and we think Tim Cook is up for the task.
Glaser: So we assigned Apple narrow economic moat. Do you think that that kind of competitive advantage is under siege or would be potentially up for review because of Jobs' departure?
Burkett: No, we don't. The economic moat is based on structural characteristics of the underlying business, and so the moat is really based on the operating system. So it's important to keep in mind that Apple is a software company; it's kind of disguised as a consumer electronics company. And so you've got an ecosystem around the iPhone and the iPad. And then the Macs even are steadily gaining share. Apple is embedding customer-switching costs into its product and its operating systems. So, no, the narrow economic moat is very much intact, and the risks to the moat are the same today as they were yesterday.
Glaser: And if we look at valuation, is this the time just to dump the shares to get out? Is it an entry point? Or is it somewhere in between?
Burkett: So it looks like the market is really shrugging this news off. It looks like in the pre-markets, Apple shares were down about two points, and that's really what we'd expect. I don't think any shareholders of Apple have not already kind of discounted this risk into their view of the valuations of the stock. We think Apple is a buy, it's roughly 20% undervalued. We have a $475 fair value estimate for the firm. So we'd continue to recommend that current holders hold the stock, and we could see this might be an opportunity for new shareholders to get in.
Glaser: Well, Grady, thanks for your thoughts, I'm sure we'll be getting updates as the situation develops over the coming years.
Burkett: Thanks, Jeremy.
Glaser: For Morningstar, I'm Jeremy Glaser.
