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BLOG: Apple's brains are starting to drain away

Bill Snyder | July 12, 2013
The iconic tech company has a perception problem that is hurting its reality.

Money matters. No matter how much Silicon Valley types talk about the joys of working for an innovative company, at the end of the day it's really about money. That's why startups and mature companies alike offer stock options as a perk to lure the best and brightest. It shouldn't be a huge surprise, then, to learn that the collapse of Apple's stock price is beginning to hurt morale at the company.

Although it's probably more a trickle than a flood, it appears that rank-and-file engineers and developers are leaving Apple as their retirement accounts melt like snow in the drought-stricken Sahara, says Trip Chowdhry, principal analyst of Global Equities Research. "Recruiters are seeing more and more employees from Apple applying for jobs at Google, LinkedIn, Facebook, and even HP," he says.

Apple is hardly suffering a near-death experience, and anyone who says so isn't worth listening to. The company makes a lot of money, sits on a huge pile of cash, and sells millions of products every month. But it is suffering a crisis of perception. And like money, perceptions matter.

Consider the very cool reception for iOS 7. Admittedly it's still in beta, but the outlines of the new mobile OS are clear, and it's not going to be a smash hit. (My colleague Galen Gruman agrees, seeing it not as a "oh my God" upgrade but as a smart evolution of Apple's underlying services business, part of a long-term direction from a tech company that still thinks in the long term.) Even if it's better than the digerati give it credit for, there is a perception that Apple has lost its innovative edge and iOS 7 is a symptom of creative fatigue.

Apple is a victim of its own success
In a sense, Apple is a victim of its own success and the wildly optimistic expectations of fanboys and investment bankers alike. The company created great products that quite literally changed the world and for years seemed to have a lock on the mobile market. As a result, Wall Street, which so often lacks a sense of proportion, vastly overvalued the company.

Just 10 months ago, Apple's stock was trading at $700 a share, a frothy valuation that could probably never be supported by a realistic sense of the company's earnings potential. As of this week, shares are worth about $420, a plunge of 40 percent. I believe that the current price is too low and is yet another example of Wall Street's naive herd mentality.

But it doesn't matter. If an Apple engineer owns 5,000 shares, his or her once—$3.5 million nest egg is now worth $2.1 million. Sure, that's still a lot of money, but people freak when their retirement accounts shrink, and it explains the drift toward the exits that Chowdhry has seen.

 

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