Monday, March 16, 2009

What Fadell's Departure Means for Apple

What Fadells Departure Means for Apple

At a company as tight-lipped about its inner workings as Apple (AAPL), changes at the top can be hard to gauge. But the Nov. 4 announcement that Tony Fadell, development chief for the iPod and iPhone, has been replaced by 26-year IBM (IBM) veteran Mark Papermaster underscored what's becoming a growing concern for many Apple investors: Is the company doing enough to nurture possible replacements for Chief Executive Officer Steve Jobs?

Apple has many top-notch executives. Chief Operating Officer Tim Cook is considered an operations virtuoso. Retail chief Ron Johnson turned Apple into the world's most successful retailer by some measures. But while there's no indication that Jobs is going anywhere soon, when he does move on, finding a successor who combines his penchant for product, head for business, and sales savvy will be no mean feat. Industrial design chief Jony Ive is often mentioned as a candidate. But he's a great product designer—not a businessman, technologist, or marketer. "It looks like there's only one horse in this race [to potentially succeed Steve Jobs], and it's Tim Cook," says John Thompson, vice-chairman of executive search firm Heidrick & Struggles. "It's not obvious to me that there's another candidate there."

Fadell, 39, wasn't necessarily tailor-made for the CEO job, either. Three people close to Apple say he wasn't considered a viable CEO candidate. He combines the engineering chops of an accomplished geek with the charisma and product sense of a marketer. He also excelled at managing engineers. But he lacked broader business experience.

Father of the iPod?

Fadell's departure may not have come as much of a surprise at Apple headquarters in Cupertino, Calif. One Silicon Valley executive says he got calls more than six months ago from companies where Fadell had applied for jobs. Some top Apple executives have bristled for years at the notion that Fadell was considered the "father of the iPod." Silicon Valley lore holds that while he was at Philips Electronics (PHG), Fadell came up with the idea for an MP3 player with a hefty hard drive that would synch to a music service, and that he left to sell the idea to other tech companies before joining Apple.

But one former Apple manager says the iPod project was already under way when Fadell arrived. Another source says Fadell was considered too self-promotional within Apple. For example, the company once insisted that Fadell remove Apple-owned photos of iPods from a personal Web site, and demanded that he change language on the site that suggested the iPod was his brainchild. Apple declined to make Fadell available for comment.

Apple insists Fadell will remain an adviser to Jobs. That may be, but it's common practice in Silicon Valley to grant departing executives a consulting gig that lasts as long as the clause in their initial contract that prohibits them from working for a competing company.

Fears That Others Will Follow

Apple remains a well-managed and well-positioned company, and may be one of the safest harbors for top tech talent. It's got $25 billion in cash, healthy margins, and its biggest product lines are growing faster than their respective markets.

Still, some former staffers wonder whether more company veterans will follow Fadell out the door. It's one thing to work for Apple when the stock is flying high and the company is breaking out of its core market into exciting new realms. Now, the stock is priced at about half of its all-time high, and the company, renowned for being a place where people work extremely hard, is a much larger battleship than it used to be.

Also, one former manager says the company isn't as focused as others at nurturing people's careers. At Cisco Systems (CSCO), IBM, and elsewhere, top performers are moved around the company in an effort to broaden their skills and groom them for bigger jobs. Apple's top executives have tended to move up the ladder in the areas where they were hired. Apple declined to comment on this specifically, but says it has a succession plan in place.

From Big Blue to Cupertino

Papermaster spent 26 years at IBM, where he developed chip architectures before becoming head of its blade-server effort in recent years. One Apple watcher believes Jobs intends to focus more on creating proprietary chips for its devices, to make it harder for rivals to copy its innovations.

To thrive, Papermaster will need to stay comfortable in Cupertino longer than former IBM Chief Counsel Donald Rosenberg, who spent just 10 months at Apple before leaving for Qualcomm (QCOM). Fadell may not have been in line to succeed Jobs, but his departure nonetheless leaves a big challenge for a newcomer to Apple's very particular way of doing things. After the job changes were made public, Apple's former software chief Avie Tevanian mused on his Facebook page that he "wonders how a 25-year IBM veteran will replace Tony," according to one of his Facebook friends.

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