Tim Cook steps down as Apple's CEO on Sept. 1 and will stay on the board, handing the role to John Ternus. Cook says rising memory chip prices amount to a severe, unprecedented squeeze that has already forced some product price increases, while Apple's stock trades at a multiple that assumes no earnings growth for the rest of the fiscal year.
Tim Cook will step down as Apple's chief executive on Sept. 1, remaining on the company's board as John Ternus takes over as CEO. Ternus inherits a business facing rising component costs and a valuation that leaves little room for error.
Cook hands Ternus a chip-cost problem
During his last earnings call, Cook said rising memory chip prices amount to a "100-year flood". He noted Apple has already raised prices on some products because of it, and further increases could follow if chip costs keep climbing. Cook also said Apple is cutting costs on other components to help offset the rise.
That pressure lands just as Ternus begins the job, leaving him to manage a cost problem Cook flagged but has not yet resolved.
Apple's valuation leaves no room for error
Apple trades at 35 times earnings whether measured on a trailing or forward basis, a level that implies no earnings growth for the rest of the fiscal year. By comparison, the S&P 500 trades at 25.2 times trailing earnings and 21 times forward earnings.
Nvidia, which is competing with Apple for the title of world's most valuable company, is growing at an 85% year-over-year pace. Yet the chipmaker trades at 34 times trailing earnings and 24 times forward earnings, a lower multiple than Apple's despite the faster growth.
Ternus takes the CEO seat with a stock priced for flawless execution and a chip market that has yet to show signs of easing.
Source: The Motley Fool
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