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Canadian-born Bloomberg personality and wildly successful venture capitalist Paul Kedrosky presented an explanation for Apple Inc.'s recent struggles – one that's completely at odds with the conventional view: that the bean counters have taken over the company in the post-Steve Jobs era. Mr. Kedrosky believes it is the product design creative arm of the company led by senior vice-president of industrial design Jony Ive that has run amok, designing products that the operations department can't deliver.

Current Apple CEO Tim Cook rose through the corporate ranks with a reputation as an operational genius. When the company's stock price began to stumble, the widely accepted explanation was that Mr. Cook was overemphasizing mundane blocking and tackling issues at the expense of innovation.

But in a recent interview with Bloomberg, Mr. Kedrosky presented the exact opposite view:

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"What's probably happening is that Jony Ive is increasingly running the show. We're getting some lovely, aesthetically designed products, but there's no tension on the other side saying, 'Wait a minute, Jony, with this product we're going to have problems here, here and here.' As a result, the manufacturing of this product is going to be poor."

For evidence of his theory, Mr. Kedrosky points to manufacturing delays for the most recent iPhone and iMac models. He notes that historically, deliveries of new Apple products have been slow immediately after launch but once a few months have passed, the supply chain becomes established and the waiting time for customers falls sharply.

Recently, however, delivery times for Apple's latest products have initially declined, only to climb significantly again after a few months, indicating problems with the manufacturing process. Mr. Kedrosky concludes, "What Apple used to be good at, which was this tension between design and manufacturability – that's gone."

These issues, while seemingly not intractable, come at a perilous time in the company's history. Investors may have been willing to give the new management team the benefit of the doubt had profit margins not begun a steady decline in March of 2012. But now, with growth slowing and prominent pundits warning that Apple is a value trap, skepticism has intensified. Investor faith in Apple – once bulletproof – is steadily fading and the new leadership is slowing running out of time.

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More


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