Apple CFO Transition

During its October-2013 (FQ4-2013) and January-2014 (FQ1-2014) earnings calls, Apple included its Vice President and Corporate Controller, Luca Maestri. During the October-2013 call, Maestri’s inclusion was not seen as particularly odd as Apple was making some changes to its revenue deferral policies on iOS devices – a technical accounting move, which made sense to have the Controller around in case questions came up that required a more in-depth explanation for analysts. Maestri did not speak on that call, although the deferral was discussed as much as any other topic because of its impact on gross margins.

Maestri’s inclusion in the January-2014 call to discuss FQ1 2014′s results is different. It implies to me that Apple is laying the foundation for his transition into the CFO role. Maestri was previously CFO of Xerox and left in February 2013 to join Apple as Vice President and Corporate Controller, a role that had been vacant following the retirement of Betsy Rafael. In an article by Bloomberg near the time of Maestri’s hiring, prominent Apple Analyst Ben Reitzes of Barclay’s Capital noted that he fit-the-bill as Apple’s CFO-in-waiting, particularly given his advocacy for shareholder return (dividends, share repurchases, etc.) and experience in the top finance role at a global technology company.

During the FQ1 call on Monday, Maestri was handed questions by both Cook and Oppenheimer that were not necessarily very accounting in-nature, but rather broader questions about the overall business and forward-looking guidance. Here’s what his discussion points were:

1) In response to question from Morgan Stanley’s Katy Huberty regarding guidance:

“…our guidance we are expecting a minor decrease of $50 million. This is largely due to the lower variable expenses that we are going to have in line with the seasonal sequential decline in revenue. But one thing that Peter already mentioned in his remarks is that we continue to invest very heavily in R&D. We are making investments in areas that are visible to our view today, but also in areas that are not visible, which we are very excited about.”

2) In response to question from UBS Securties’ Steve Mulonovich again regarding guidance:

“Steve let me answer that one. Let me start with the quarter. So we were above the guidance range. It was primarily for two factors. We had favorable product mix and we had favorable commodity pricing. So those were the two things that actually helped us come in above the guidance range. For the quarter, for Q2, we’re guiding 37% to 38% compared to 37.9% in the December quarter. We’re going to have some loss of leverage as you can imagine because of the usual seasonal decline in revenue, but we expect that loss of leverage to be largely offset by cost improvements and also be less deferred revenue that we’re going to have in Q2.”

Apple’s signal to investors and analysts alike that a transition is near by allowing Maestri to gain exposure in critical interactions with the analyst community is anything but uncommon. For a company that is poised to do close to $200B in revenue this year and sits on $158B in cash, it is going to take some time for the public to build confidence in Maestri. Oppenheimer has been Apple’s CFO since 2004 and is no doubt, very rich. He has done a solid job guiding Apple from an “also-ran” in the computer space to the most valuable company in the world, not to mention the stability he provided throughout Steve Jobs’ numerous medical leaves and eventual CEO transition to Tim Cook.

Restructuring / Turnaround consultant for Del01tte during the day, wannabe tech journalist by night, philanthropist by weekend. I view the business world through the lense of Apple, a company focused on excellence through design and unrelenting focus to be the best. Design dictates what we see, what we use, and ultimately, how we live. Apple is not a perfect company, but it has created a business revolution we will never see again.