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Apple's Cook fields his A-team before a wary Wall Street

Apple Inc. CEO Tim Cook takes the stage during Apple Inc.'s iPhone media event in San Francisco, California September 12, 2012. REUTERS/Beck
Apple Inc. CEO Tim Cook takes the stage during Apple Inc.'s iPhone media event in San Francisco, California September 12, 2012. REUTERS/Beck

By Poornima Gupta

SAN FRANCISCO (Reuters) - Apple Inc Chief Executive Tim Cook's new go-to management team of mostly familiar faces failed to drum up much excitement on Wall Street, driving its shares to a three-month low on Wednesday.

The world's most valuable technology company, which had faced questions about a visionary-leadership vacuum following the death of Steve Jobs, on Monday stunned investors by announcing the ouster of chief mobile software architect Scott Forstall and retail chief John Browett -- the latter after six months on the job.

Cook gave most of Forstall's responsibilities to Macintosh software chief Craig Federighi, while some parts of the job went to Internet chief Eddy Cue and celebrated designer Jony Ive.

But the loss of the 15-year veteran and Jobs's confidant Forstall, and resurgent talk about internal conflicts, exacerbated uncertainty over whether Cook and his lieutenants have what it takes to devise and market the next ground-breaking, industry-disrupting product.

Apple shares ended the day down 1.4 percent at 595.32. They have shed a tenth of their value this month -- the biggest monthly loss since late 2008, and have headed south since touching an all-time high of $705 in September.

For investors, the management upheaval from a company that usually excels at delivering positive surprises represents the latest reason for unease about the future of a company now more valuable than almost any other company in the world.

Apple undershot analysts targets in its fiscal third quarter, the second straight disappointment. Its latest Maps software was met with widespread frustration and ridicule over glaring mistakes. Sources told Reuters that Forstall and Cook disagreed over the need to publicly apologize for its maps service embarrassment.

And this month, Apple entered the small-tablet market with its iPad mini, lagging Amazon.com Inc and Google Inc despite pioneering the tablet market in 2010.

Investor concerns now center around the demand, availability and profitability of new products, including the iPad mini set to hit stores on Friday.

"The sudden departure of Scott Forstall doesn't help," said Shaw Wu, an analyst with Sterne Agee. "Now there's some uncertainty in the management."

"There appears to be some infighting, post-Steve Jobs, and looks like Cook is putting his foot down and unifying the troops."

Apple declined to comment beyond Monday's announcement.

Against that backdrop, Cook's inner circle has some convincing to do. In the wake of Forstall's exit, iTunes maestro Eddy Cue -- dubbed "Mr Fixit", the sources say -- gets his second promotion in a year, taking on an expanded portfolio of all online services, including Siri and Maps.

The affable executive with a tough negotiating streak who, according to documents revealed in court, lobbied Jobs aggressively and finally convinced the late visionary about the need for a smaller-sized tablet, has become a central figure: a versatile problem-solver for the company.

Ive, the British-born award-winning designer credited with pushing the boundaries of engineering with the iPod and iPhone, now extends his skills into the software realm with the lead on user interface.

Marketing guru Schiller continues in his role, while career engineer Mansfield canceled his retirement to stay on and lead wireless and semiconductor teams. Then there's Federighi, the self-effacing software engineer who a source told Reuters joined Apple over Forstall's initial objections, and has the nickname "Hair Force One" on Game Center.

"With a large base of approximately 60,400 full-time employees, it would be easy to conclude that the departures are not important," said Keith Bachman, analyst with BMO Capital Markets. "However, we do believe the departures are a negative, since we think Mr. Forstall in particular added value to Apple."

TEAM COOK

Few would argue with Forstall's success in leading mobile software iOS and that he deserves a lot of credit for the sale of millions of iPhones and iPads.

But despite the success, his style and direction on the software were not without critics, inside and outside.

Forstall often clashed with other executives, said a person familiar with him, adding he sometimes tended to over-promise and under-deliver on features. Now, Federighi, Ive and Cue have the opportunity to develop the look, feel and engineering of the all-important software that runs iPhones and iPads.

Cue, who rose to prominence by building and fostering iTunes and the app store, has the tough job of fixing and improving Maps, unveiled with much fanfare by Forstall in June, but it was found full of missing information and wrongly marked sites.

The Duke University alum and Blue Devils basketball fan -- he has been seen courtside with players -- is deemed the right person to accomplish this, given his track record on fixing services and products that initially don't do well.

The 23-year veteran turned around the short-lived MobileMe storage service after revamping and wrapping it into the reasonably well-received iCloud offering.

"Eddy is certainly a person who gets thrown a lot of stuff to ‘go make it work' as he's very used to dealing with partners," said a person familiar with Cue. The person said Cue was suited to fixing Maps given the need to work with partners such as TomTom and business listings provider Yelp.

Cue's affable charm and years of dealing with entertainment companies may come in handy as he also tries to improve voice-enabled digital assistant Siri. He has climbed the ladder rapidly in the past five years and was promoted to senior vice president last September, shortly after Cook took over as CEO.

Both Cue and Cook will work more closely with Federighi, who spent a decade in enterprise software before rejoining Apple in 2009, taking over Mac software after the legendary Bertrand Serlet left the company in March last year

Federighi was instrumental in bringing popular mobile features such as notifications and Facebook integration onto the latest Mac operating system Mountain Lion, which was downloaded on 3 million machines in four days.

The former CTO of business software company Ariba, now part of SAP, worked with Jobs at NeXT Computer. Federighi is a visionary in software engineering and can be as good as Jobs in strategic decisions for the product he oversees, a person who has worked with him said.

His presentation skills have been called on of late, most recently at Apple annual developers' gathering in the summer.

Then there's Ive, deemed Apple's inspirational force. Among the iconic products he has worked on are multi-hued iMac computers, the iPod music player, the iPhone and the iPad.

Forstall's departure may free Ive of certain constraints, the sources said. His exit brought to the fore a fundamental design issue -- to do or not to do digital skeuomorphic designs. Skeuomorphic designs stay true to and mimic real-life objects, such as the bookshelf in the iBooks icon, green felt in its Game Center app icon, and an analog clock depicting the time.

Forstall, who will stay on as adviser to Cook for another year, strongly believed in these designs, but his philosophy was not shared by all. His chief dissenter was Ive, who is said to prefer a more open approach, which could mean a slightly different design direction on the icons.

"There is no one else who has that kind of (design) focus on the team," the person said of Ive. "He is critical for them."

(Additional reporting by Alistair Barr; Editing by Edwin Chan and Ken Wills)

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