“I am a big fan of both Apple and Tim Cook,” Eric Jackson writes for Forbes. “However, I do have a big problem with one choice Cook has made over his tenure as CEO of Apple. It’s not the lack of a bigger screen iPhone sooner or his original choice of head of Apple Retail before Angela Ahrendts. It’s his decision to spend $100 billion and counting of Apple cash on a capital return program.”
“To date, it’s been estimated that Apple has used more than $100 billion of its cash on dividends and stock buybacks. To me, that’s madness,” Jackson writes. “I believe the capital return program has been a total waste of Apple’s hard-earned $100 billion. I believe – although this is impossible to prove – that Apple’s stock price would be just as high as it is today (or more likely higher) had they spent that $100 billion on a combination of smart M&A and smart R&D that would have continued to extend Apple’s lead over other Android phone makers.”
“Apple could have a quarter of a trillion dollars today in cash to put to work today. They could become the overnight leader in smart cars by buying Tesla. They could – more importantly – acquire our generation’s single greatest technological leader in Elon Musk and give him carte blanche to paint his canvas. (Somehow, I think Musk could find a better use of $100 billion than handing it over to shareholders),” Jackson writes. “They could acquire the single most unique and intriguing asset in the social networking world today in Twitter which, despite the recent management criticisms, is only going to be more important to our culture moving forward. They could acquire the single greatest threat to Google search in the last 15 years by buying Pinterest.”
Read more in the full article here.
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Well obviously
The never happy, no matter what.
If Apple had done the M&A and the R&D, Eric Jackson would be writting that was a waste of Apple’s money and would be saying stock price would be likely higher if Apple had spent its cash on smart dividends and smart stock buybacks.
Touché
It sounds like Eric Jackson/Forbes really believes what he is saying. But that does not make him right.
First, he and I have vastly definitions of the term “waste.” Waste is a massive acquisition that does not fit in with the core business — Skype, Motorola Mobility, Nokia, etc. — the list of failed mega-acquisitions and failed mega-mergers goes on and on.
Apple has a history of buying small, focused businesses that fit it with the companies core business and strategic plan. These acquisitions have typically been a few hundred million or less. The recent Beats acquisition was an anomaly at $3B. So why does Apple need a quarter of a trillion dollars on hand for some massive acquisition? The billions in cash flow that Apple generates on a quarterly basis is more than sufficient for all of its needs.
In the final assessment, the profits that Apple generates and accumulates belong to its shareholders….its owners. And, if Apple cannot figure out how to invest that massive cash hoard to good advantage, then it is obligated to return most of the money to its shareholders so that they can decide how to best invest it. If they believe in Apple and its future, then they can choose to reinvest in Apple, to acquire a slightly larger chunk of the company. They can also choose to diversify their investments with other funds/companies. Or they can spend the money on college or a new car or whatever they choose. The point being, those profits are shareholder resources, and it is never a “waste” to return the money to its owners. Whether or not the owners waste it is up to them.
Yes I bet you just love the camel those shareholders set out to design as a horse. Steve Jobs must be turning in his grave to be told shareholders know how to run a company better than he or even the present board. The best way to destroy an innovative company is to plan ahead based on pleasing the shareholders and you can bet you won’t get any thanks from these dumbos when in so doing you destroy the company’s value, personally I would prefer to see some of that money go to ensuring my iPads Wi Fi works properly so that I feel I’m using an Apple product rather than a bloody PC then I will want to continue to invest in Apple products and help Apple make money for its ravenous shareholders. Not rocket science.
Spy, You seem to have read the message all wrong. The goal is NOT to make money just for share holders. Tim said that Apple has way more money than it needs so some should go back to the shareholders. A great idea.
And no one is perfect, ever. No amount of money and time will make the first version perfect. Apple makes it great but perfect is not in the cards. Sorry if the one area failing perfect is what you want.
I don’t like it when Apple screws up any more than you do, Spy. But those screw ups are not due to a lack of resources. Apple still has many billions of dollars to invest in R&D, design, quality control, etc. Returning a portion of its accumulated cash and securities to Apple shareholders does not jeopardize its operations.
I believe that Apple’s software difficulties over the past few years are due in large part to its massive growth and the increasing complexity of its product lineup and ecosystems. It is much easier to manage a small, focused team than a large team spread across a complex, interacting assembly of products. Everything becomes more difficult at the larger scale, from thoroughly testing the hardware and software to flush out bugs to hiring good personnel and securing the tens of millions of components and associated facilities needed to deliver those products.
In addition, Apple is engaging in a significant evolution and integration of its OS X and iOS software and products. There are bound to be some road bumps in that process. But I am confident that Apple will get a handle on these issues as it refines its new strategy.
What you say is right on the mark. — Increasing complexity is the key to understanding Apple’s missteps. A crucial point (one you skipped over) is the difficulty of managing a broad outlay of products and services when secrecy is so ingrained as a company imperative, even to the point of paranoia. It’s Apple’s own version of silos, and it’s crippled what used to be (comparatively) seamless rollouts.
My iPad’s wifi works just fine, when BT’s shonky broadband lets it. I’ve had wifi dropping out for no apparent reason as long as I’ve had iOS devices, so that goes back to an iPhone 3G.
Nothing has changed for me with iOS 8, not even having fibre broadband and a whizzy new router.
Sometimes slight adjustment to the whizz levels can produce the necessary deshonkification.
The author’s premise seems to be that Apple knew of some good things to do with that money, but decided to pay dividends instead, and so then they couldn’t afford to do those things.
Absurd on the face of it, of course. Apple can afford to do any project it thinks is right.
And the buyback was money in the bank. It bought those shares at bargain prices. Now when it issues new stock (for vesting and incentives) it reaps the rewards of those cheap purchases. The “gross margin” on that rivals the gross margin on their products.
The author’s delusion seems to stem from the believe that if you have $100B to spend you can do anything you want, as if it’s a magic wand. He might as well have said they should have perfected nuclear fusion and cured cancer.
“Impossible to prove” says it all. Mindless speculation from a lazy writer on deadline.
And it doesn’t even make sense. Apple returned the cash to shareholders, so … from shareholders perspective how is that a waste of money?
That’s correct. I was against Apple paying dividends, but I’ve changed my mind… 15 years ago, AAPL could double in price without breaking a sweat; some of my share have gone up 6000% (60x) since investment. Today, APPL doubling in price means Apple would be worth well over that $1 TRILLION mark (and well on its way to the 2nd). It will likely happen at some point, but after A LOT of sweat (and time).
Therefore, the dividend is needed as the “other” significant reward for investors. And the dividend rate is likely to increase over time, as the stock price steadily (on average) increases. Since it is much more difficult now to reward investors with spectacular capital gain, it is NOT a “waste of money” to pay a predictable (“boring” but still significant) dividend every quarter.
Use that accumulated dividend to buy more AAPL, if there’s a significant drop. That way, the money Apple “gives back” stays in Apple.
He’s assuming many, many things:
1. That Elon Musk would sell Tesla to Apple.
2. That if Apple acquired Tesla, Elon Musk would stay and work for Apple (I seriously doubt it).
3. That more money put into M&A results in anything useful or valuable. For proof of spending money on M&A and getting nothing in return, see Google buying Motorola, HP buying Palm, Microsoft buying Nokia, etc. etc.
4. That more money into R&D would result in more or better products being available sooner. Apple doesn’t control things like the speed of screen development and production methods, nor does Apple produce its own microprocessors, nor does Apple want to. Some things are better off being outsourced.
5. That Apple holding onto its cash does anything beneficial to the company. In fact, Apple is slowly re-acquiring itself, thereby loosening control and influence that shareholders have over the direction of the company. I see the aggressive repurchase program as Tim Cook’s signal that Apple will be taken private eventually.
Those last few shares are going to be REALLY expensive to buy back.
That’s just stupid.
It’s about maximising ROI and diminishing returns.
Economics 101.
Especially when you know Apple didn’t really spend its cash on it. Just used cheap bonds. It would not give Apple $250M in cash flow any how.
Let’s say Apple did a pretty good job getting this cash. Let’s give Apple credit on how to spend it.
I agree that spending $100 billion on capital return was a waste — I know Steve Jobs never did it, despite being advised to do so by Warren Buffet. Steve thought different in every regard. However, I also don’t think going on a buying spree of companies is smart either — most won’t fit into Apple’s future product lines and culture. It’ll also be a waste of money.
However, there can be huge companies that may fit into Apple’s future product pipeline, although I don’t think Tesla is it. Being in a position to buy a major company that may fit in with Apple’s culture, spending on far out R&D tech that could create a revolutionary new product line, and having the hugest war chest on the planet — as a stockholder, I would prefer that over the short term capital returns. I’m a long term Apple investor and the capital return advocates think short-term. Apple has always been a long-term future visionary and that money should have been devoted to that vision. Apple would have taken heat to hold it’s position, but what else is new.
I don’t think the capital return program is a waste, however I would have loved to have seen Apple buys major company that fits into Apple’s business plan, like Disney. Disney is a perfect fit.
Zeke, if Apple starts buying companies like Disney, don’t you think they are heading for the same slippery slope inhabited by other delivery systems trying to acquire exclusive content? — namely, eventual scrutiny by federal antitrust watchdogs?
If cable companies can own TV networks I don’t see a problem with Apple owning one when it acquires Disney (and thereby ABC & ESPN).
And for all of you down-voters, you do realize that by acquiring Disney Apple would also get ABC, ESPN, Pixar, Lucasfilm, Touchstone, and other movie studios, as well as the entire Disney library from Mickey Mouse to Frozen. Put all that content on iTunes and see what happens. Also, how does cable/satellite survive without ESPN? It’s their biggest draw, and just a threat to make ESPN exclusive to iTunes would be a huge bargaining chip when talking about unfettered delivery of other Apple content over cable connections.
You don’t see a problem with it but I worry that the DOJ sees, and treats, Apple differently than any other corporation.
The moral bankruptcy of the present DOJ and AG Holder has nothing to do with the efficacy of the acquisition. It would be a great fit. In the eyes of the DOJ and the present administration Apple is the enemy of their friends and financial supporters, Amazon and Google. I can’t do anything about that, except vote them out of office at the first opportunity. Apparently, they didn’t get the hint a couple weeks ago.
I really wanted to let this guy have it. Such arrogance. He’d never have the balls to walk up to Tim Cook and tell him that if he was the CEO he could have Apple at the trillion dollar market cap by now. Why does this dude have to pick Apple to tell them how to run a company? Why not Hewlett-Packard, Google or Amazon? They’re not nearly as wealthy as Apple so maybe they could use this dude’s advice.
I wasn’t particularly happy with Apple’s diminished share price in 2013 but I sure didn’t think I could run the company better. I was only hoping that Apple would try something to juice the price if it was possible. With all that spare cash, I just hoped they could do something. If it was that easy to put loads of value into a company then everyone would be doing it.
Since the share price has risen, I don’t think that $100 billion spent was a total waste of money. However, it’s easy to look at everything in hindsight.
Plus the neigh sayers should DO THE MATH!!!
Apple saves millions by NOT HAVING TO PAY DIVIDENDS on all those shares they bought back!!! That savings gets bigger by each quarter. These bought-back shares are an almost eternal golden goose for Apple.
So easy to sit back and make judgments…
Try running Apple as successfully as Tim Cook…
I have a problem with Eric’s portrayal as a flippant one-sided decision that Tim Cook made to return profits to shareholders. First it is important to uncouple the decision to return profits as a dividends from decisions to strategically acquire companies whose mission is in alignment with Apple.
Second doesn’t Eric remember the deafening din from guys like Einhorn and Icahn to do a stock buyback? It was verging on downright menacing insofar as Icahn had mounted boardroom takeovers for issues like this with other companies.
And while Tim Cook is nobody’s lap dog, and probably is not enthralled with Icahn, paying a dividend and doing stock buyback is not an unsound way to manage surplus capital.
Finally everyone seems to think that Elon Musk is the next Steve Jobs. Buying Tesla is different than buying Beats.
And lurching from being an electronics maker into the automobile industry will require more than writing a check. Consider how Google is doing with its self-driving automobiles. Not a failure by any means, but for sure it will require more than just owning an electric automobile manufacturer to make a meaningful dent in the automotive industry. Just my $0.02
“…is not an unsound way to manage surplus capital.:
there is no such thing as surplus capital.
First of all, the term “surplus capital” has a formal definition, botvinnik. It is a legitimate term, so it does exist.
Second, the term also has a common connotation associated with accumulated profits that a company cannot effectively utilize or invest.
I didn’t say the term exists.
I’d guess that the stock buyback was to prevent a hostile takeover.
Elon Musk is a natural-born world shaker.
He just needs to find his “Model T.”
An affordable, efficient and dependable electric car would obliterate the Middle East. It would return to camel dung and nomads shooting each other over water well rights.
An electric car. Totally ridiculous. There is no way that they improve the environment. The cost of toxic battery disposal, the new tax applied to the electric stops for fill up. And of course all the new generating stations that are required to produce the electric energy from coal or nuclear.
There’s definitely an opportunity cost in production and use of electric vehicles.
lol, who hired you?
hey, stupid…go look under the hood of your car. There is a battery in every fucking car on the entire fucking planet. Electric stops? …those are called plug-ins, I’m pretty sure theres one EVERY SIX GODDAMN INCHES IN AMERICA.
Laverne and surely someone pays you.
lol, I can’t stop laughing…”..the new tax applied to electric stops..”
hey, no shit, who pays you to post such ridiculous statements?
this is my favorite, it’s a meteoric new height in insanity:
“…applied to the electric stops for fill up.”
Botvinnik: “Walls, what are those tall, brown, stick lookin’ things you see along the road? You know, they have kinda cross deals on them, smell like creosote and a buncha damned wires hangin on em..probably every eighth of a mile. What are they there for? What’s in them dang ol’ wires?”
Walls:’ “Well shazam Mr Botvinnik! Them there have electricity! Mebbe them there electric guys could put in a box or somethin’ so folks could recharge their electric car batteries, ya know, since it’s already right there next to the road.”
Botvinnik: “That’s just excellent, Walls. I’ll meet you down at the domino parlor and we can talk about womens.”
Walls: “You buyin’ me a Nehi?”
Botvinnik: “Of course, ol’ buddy!”
Walls: “Super duper Gary Cooper, I’ll bring my banjo and my ol’ houndog, Melvin.”
Botvinnik: “Take the banjo, leave the Melvin.
Walls: “Huh?”
Botvinnik: “His flatulence, people smoke at the domino parlor.”
Walls: “Oh, yeah.”
A big factor in the proliferation of electric cars is the simple matter of electron generation and transmission. The Luddites are opposed to coal, nuclear and wind electric generation. They even get their panties in a wad over solar panels because they take up so much space. But to get the electrons to the Teslas you need the electrons. The Luddites haven’t come up with an efficient, economical and practical way to do that. Until then, it’s gonna be an expensive alternative. I don’t have a problem with the electric cars but I’m waiting for the Google self-driving cars 😉
botty . . . quit talking to yourself. It is time to play with the dog now. I have a pork chop to tie around your neck so that the dog will play with you.
I wasn’t for Apple’s change of strategy originally, but it’s clear that it wasn’t a waste.
Every share aquired in the buyback to-date was at a share price *below* today’s closing. Most of them were purchased far below today’s price. It was all money well-spent.
As for the dividends, it opened AAPL up to investors who demand a dividend. That move widened the market for Apple shares. Many investors are automatically re-investing the dividend, creating further upward pressure on the price.
Surely you can understand that, if Apple can buy back stock, Apple can resell that stock again, if cash is ever needed.
In the mean time, Apple owns more and more of itself, so to speak.
Or Cook could have given Jackson $10 of it to buy a dictionary and learn there’s no such thing as “most unique” (since it means one of a kind).
For most companies buy backs are a poor idea. It shows a lack of new ideas. In Apple’s case, however, because they have so much cash and because it keeps growing at a good rate it makes sense. They certainly buy enough companies and their R&D budget has been growing significantly over the past few years. What does not make sense is for them to buy Pinterest as suggested in the article.
Apple has simply invested in itself, what’s the problem with that? Many investors agree Apple is an excellent investment, and one worth holding long term.
It also makes brilliant sense, because Apple understands — perhaps better than anyone else can — just how relatively under-valued its shares have been, as it awaits the introduction of its next round of innovative products.
To infinity and beyond !
Tim Cook, CEO of the greatest company on earth, which has doubled in valuation under his hand.
Eric Jackson, a “contributing writer” for Forbes.
Get back with us when you’ve actually done something important or relevant Eric.
This article is so wrong. The buyback and dividend went hand in hand. As a huge Apple Fan and consumer and as a long term AAPL investor, both have been phenomenally successful for those like me and for Apple. I have been the recipient of over $20,000 dollars in AAPL dividends and I’m seur like many others, I’ve poured every cent back into AAPL. This strategy, combined with the release of great products has been instrumental in makingn Apple re most successful company on the planet and AAPL a desire able Blue Chip stock. To call this a waste of money is a genuine waste of words.
Yeah, it’s just that here’s the thing. Apple is a stock that gets tossed around by rumors, speculators, and the people who listen to them. That’s why the stock is so volatile, and why traders (as opposed to investors), love it. The stock buybacks, as well as the dividend and stock split, are meant to to help stabilize the stock so that average investors (as opposed to traders) feel comfortable entering, and more importantly, staying, in the stock. I completely applaud his efforts, and it’s working.
This guy says what he say, and if that’s Tim Cook’s biggest mistake well it’s a heck of a lot better than say listening to jouranalysts or analysts.
Eric Jackson’s diatribe, which face is all about money save for a comment about batteries. He does little more than suggest what Apple should and should not do with it’s money, as if that was important. Buy this, invest in this, don’t give money here yada yada yada.
I’m sorry Eric, last time I looked at Apple’s “vision” it wasn’t about making money hand over fist and screwing people up the ass. It was about empowerment, giving people the power to be your best.
Eric’s financial diatribe may or may not be good but this is a journanalistic rehash and the Cook has some different thinking for the turkeys that aren’t about empowerment of others but takes money from the people, hand over fist and screws people. One such turkey who has lost total credibility on the world’s stage if left unchecked, will certainly stoop to simply remove the money Apple has, all in one chunk, nickel and dime it to death or death by a million bureaucratic paper cuts. That’s a scenario that very real and one way to deal with that is to give some of the money back to the share holders, to invest here and there. Just scraps off the table.
It’s astonishing to read a financial diatribe such as Eric’s attempt and have no mention of the need to be wary of those who have absolutely no morals nor ethics and surprisingly find themselves in a position of so called power.
Not only does Tim Cook think differently it appears now that he feels differently, I dare say peaceful, loving and caring for the security of the world. Goodness knows that’s going to ruffle some turkey feathers.
Well is is always interesting to read what people think Tim Cook should do. How easy it is to be an armchair critic! This guy, of course, is simply not in the running to be CEO of Apple, so his recommendations need to be considered in that light.
Of course he is wrong about the “waste” of cash on buybacks. These funds reduce the shares outstanding, which increases the net worth of every share. This is always reflected in the price – other factors cause the share price to rise and fall but the underlying asset value remains constant.
As for buying Tesla – how is this any sort of fit for Apple? Will they sell cars in the Apple Stores?
I have never seen the point of Twitter so I have never used it, though I do have an account. I can’t see how owning Twitter would benefit Apple.
As for spending the cash on R&D the issue here is Apple’s ability to effectively manage what is already a huge increase in R&D. We are starting to see some cracks here, with software released with lots of bugs and some functionality just not working at all. I would say Apple are already overextended and if they were to spend further billions on R&D at the moment, most of that money would be wasted.
Generally speaking, there is little point in reading the arrogant views of armchair critics who like to think (but have no reason think) that they could do a better job than The incumbent CEO.
Ask Gil Amelio about that.
I invested under Gil Amelio, there was only one thing going for him, he was going to do one good out of the blue thing that was going to put the WOW back into Apple. I just knew it. He went crap with the hardware, but was looking for a new platform.
BeOS I think was one of the contenders at the time but here out of the blue Steve Jobs came back and I went.
Ooooh YES.
You are overall right, he was crap.
And to the rest of the MDN community. Nice feedback thank you, I’m nodding to the gang. Feels good to be a little relaxed. Enjoy the rest of the weekend.
Why didn’t I Ching advise you regarding Amelio? Ya know, since you have the innate ability to “attract any and every other body of the universe.”
My god, you’re so fulla shit.
Certainly I think I made that clear “I just knew it.” Of course that’s just a singular book, one of many.
Thing is that I may have the innate ability to attract any and every other body of the universe just as well as you do.
Again thanks for the compliment, manure may be no saint but where it’s planted miracles grow.
oh, so you really can’t attract any and every other body in the universe…I guess you were lying or something.
frankly, I think you watched too many Kung Fu reruns.
I don’t know how you concluded that I can’t really attract any and every other body of the universe but I’m not the one who would be lying in that case rather it would be the Newton. Once again “Newton’s law of universal gravitation states that any two bodies in the universe attract each other with a force that is directly proportional to the product of their masses and inversely proportional to the square of the distance between them.”
So it’s not an me and you thing, it’s an us thing. That’s part of what makes it so much more potent than the American constitution. It’s accepted as a fact (by those who have the intellectual capacity to understand what it means) and it can’t be changed.
Similarly it’s the same for kung fu movies. Those will open minds see that there is always room for another kung fu movies. Those with closed minds see such a thing as too many kung fu movies.
Now regarding the U.S. Constitution, the origin of our exchange further down. I asked if you could name me a couple of the signatories (as listed by Chas) who were slave owners. I’m slowly going through the list myself and I’m learning a bit more about the slave debate that went on at the time. I find it fascinating to learn that some of the founding fathers of the Constitution were actually slave owners. Charles Cotesworth Pinckney for example was a slave owner and opposed the abolition of the slave trade.
I find the irony absolutely astonishing and it is certainly providing new insight into the hypocritical value of the U.S. Constitution
I found a nice quote from Col. George Mason of Virginia. He was talking to slavery but I think his idea can certainly be applied to the masters of modern day torture.
“Every master of slaves is born a petty tyrant. They bring the judgment of Heaven on a country. As nations cannot be rewarded or punished in the next world, they must be in this. By an inevitable chain of causes and effects, Providence punishes national sins by national calamities.”
is there anything in I Ching about verbosity in writing style?
This is to botvinnik about verbosity in writing styles in the I Ching.
The I Ching is 64 hexagrams so it’s pretty simple. No doubt what has been written about it is well yes verbose. It’s also found on a couple of national flags (South Korea and Vietnam) so that should give you some more canon fodder if you are interested.
A wise mentor once explained to this grasshopper the power of the I Ching, the book of changes. “Never dare to presume your journey is new: look to the I Ching as a record of countless journeys exactly like yours, and countless more similar to yours; listen with respect, and learn.” I may be unique, but my experiences, and the consequences of my actions, are not.
Hmm, and I thought Tim Cook’s biggest mistake was not making me the Supreme Apple Tester for life! Imagine that, having the latest and greatest Apple product before released to the public. Now THAT is a dream job!
I seem to remember many years ago, Bill Gates saying he would not return money to the Microsoft shareholders as he was a much smarter investor in new technology than were his shareholders!
I’m pretty sure Apple will have put absolutely no thought into the buy back. As a company they clearly have no idea what they’re doing as they clearly keep stumbling from one disaster to the next making huge loss after huge loss. Oh wait, that’s the complete opposite of what Apple is as a company.
So, Eric wants Apple to pull a Google and buy Tesla, making Apple a competitor to all of their CarPlay partners. Yea, that’ll work. /s
Well thought out, well said and food for thought. However, with that said, it is still Monday morning quarterbacking, and you can just invest in Tesla and Twitter as an investor. I own a Tesla, I am one of the first and the one thing I can tell you is that, Tesla would never have been able to withstand the scrutiny that each apple product is put under. Let’s focus on the watch for now and see if we can get that right before building cars.
“They could acquire the single greatest threat to Google search in the last 15 years by buying Pinterest”
Pinterest; he’s gotta be kidding.
I didn’t see any disclosure statement, stating Eric’s stock holdings, which if he has any I am going to assume include Pinterest and Tesla. If there is nothing to disclose then why is Forbes bothering with this guy? Because he is a white knight of marketing analysis? No effing way does Forbes roll that way even on a slow news day. OK, it’s just opinion and I will take a deep breath. But, the payroll for the legions of people that jawbone about Apple must be appallingly large. If only they all did some actual productive work, rather than behave like pandering parasites calling themselves disinterested observers, I could respect that more.