“Pick your word: Ludicrous. Insane. Unfathomable. Insulting,” Dennis K. Berman reports for The Wall Street Journal. “‘Egregious’ is the one preferred by Christopher Bonavico, who has accumulated $700 million in Apple Inc. stock at fund company Delaware Investments. Mr. Bonavico can’t stop raving about Apple, saying the company still could be undervalued by 30% despite its mammoth stock-market value of $320 billion.”
“But Mr. Bonavico is going public with deep frustrations over Apple’s cash pile, a $50 billion lode that is expected to swell to $70 billion by year-end,” Berman reports. “The vast sum exceeds the gross domestic product of two-thirds of the world’s countries—and all but 36 of the market values of companies in the Standard & Poor’s 500-stock index.”
“Apple won’t as much throw a penny back at shareholders via dividends or buybacks. So far, company executives, including the ailing Steve Jobs, have offered only vague, nearly dismissive koans about possible acquisitions and the need to remain flexible and conservative,” Berman reports. “Mr. Bonavico isn’t the only dissatisfied Apple investor. Behind the scenes, say people close to a number of top shareholders, dissent is growing over the fruits of the company’s historic success.”
“‘Optimal capital allocation doesn’t matter until it does,’ says Ken Broad, a fellow portfolio manager at Delaware Investments. He points out that the stock-based compensation culture of Silicon Valley has perverted the balance sheets of companies like Cisco Systems Inc. and Apple,” Berman reports. “Employee shares, carrying an expected return on equity of, say, 11%, are being issued en masse while cash continues to accumulate, returning less than 0.75% per year. It’s like taking a credit-card cash advance and putting it in a passbook savings account. ‘Who would ever do this in their personal lives?’ asks Mr. Broad… ‘I think it has been beyond the point of being rational for a while now,” says Bernstein Research analyst Toni Sacconaghi, who has been hammering on the issue since last summer.”
Full article here.
MacDailyNews Take: Think Different.™ That’s something that stuck-in-the-box analysts cannot seem to manage.
Of course that’s been suggested to us. We strongly believe that one or more very strategic opportunities may come along that we can take advantage – that we’re in a unique position to take advantage of because of our strong cash position. I think, we’ve demonstrated a really strong track record of being very disciplined with the use of cash. We don’t let it burn a hole in our pocket and we don’t allow it to motivate us to do stupid acquisitions. So, I think that we’d like to continue to keep our powder dry because we do feel that there are one or more strategic opportunities in the future. That’s the biggest reason. There is other reasons as well that we could go into but that’s the biggest one. – Apple CEO Steve Jobs during Apple’s Q410 financial results conference call, October 18, 2010.
[Bold emphasis added by MDN Ed.]