Thomas Lott has penned an open letter to Apple CEO Tim Cook via Seeking Alpha that begins:
Dear Tim,
First of all, I wanted to wish you best of luck as you head into 2012, your first full year at the helm of an amazing technology company. Apple (AAPL) is the rare company that captures both the hearts of consumers who love your iGadgets as well as investors who have made tremendous returns on AAPL equity. As both a converting Apple loyalist on the consumer side, and a stock investor, I wanted to say thanks.
The purpose of this letter, since I didn’t think you would actually read it if I mailed or emailed it to you, was to discuss Apple’s capital structure. I know, kind of heavy for the holidays. I have blogged about your stock a couple of times in the past year, and my view hasn’t changed that the stock is no doubt inexpensive, both relative to its current and future growth rates, as well as to its dominant and growing market share in your line up of phones, tablets and computers. Quick math suggests that, excluding your cash, AAPL equity is trading at under 11x next year’s earnings. Quite a bargain.
But I wanted you to take away one key item from this letter. And it is this: as Apple continues to build its mountain of cash, you should realize that you are no longer just managing a technology company, but also you are becoming an asset & money manager. The reason I point this out is, you can continue to grow the company and its market share and profits, but if you mess up the asset management side of the business (i.e. your cash hoard), then you can destroy billions, even tens of billions of hard earned capital.
It is no doubt the single biggest risk that I see in your equity.
Read the rest of the letter here.
MacDailyNews Take: As if Tim Cook and many other people at Apple didn’t understand everything in that letter and more.
[Thanks to MacDailyNews Reader “Edward Weber” for the heads up.]
Here we go again. Please don’t teach your dad how to fck.
I don’t know what the purpose of Lott’s letter was, it certainly didn’t bring anything to the table that the manager’s of the world’s most valuable tech company haven’t considered years ago.
As for AAPL’s price, complainers should consider that during 2008 investors took a massive cash haircut. Since January 2009 Apple has been growing at a compound rate of 50%. During the same period AAPL’s Money Flows have increased at 37%.
AAPL is being held back simply because Apple is growing faster than investor’s investment cash.
I think Apple needs to buy a bank. Banks’ assets are very cheap nowadays and Apple needs to choose a bank that doesn’t have too many encumbrances on its financial sheet. By doing so, Apple could have the opportunity to force changes in another critical industry. Banks have deviated from its fundamental duty to serve. It was supposed to help a nation to administer its wealth prudently, but instead what we have seen in the last 30 years is that banks have turned into veritable casinos. Instead of preserving wealth, banks have created all sorts of risky, speculative financial instruments. Banks have become greedy to the extent that they gouge their own customers by enticing customers to new services and then imposing exorbitant fees to service them.
Apple could lead the industry by forcing it to go back to fundamentals. Apple doesn’t need to follow the herd of greedy bankers to chase after fools’ gold. Apple needs to attract the best people in the industry and train them to foremost serve its customers in an unorthodox way from the rest of the industry. It had been doing this unorthodoxly in its present form of business while its counterparts had been led astray by Wall Street and losing their shirts off their backs.
Apple Bank (assuming Apple buys a bank) must separate traditional banking activities from its investment arm. Apple could introduce new services that does not rely on gimmicks and speculation. With its billions of loose change, Apple would have an advantage over its debt-ridden rivals and earned better returns by investing and managing its huge pile of cash through its own bank.
Sanity needs to return to the banking industry and Apple could be the vehicle to reintroduce fundamentals which the banking industry has abandoned a long time ago. If there is anyone who could pull a rabbit out of the hat, it’s Apple. Go for it, Apple.
I have wondered the same thing, VIP. If Apple owned a bank, it would allow it to process purchases electronically at reduced rate and attact another industry that sucks big time. Who knows, someday there may be an Apple Air.
Excellent comment and suggestion – make it so!
Yeah, they could call it “Apple Bank”. Oh, wait.
I find this letter at best condescending and to assume Apple is anything but completely aware of their financial position is abhorrently silly. In addition, I wish that so call wall street types would quit, once and for all, trying to make Apple behave like all the failed our floundering technology companies out there.
Tim Cook: “Whaa?!?!?! We have BILLIONS in cash reserves?!?! OMFG?!?!?! We need to hire someone to think about and manage it!!!”
Thanks, Thomas. Good save for Apple.
Let me say clearly as a shareholder of about 500 shares: I don’t want a dividend. Dividends are just stupid. I am not into shares for the dividend. Apple should keep the money for an acquisition whenever they might find a good company to buy.
Exactly… we are not talking about a traditional holding. This is AAPL. Who needs Anal ysts anyway? They know what’s best for that cash! Right? Just go ask em! They’ll tell YA! Pf.
I’m sorry, but f*ck the shareholders. If they are unhappy, they can sell the stock. Shareholders, especially the way the current financial market is structured, are just along for the ride, whatever that ride may be. One of Apple’s greatest strengths is that their approach to business is one of “how can we most sustainably do the stuff we find cool and interesting?” instead of “how can we eke out every possible bit of profit for the next quarter?”.
How the market chooses to value this approach is up to the market.
Calm down fellas
F*ck the shareholders!? Most Apple loyalists I know are f*cking shareholders! We put our money behind things we beleive in. I don’t want them going out and pissing away all that cash on a crappy acquisition.
You guys need to get off your “if anyone disagrees with Apple they are wrong” horse because this guy has it right. There is no point in hoarding all that money. Unless they have a master plan and a huge acquisition of a major cable company or a major telecom company there’s just no point in keeping all that cash and several ways to put it to good use.
They have a master plan and they are not going to tell that to people like Thomas Lott. Those who follow what Apple does already knows what the master plan is. If you do not know then start following http://www.asymco.com and you start to get an idea of what is going to happen next.
… right. What he missed was in relation to MSFT buying Skype. Yeah … a potentially costly mistake. Or was it a strategy move? Up until a month ago I was able to Skype my daughter-out-law in Florida every week or so. My Mac to her PC. Then my grandson tripped over the wires and killed the PC. She can still Skype her PC-using buddies with her ‘Droid phone. Can’t connect with my Mac, though. I’m thinking MSFT has been fiddling with stuff that used to work in order to embarrass Apple.
This is an important market. Apple has both iChat A/V and FaceTime there. Both are better than Skype. Both need a pipe, though. Who can Apple buy for that?
I would be hesitant to tell such a successful company that they are doing it all wrong. Hey, turn your focus away from making insanely great products and devote more effort in managing money? Huh?
My eyes grew dim when I read the line..”Organic revenue growth…” Such an over-exploited word organic is.
What I continually read into these open letters, and analyst warnings about Apple’s cash, is greed on the part of the letter writer.
Apple investors are getting a wonderful return on their stock buys.
But goofs like Lott and all the others before him who have called for the same thing, are not satisfied, and want extra bits of money, for no reason but to fill their wallets a little more, at Apple’s expense.
Well Mr. Lott, I see that Microsoft’s stock pays a dividend, and right now the MSFT share price seems quite reasonable.
Run along now. Off you go. …
Aren’t you forgetting that the shareholders own the company?
Yes they do, and they voted to have no dividend back when some 5% owner tried to force a dividend.
Yes Tim, no dividends, no stock buyback. Buy AT&T instead.
I’m sure Tim and colleagues are constantly scouring the financial blogosphere for advice on how to run Apple.
My Apple stock paying no dividends has made me far more money than stocks I hold that ARE paying dividends.
Leave Apple alone. Go bother Microsloth if you’re bored Mr. Lott, they could use some help.
Open letter to Thomas Lott.
You, sir, are a ‘Tard.
Apple has been managing more money that God for years – and very successfully.
Stupid. Apple has a world class money manager in its VP of Finance: Gary Wipfler. Does this bozo think Apple hasn’t already thought about this? A lot? Especially over the past decade as its cash hoard expanded?
Gary’s balancing leverage of long- and short-term treasury rate spreads with Apple’s investments to preserve cash while ensuring conservative, consistent growth. He’s not out betting on, say, risky startups like Seeking Alpha.
What a self-aggrandizing dolt.
Hmm… Apple’s billions keep growing, so I don’t know what the heck this screwball is talking about in his letter. Steve hired the best business team of managers on the planet, I think they know how to manage there finances better than this screwball does. So you don’t deserve an answer, because of your stupidity.
And why GP do you think Apple doesn’t already have a master plan? I think they do and when things are right that plan will go into action but not before. And it’s none of anyones business to know ahead of time or at all for that matter what Apple does with it. Having a huge cash reserve for the future is a very good thing. If things go bad, the company will have years to recover without taking out necessary infrastructure from the company, especially R&D for the future.
Great advice! Not even a double MBA could be expected to know that.
Wow, this guy is a tool… pretty damn arrogant to assume that Tim Cook and the other folks at Apple don’t know how to manage the corporate money. I’m pretty sure Apple will continue to do what it has done for the past 10 years plus – make great products in a select few segments, and make them with high profit margins, and dominate the markets as a result – thus bringing in more cash to the hoard. Apple doesn’t care about the stock price. Only the investors and analysts do.
Steve, agree for the most part, but disagree about not caring about the stock price. I have always felt that Apple found a way to increase its stock price by creating great products and maintaining a decent profit margin. This would seem to be a recipe for maintaining a decent stock price, hence by extension also caring about it.
People are second-guessing Tim Cook, it’s obvious. It’s annoying when they try to disguise this, as well as an insult to Cook as well as Jobs’ judgment.
Regardless to whom this letter was addressed, the issue of the cash hoard seems to be a perpetual one for some investors. I think it is the large money managers who are most aggrieved. But they are missing several salient points.
First, Apple was almost bankrupt in 1997. A fact not lost on Steve Jobs when he managed the company and a fact not lost on the man whom he chose to look after the accrued assets. If anything goes wrong in the product cycles over the next 10 years, there is a magnificent buffer to fall back on.
Second, Apple is in the process of moving to a new campus. Regardless of any estimated price tag, it will cost more than whatever they estimate it to cost. Ever remodeled your house?
Third, in order to remain competitive, Apple has always purchased parts well in advance of any product release, both to ensure an on time launch and to essentially (ethically or not) lock up the supply chains for chips, screens and memory making it nearly impossible for others to obtain in a timely manner to compete. Have you ever wondered why it took so long for companies to challenge the iPad originally or to create a phone with a screen as good as the iPhone 4?
Fourth, Apple needs to have the ability to purchase either a company or technology at the drop of a dime and to make supply chain changes as quickly as possible. This costs money.
In addition, they require an enormous cash hoard to pay ongoing bills. Take iTunes for example – before the Data Center – cost $1 billion a year to run. Who knows what their expenses will be going forward?
Yes, they could give a one time payoff to satisfy these guys but this is a company concerned with innovation and making dazzling products. As Steve said when he created the iTunes store, in response to a reporters’ question about iTunes competitors on the day that iTunes was announced, he cited the cost of building and testing the iTunes back end and securing deals all of which cost a lot of money to do making it difficult for other companies to match. It has taken Google 8 years to come up with a music store; Amazon essentially giving away music; Microsoft giving up on Zune and countless others attempting to get into the space – all of that cost money up front for Apple to take the lead.
I would prefer to see this company innovate and see the stock price appreciate, as well as enjoy the products emanating from their incredible research, than see crazy dividends paid to investors. That game has been played by Cisco trading at 15-19 and Microsoft 25-29 forever. Compare the returns over the past 4 years, 2 years, 1 year, 6 months with Apple.
Apple is preparing for other material events. Due to their secrecy, they are not liberty to divulge all of their details to investors who want 50% gains per annum. Theirs is not just the stock price appreciation, but the preservation of their company, its ethos an advantage in the tech industry. Dividends and crazy payouts just don’t fit into that picture. Besides, if an investor is not happy with this, Microsoft, Cisco and Intel await. Rumor has it they are paying excellent dividends.
Long winded, but I think you get the point.
I am not interested in anynbuyback or dividends and I want Apple to have all the cash it needs to buy, build fabricate anything it feels necessary.
I don’t have any problem with the notion that if part of Apple’s cash hoard is not going to be so needed that they work on getting a better return on that. My understanding is that the return Apple has been getting from investing (as opposed to the running of it’s business), has been relatively small.
what a load of horse shyt! No business that is professional
“blogs”what they “think” a company should do. Blogging is for the same boring people who find it important to tell us on Facebook they are eating a muffin.
If apple listened to 5% of these idiots and all their ideas… they would not be where they are.
That nails it. Thomas Lott got precisely one thing right: that Tim Cook would not have bothered to read the letter had it been mailed.
Just another lame writer who I’m sure has Apple stock and wants some money out of it yesterday.
I wanted money from Apple stock, so I bought some. Now, I’m holding on to it until I want that money. It’s already more than doubled since I bought it.