Why Apple is the future of capitalism

“With Apple Inc. now exceeding $1 trillion in market capitalization, it’s tempting to understand this moment in terms of the dominance of all-too-large companies and technology in our lives,” Mihir A. Desai, a professor at Harvard Business School, writes for The New York Times. “Those interpretations obscure Apple’s other accomplishment — pioneering a financial model that is the envy of corporate America… Without investing significantly in hard assets, Apple spins cash and returns it to shareholders at a stunning rate. It’s difficult not to admire.”

“Six years ago, the company owed no debt and had never undertaken a share buyback or paid dividends. Pressured by a shareholder revolt in 2013, it is now transformed,” Desai writes. “Apple has $115 billion of debt outstanding, and it has distributed $288 billion to its shareholders in the past six years, most of it through share buybacks. In the most recent nine months alone, Apple bought back $54 billion worth of shares. This transformation is representative of trends in corporate America… American companies are borrowing money to buy their own shares in what is tantamount to a huge, slow-motion leveraged buyout.”

“Second, Apple’s financial model emphasizes cash flow over profits. Apple is not simply immensely profitable; in 2017, it generated $16 billion more in operating cash flow than profits,” Desai writes. “Apple’s operations are extremely effective cash generators. This is no coincidence. It is the result of the canny supply chain that Tim Cook built. In effect, Apple has largely been financed on the backs of its suppliers, who are willing to hold their inventory and wait more than 100 days to get paid, just for the pleasure of doing business with Apple.”

“The accomplishments of Apple’s model are substantial. But the financial strategy that has worked so well for Apple is a risky one for less capable companies with weaker strategic positions,” Desai writes. “For them, aping Apple can just as easily result in too much debt on their balance sheets, precarious supply chains and deferred opportunities for investments.”

Read more in the full article here.

MacDailyNews Take: Yet again, Apple is the pioneer.

SEE ALSO:
The Street is underestimating the timing and impact of Apple going net cash neutral – July 11, 2018

22 Comments

  1. Apple is running a flawed financial model that will be their comeupance long term. Steve would never have allowed things to go down this road. He had not gone to business school and did not have the myopic vision regarding finance that people like Cook engender. Taking on debt to buyback stock, whose value is largely based on whims of Wall Street (can we say Amazon), instead of accumulating cash (has value not based on whims of Wall Street) will be seen historically as the worse mistake Apple ever made. Trying to creatively manipulate your finances instead of concentrating on making great product, is the road to disaster and will be Cooks lasting legacy.

  2. I sure hope Apple isn’t the future of capitalism and I own Apple stock. We should impose a tax penalty if a company has over 1000 workers who work full time and still qualify for welfare; so they’d have to raise wages until they don’t qualify. I’m sick of taxpayers paying for big companies who are the real welfare queens. Record profits of big corporations and the stock market is NOT the real economy and the market goes up because wages are stagnant. Trickle down economics never worked – it’s propaganda.

    1. Idiot Dave…

      I suppose you believe in trickle UP economics, from the unskilled and unmarketable laborers to the rest of the world.
      Take a walk. Better yet, take a nap; and quit spewing nonsense.

      1. Yep. When you don’t have any facts to support your position just call me names. You’re thin skinned and whiny like 45. I’ll go with the consensus of every economist over your opinion thanks

    2. did you get your last job, or 1st job, or any job from any joe-schlub on the street corner?
      Me? I’ve never and I mean never been hired by someone that didn’t have more money, more skill or more education than me. Opps, i lied. There was one job selling weed where I was more educated and skilled….
      The same is true for when I worked for Steve Jobs (via dozens of other people in-between. He was kind of rich, I wasn’t, but his investment in Apple, his brain and brilliance allowed me to be in the “water fall”.

      Today, in my under ware, I type from my living room, wondering what I’m going to do with my day. Thank you Steve for letting me be a part of your efforts “trickling down” to me.

      So, I conclude “IT” has always trickled downward, or outward. Money always is in movement, or being used. It looks for the next opportunity to put something, or someone into action. Always.

        1. “Greatness” was never part of the conversation and I personally make no claim to such. Remember, the conversation was about “trickle down” and, if you were able to comprehend, I was such a recipient of such and claiming its reality.
          Are you able to follow the thread of the conversation and make a helpful addition, or do you just like to show authority by dropping a “sic” in your online volunteering as a proofreader?

      1. you have to admit, “it” aint goin away anytime soon? West TX is experiencing a boom of historical levels and it’s been broadly reported the US will soon be the #1 exporter of gas/oil. Comparing ROI, nothing else competes at this point in time.

      2. when you use (resort) to the “R” word for, I guess, the party your don’t like.
        I guess they don’t sing the song about sticks, stones and bones at your school?

            1. part of the bed you slept on, house you lived in, roof that protected you, streets on which you walked to sell your vegetables in the market and…

  3. ““Six years ago, the company owed no debt and had never undertaken a share buyback or paid dividends. Pressured by a shareholder revolt in 2013”

    Unfortunately he’s wrong. Apple did pay dividends before 1996. Also, there was no “shareholder revolt in 2013”. If you were paying attention back in those days, you would have gotten the strong impression that Steve and Apple were waiting to pass the landmark figure of $100B in cash. One so that they wouldn’t have to worry about any near-death experiences like the company experienced in the mid to late 90s, and two, Steve liked large round numbers he could throw up on the screen at presentations. Unfortunately, Steve passed away before Apple passed $100B, so we will constantly see these stories about Steve not wanting to return cash to the shareholders, but it was literally, the quarter after passing $100B in cash that it was announced that Apple would start returning cash.

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