There was a time when grid-lock in Washington was thought to be a good thing. With no political party having complete power, issues were resolved thru compromise after good healthy debate. No side was completely happy, but for the most part – a better agreement was achieved allowing the country to move forward. That all worked fine and good until the problems got really big. Then compromise became a dirty word. Grid-lock changed into a game of chicken and now the country experiences crisis’ on a regular basis.
Apple (NASDAQ:AAPL) bhas been cruising along enriching shareholders for years. There have been some bumps in the road, but those were resolved allowing the stock to continue moving up and to the right. Saying that investors are concerned now is an understatement. From its all-time high in September, the stock is down nearly 40%. Long time shareholders will say that it has been down more than this in the past. In 2008, it was down more. That’s true, but in 2008 the entire market was down. The S&P 500 is up nearly 10% during Apple’s most recent slump. Even long suffering Microsoft shareholders have outperformed Apple since September. So, what’s the problem?
In my opinion, the problems have gotten really big. I don’t mean the competition. Apple has handled the competition quite handily in the past. I don’t mean that it’s lost its visionary. Yes, Steve Jobs was one of a kind and can’t be replaced. However, I refuse to believe that Apple has achieved its stature solely due to one man. There are many extremely bright and dedicated people that have contributed in making Apple great. IMO, I believe Apple’s humungous cash pile has become its debt ceiling debate. It’s become its fiscal cliff. What to do with the rapidly growing cash pile has paralyzed the management team.
At the end of last year, many companies issued special dividends to minimize the tax hit investors would face in 2013. Wall St started to run Apple’s share price up in anticipation. However, once it became clear that Apple wasn’t going to oblige – the stock resumed its decline. At the time, I thought it was a wise move on Apple’s part – ignoring the Street’s pleas. Once Wall Street understands that a company will bend to their will – it can begin setting the company’s agenda. Want a bigger dividend – run the stock price down. Want larger buy back – run the stock price down. On the other hand, a decision would have been made and the company’s focus could have gone back to making the best products.
I found it interesting that Tim Cook had met with David Einhorn to discuss Einhorn’s preferred dividend proposal. How many times had Cook met with Einhorn? How much time does Cook spend meeting with other investors? Most likely, he spends much more time talking to investors than he would like. The cash pile is definitely becoming a distraction. Apple announced its current dividend and buy-back policy last March. Most are expecting an increased distribution this month. How different will this plan be than one that could have been announced in November? The amount of time expended since then can’t be recouped.
When Apple wasn’t such a cash rich behemoth, it made decisions and lived with the consequences. Now it is caught up in the analysis to the point of paralysis with its cash. Companies are disrupted because management becomes overly concerned with protecting its cash cow. Apple doesn’t appear to have that problem. It has taken the position that its better to cannibalize its own products before competition does it. However, is it the cash cow or the fruits of the cash cow that leads to disruption?
Disclosure: Long Apple and ashamed to admit it.