Notes of interest from Apple's Q309 quarterly conference call - Page 3

I was hoping for a discussion... which for me doesn't have to get anywhere to be of interest.


Apple is a public corporation, which means they are owned by the stockholders. So they aren't a complete black box about which can know and ask nothing. As stockholders we not only have the right but we have a responsibility to question corporate financial policies if they seem unwise to us.


That's of no interest to me, but if you're pointing out one example of poor corporate management in order to justify another, then the comparison carries no weight.

I have no problems with a discussion, but as both you and I keep recycling our ideas, it's not a discussion that's going anywhere.


Public companies are not required to share all of their strategic policies with their shareholders. Doing so is a bad idea, because it then telescopes their plans to their competitors.

Just because you want to know everything they're going to do doesn't mean that you should.


And heres your problem. You think that you know more then they do, and that you're a better manager.

Ah, an actual suggestion to discuss... thank you.

So you think Apple could/should decide to complete with cable and sat?


That one worries me, because I don't think Apple can afford to come into direct competition with the entertainment industry. Both of these suggestions sound like radical changes in direction for the company, but this one seems even more risky than the first.

It's difficult to respond to this comment because it's difficult to know what you mean by it. Do you mean that stockholders should shove their heads in the sand and ignore obvious financial issues? If not, then what?


Not in the least. Rather than explain myself again though I'd just ask you to reread my earlier comments on this subject.

I'm saying fairly clearly, I thought, that shareholders shouldn't be privy to plans a company is making when those plans would give a heads-up to competitors, who could then take advantage of it for their own benefit, and to the disadvantage of the original company.

In turn, are you saying that Apple, or any other company, should spread all of its plans out on the table for everyone to see?


I've read all of your comments, and that's exactly what they suggest.

I'm saying that we don't know their plans, and so we can't comment on what is best.

You say that you know what is best, and you are telling us what that is.

Doesn't get much more binary than that. The short answer is no. The longer answer isn't binary so I guess doesn't bear discussing.


See above. Yes, I guess it has become futile.

Yes. We have basic disagreements, different ways of looking at it, and we're not really interested in being convinced otherwise.

I guess it's too bad for the both of us, but that's the way it is with this subject.

Actually, I'm pretty certain you aren't following what I am saying for whatever reason.

I'm pretty certain I am. If you don't think so, then explain once again, carefully. Possibly, you're not being clear.

You've responded in numerous ways that just don't fit what I am saying.

Anyway, a few article from reasonable sources making the same point.

http://news.morningstar.com/articlen...h=/article.asp

http://www.fool.com/investing/divide...g-in-cash.aspx

http://money.cnn.com/2009/03/19/mark...buzz/index.htm

No. That was an example. In this economic environment cash is king.

Apple could make other expensive stragetic investments to maintain their advantages. Take for example investing in automated factories as Jobs did back in hist NeXT days.

http://www.youtube.com/watch?v=jhfUKEu7sJ0

But there was a lot of talk before the iPhone launched of an Apple MVNO.


http://www.wired.com/gadgets/wireles...?currentPage=2

With billions in the bank the promise and the stick were both credible. So Cingular opted for the carrot.

And Jobs had the flexibility to move full speed ahead dispite no final deal with Cingular and port OSX to the ARM.


There are various potential scenarios. Take for example if NBC hadn't folded but instead got CBS to join them (guessing that ABC is unlikely) and the studios made a full court press to turn the tables by withholding content from iTunes. That would threaten iTunes, the iPod, the iPhone and Apple's plans for the future.

But seriously, how many industries will go to war with someone with the same amount of cash as the market cap of Time Warner? Especially if capitulation means making money by partnering with someone executing very well?

In a less confrontational scenario Apple to hire studios and independent producers to produce exclusive content for iTunes. Something like Band of Brothers cost $125M to produce. Rome cost $100M per season. The Pacific will cost $200M.

It's late, so I haven't read your links yet.

But your position, as I understand it, is;

If a company has a large amount (undefined) of cash, they should invest it fairly quickly before it gets too large (undefined). If they don't do that, they should distribute it as a dividend, or dividends.

Basically, what else have you said, other than to make it less condensed?

"Cash is king" is the line Steve Jobs used in an earnings conference call last year in response to a question about Apple's cash hoard. This set off even more speculation about what Apple would do with the cash.

The automated factories suggestion is interesting. That would be potentially a very large capital outlay. But it seems like a real long-shot, and I suspect even if this scenario were to play out, we'd been talking a few billions at most, not tens of billions. With over $30 billion already banked and free cash coming in at a (present) rate of about a billion month, I don't see giving a small part of that back to the stockholders as reducing the company's flexibility to any measurable degree.


I still feel this would not be a responsible way to spend their cash. Apple is an entertainment retailer. Going into competition with their content suppliers would cause deep resentment. They'd be fighting the common enemy problem, which has hamstrung Microsoft. Does Apple really want to be the common enemy of the entertainment industry? They're already having that problem to some degree. And again, are we talking tens of billions here, or far less? Most importantly, what's the payoff?

Really, the issue here is that Apple has more cash then they could spend responsibly IMO. As at least one of the linked articles says, having that large a cushion against failure tends to make corporate leaders fat and lazy. Maybe you'd argue that this won't happen to Apple -- but that's exactly what people said about Microsoft.

Still, I am not suggesting that Apple shift a huge amount of cash to the stockholders (though that admittedly would be nice). As I've said before, even a quite generous $1.00/share annual dividend would still allow the company to sock away $8-9 billion a year, at the present rate of cash accumulation (which is still accelerating). This would reduce the volatility of the stock by rewarding investor patience at almost no measurable cost to Apple's flexibility. I don't see any downside.

More or less. As the articles say better than I can, capital is for reinvesting in growth. If cash is being generated at a faster rate than the company can responsibly reinvest it in growing the company, then some of it should be shared with the stockholders.

What I'm hearing as a response to this argument is, Apple as a growing tech company is somehow excepted from this principle. But again as the articles say better than I can, Apple is a company with relatively low capital expenses. They don't have to build factories to expand their business, or make other massive capital outlays, so there's no obvious need for them to hold such a huge (and steadily growing) amount of cash.

At least it does seem as though I understand what you've been saying.

I read the articles, but they aren't saying anything I haven't heard before, and aren't convincing. Some of the focus is on companies that are doing poorly, but that have cash. Some focus on others that have stocks that haven't moved in years. I just don't see the connection. I'm not convinced.


Apple isn't excepted. There are others in the same situation who are acting the same way. As those companies are successful, I tend to let that success speak for itself. I'm not interested in what a few writers who have never run a company have to say. So many of these "principles" are wrong, as far as I'm concrened, that their opinions aren't useful.

One other method that was mentioned was the buying back of stock. That's another thing that is a waste of resources.

If Apple is continuing to pile large amounts of cash into this hoard two years from now without investing a decent part of it into some other area of business, I will then wonder what they are waiting for. But as I've been saying, right now, as I have no idea of their plans, I'm willing to give them the benefit of the doubt.

And for those who say Apple should buy Adobe, their market capitalization as of Friday was about $17.5 billion, well within Apple's capabilities. Disney, about $24.5.

Well, it's not a phrase he invented and is widely used in a number of contexts including that a big pot o money is not necessarily a bad thing to have.


A few billion here and a few billion there and all of sudden there's no $30B anymore is there?

As long as the stock value is going up, there's no need for Apple to do dividends. If you don't like that...well...sell. The fact that you are really unlikely to sell means what? That Apple is still increasing in value and doesn't need to provide dividends.

Besides, as Mel points out, you have no idea what they might be saving for.


Wrong. Apple is a hardware retailer. If the entertainment industry threatens to kill Apple hardware sales by constraining content then Apple can respond because it has a large warchest. Also, it hasn't hurt HBO to create its own content. Okay, it's part of Time Warner but its always been known for strong original programming.

Apple retails entertainment products at a low profit in order to facilitate high margin hardware sales. In effect they commoditize content for their benefit. That obviously doesn't make content producers jump up and down in joy.


The objective is to not go into competition with thier content suppliers unless they've already declared war by limiting content.

The large amount of cash means that Apple can go the Sony option in such a confontation and simply buy one of the major content producers. Assuming that Jobs has Disney in his corner then it is highly unlikely that content producers can restrict content to their own channels and lock Apple out of all top tier content.

Note that Blu-Ray eventually won against HD-DVD despite Sony ownership of Sony Pictures.

What's the payoff? Continued growth even in the most adverse scenario.


That you don't accept that anything other than dividends is responsible isn't Apple's problem. That they don't want to give you a dividend isn't irresonsible either evven if you see no downsides.


Won't happen to Apple as long as Jobs is in charge. And when did MS get fat and lazy? They've been pushing hard into many different markets, all of which cost a ton of money. Execution has been so-so but there have been payoffs. The XBox is now the #2 console after the 2nd generation and that gives MS a large livingroom footprint.

XBox/XNA did for C# what the iPhone did for ObjC. Lots of new coders coding for their cool platform that will translate into more coders for their legacy platforms.

If they weren't successful, then they would not have the cash. So that argument is a tautology.

Perhaps the issue is that I and others have been watching and wondering about Apple's accumulation of cash for many years now. So this isn't news to us, and consequently I don't I feel the need to wait another year or more to comment on it. So that's an interesting distinction you seem prepared to make, not that I understand it.

Adobe: A bad idea.
Disney: Even worse.

If you want to see AAPL plummet like a boat anchor, watch what happens if either of these surface as credible rumors.

As a long-time AAPL investor, I know about the ups, and the downs. I've seen plenty of both.


Or nothing? Have you even considered the possibility that they just like the idea of having huge cash reserves?


No, it's right. Arguing that they are in the entertainment retailing business to drive their hardware sales isn't the same as arguing that they aren't in the entertainment retailing business. They are, obviously. Becoming a partner AND a competitor with the industry is a very risky approach. I would not welcome this.


Now you are asking me to defend a position I have never taken?


Microsoft did get fat and lazy, and if you don't believe it, then have a look at their current financials. Fat and lazy also shows up in projects like the Xbox and Zune. Even though Xbox makes money in some quarters, both are net losses for Microsoft. Apple releases products that make money, and make it right away. Lots of money. Big difference. Huge. Chart the two stocks side by side for the last five years, if you want to see the difference between hungry and fat and lazy.

I guess I'm not a real good blind faith sort of person. I expect a little more.

Since it's only been at most, three years where they have had such a considerable hoard, I consider another couple of years to be a fair amount of time.

I'm not recommending either company, just mentioning it in the context of two of the numerous ones that have been mentioned both here, and in the financial and industry publications as possible Apple targets. There have been others that are worse, and yet others that are better. These two are within Apple's range. Adobe in particular.

The problem is that we don't know where Apple is going as a company. There was a time when I thought they would be getting into software much more heavily, so as to compete with Adobe. There were a few Mac programs that were (and in some cases, still are) highly regarded in the graphics area that Apple could have done very well with, and could have been picked up for a pittance.

But they seemed to lose interest in software other than for specialized purposes. I think that's too bad, as software has high margins and profits if done well, and Apple's software always does well there.

We saw Apple buy that communications center, when was it, two years ago? We now see them investing a lot in a server/data center, more than a billion, and if reports are right, eventually two billion. Will they do more? MS is opening some very large centers. Does Apple have something in mind such as buying Akamai and building it up further? We know that they now have a contract with the other large company in that area whose name I've forgotten. Akamai just announced support for VBR, could there be something to that?

Ok, Akamai is under $4 billion. Still, with further investment that number could easily push a few billion higher.

I wish I knew, but I don't.