Notes of interest from Apple's Q1 2010 conference call

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  • Reply 21 of 43
    Quote:
    Originally Posted by justflybob View Post


    I am not disagreeing with you, but when you say "how Apple historically rolled" it made me think of a really historical answer.



    A: Probably their own, and most definitely NOT in the garage of Steve's parents house.



    Took me a second to get that joke. ;-)
  • Reply 22 of 43
    aaarrrggghaaarrrgggh Posts: 1,608member
    Quote:
    Originally Posted by digitalclips View Post


    That would be nice for sure, I am deep and long in AAPL. I once read that companies that do pay dividends don't ultimately do as well as those that don't ... what do the experts say on this? I would not want to see anything that hurt Apple happen.



    What would it mean to share value if Apple start buying back shares?



    The conventional wisdom is that companies in rapid growth mode should horde cash to fund their expansion, while companies in stable markets have no effective need for the cash and should return it to shareholders. So, saying that companies that pay dividends "do worse" looks at a different part of their life cycle, and isn't really a great comparison. It is rare to find companies that both pay a (meaningful) dividend and have significant share value appreciation over time.



    If Apple has better return on investment than their average shareholder, then it makes sense to keep the cash for everyone.



    Apple could easily pay a 2% yield without hurting their cash reserves. The advantage of doing this is that it makes it harder for the shorts to manipulate the stock... a share is more than a (virtual) piece of paper.
  • Reply 23 of 43
    aaarrrggghaaarrrgggh Posts: 1,608member
    Quote:
    Originally Posted by hypermark View Post


    One simple scenario is Apple deciding to go big into the media space, and buying a Comcast-sized entity ($45B market cap), as a way of gaining distribution and footprint to materially re-shape the media landscape.



    But, as a shareholder, would you prefer that to be a cash transaction, leveraged, or dilutional. Using that example (with an understanding that it is just that), I would think they have passed their prime if they wanted to absorb a company 20% their size. I would think that they are destine to repeat the mistakes of HP buying and destroying companies for no increase in shareholder value.
  • Reply 24 of 43
    mstonemstone Posts: 11,510member
    Quote:
    Originally Posted by digitalclips View Post


    Why would Apple want a middle man like Comcast? Their strategy, it seems to me, is to offer content from creators i.e. the networks, directly via iTunes as on demand programming. The only value Comcast would have would their stake in NBC but I suspect Apple might not want to get involved in owning a content provider.



    Right. You should never consider buying your own customers only your vendors or your competitor's vendors.
  • Reply 25 of 43
    Quote:
    Originally Posted by aaarrrgggh View Post


    But, as a shareholder, would you prefer that to be a cash transaction, leveraged, or dilutional. Using that example (with an understanding that it is just that), I would think they have passed their prime if they wanted to absorb a company 20% their size. I would think that they are destine to repeat the mistakes of HP buying and destroying companies for no increase in shareholder value.



    I have less of an opinion, as a long term shareholder, on the preferred method of Apple paying for the deal than whether it's the right deal/company/opportunity. After all, their balance sheet is golden and their financial acumen is conservatively sound.



    Your latter point is core, though, inasmuch as the history of material M&A deals is SO poor in terms of it resulting in a 1+1=<2 outcome (BAD: HP-Compaq, AOL Time Warner, Nortel with anyone; GOOD: Cisco-Stratacom) that the ONLY reason to pursue it if you are Apple is if it's a game changer relative to core strategy, there is cultural fit and a clean integration plan.



    I don't believe for a second that Apple would ever pursue a brain dead, bolt-on acquisition, such as Adobe, for example. That's just not their DNA, IMHO.
  • Reply 26 of 43
    Great thread guys. One of the best I've read on AI.
  • Reply 27 of 43
    vineavinea Posts: 5,585member
    Quote:
    Originally Posted by digitalclips View Post


    Why would Apple want a middle man like Comcast? Their strategy, it seems to me, is to offer content from creators i.e. the networks, directly via iTunes as on demand programming. The only value Comcast would have would their stake in NBC but I suspect Apple might not want to get involved in owning a content provider.



    Not middle man but last mile ownership. The middle men are the real long haul providers...



    Not that I expect them to buy Comcast, NBC or not. If they want content they're better of trying to buy Time Warner. WTH they'd do that is beyond me. Maybe if all the media companies denied them content or something.



    But there are many things that potentially costs $$$ that are unlikely for apple to pursue but still not out of the question. Say a fully automated factory in the US or something like Steve built for NeXT.
  • Reply 28 of 43
    MacProMacPro Posts: 19,500member
    Quote:
    Originally Posted by aaarrrgggh View Post


    The conventional wisdom is that companies in rapid growth mode should horde cash to fund their expansion, while companies in stable markets have no effective need for the cash and should return it to shareholders. So, saying that companies that pay dividends "do worse" looks at a different part of their life cycle, and isn't really a great comparison. It is rare to find companies that both pay a (meaningful) dividend and have significant share value appreciation over time.



    If Apple has better return on investment than their average shareholder, then it makes sense to keep the cash for everyone.



    Apple could easily pay a 2% yield without hurting their cash reserves. The advantage of doing this is that it makes it harder for the shorts to manipulate the stock... a share is more than a (virtual) piece of paper.



    Thank you for the insight. Can you shed light on the potential effect on stock holders if Apple start buying back their own stock. I assume it is good news for existing stock holders if they do.
  • Reply 29 of 43
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by aaarrrgggh View Post


    The conventional wisdom is that companies in rapid growth mode should horde cash to fund their expansion, while companies in stable markets have no effective need for the cash and should return it to shareholders.



    I disagree when it comes to CE companies. This is coming from someone who lives off of dividends, yet I don?t want them from my highly volatile tech companies.
  • Reply 30 of 43
    Issuing dividends gives the shareholder a short term gain. Hard to resist. Pressure builds as cash accumulates. Microsoft started paying dividends when they ran out of ideas.



    Stock buy backs fit in the same class except that driving share price up helps management make money via options.



    Cash is better used to fund growth. It would be better to buy another company, like Adobe. I bet that there is an Apple think tank at work on this.
  • Reply 31 of 43
    kibitzerkibitzer Posts: 1,114member
    Quote:
    Originally Posted by westech View Post


    Issuing dividends gives the shareholder a short term gain. Hard to resist. Pressure builds as cash accumulates. Microsoft started paying dividends when they ran out of ideas.



    Exactly. The difference is that Apple hasn't run out of ideas. Compared to the diversity of Apple initiatives, Microsoft has been little more than a one-trick pony.



    I'd go along with hypermark about an acquisition like Adobe - Shmadobe. A dead end - a blind alley.



    The luxury of so much cash, solid growth and strong management performance actually insulates Apple from itself being an acquisition target. It also has the effect of reducing the sense of urgency and panic that can force bad business decisions. What freedom! For example, let the stars come into alignment for various types of content (publishing, broadcast, etc.), and Apple may have the resources to remake more of the content universe.
  • Reply 32 of 43
    Quote:
    Originally Posted by quinney View Post


    Paying a dividend or repurchasing shares to the extent that it depleted their cash reserves entirely would indeed be irresponsible. Returning value to shareholders in some manner at a cost much lower than the amount of cash it is adding to its reserve in each quarter is a different story. Say for example that they returned $1 billion and added $5 billion (as they did in the quarter just reported). Neither R&D, capital investment, M&A, or rainy day contingencies need be impacted for Apple to demonstrate to the market that they consider their company a good investment. To the contrary, not returning value to shareholders may persuade the general market to evaluate Apple more on the basis of its lack of interest in financial mechanics.



  • Reply 33 of 43
    Quote:
    Originally Posted by quinney View Post


    Paying a dividend or repurchasing shares to the extent that it depleted their cash reserves entirely would indeed be irresponsible. Returning value to shareholders in some manner at a cost much lower than the amount of cash it is adding to its reserve in each quarter is a different story. Say for example that they returned $1 billion and added $5 billion (as they did in the quarter just reported). Neither R&D, capital investment, M&A, or rainy day contingencies need be impacted for Apple to demonstrate to the market that they consider their company a good investment. To the contrary, not returning value to shareholders may persuade the general market to evaluate Apple more on the basis of its lack of interest in financial mechanics.



    Agreed. Paying a dividend that depleted their cash reserves entirely would not only be irresponsible, it would be bloody impossible. A very generous $1.00 dividend could be paid out of free cash flow, about a whole two weeks worth per year, at the present rate of accumulation (which continues to accelerate).
  • Reply 34 of 43
    Quote:
    Originally Posted by hypermark View Post


    A share repurchase makes no sense, unless Apple thinks that the stock is DEEPLY undervalued. Even with all of the bullishness around Tablet, of which I am a believer, I can see no logical scenario where they think that that's the best use of their cash reserves. Apple, after all, isn't about financial mechanics.



    That's also the same reason you won't see a dividend any time soon. Companies in heavy R&D mode, like Apple, need to keep their reserves at the ready for both capital investment and the surrounding M&A to fill in the gaps.



    Plus, rainy days do come, and they hardly have a monopoly position to print money, despite their burgeoning market position.



    Agree somewhat with the first part, not at all with the second. Apple could not possibly spend any substantial fraction of $40 billion for R&D. It is simply inconceivable. Consider also that at the current rate of accumulation, that today's $40 billion will turn into $60 billion by this time next year. Is that enough yet? For what?



    Funny, but every quarter we have this exact, same debate. The fans of Apple's hoarding keep talking about all the opportunity having so much cash gives Apple, but year after year, they just keep growing the pile larger and larger, and it becomes even more difficult to justify.



    A rainy day fund? Any company that holds that much cash in reserve isn't worrying about a rainy day, they are planning for Armageddon. Tell me the again the pretty story about how this builds investor confidence. I like fairytales.
  • Reply 35 of 43
    Quote:
    Originally Posted by Dr Millmoss View Post


    Agree somewhat with the first part, not at all with the second. Apple could not possibly spend any substantial fraction of $40 billion for R&D. It is simply inconceivable. Consider also that at the current rate of accumulation, that today's $40 billion will turn into $60 billion by this time next year. Is that enough yet? For what?



    Funny, but every quarter we have this exact, same debate. The fans of Apple's hoarding keep talking about all the opportunity having so much cash gives Apple, but year after year, they just keep growing the pile larger and larger, and it becomes even more difficult to justify.



    A rainy day fund? Any company that holds that much cash in reserve isn't worrying about a rainy day, they are planning for Armageddon. Tell me the again the pretty story about how this builds investor confidence. I like fairytales.



    Your pushback is fair, and Iike I said earlier, I am not specifically an advocate or a believer one way or another; save for I don't subscribe to binary axioms about what public companies should do, save for make great products, delight their customers, convert that delight to loyalty and repeated buying patterns, grow and diversify their revenue sources, and do so profitably and with high margins.



    On those fronts, I am a very satisfied Apple investor, but to your point, love the products, love the company, but don't forget that it's an investment. To the extent that I perceive better places to put dollars, I assuredly would.



    My Comcast example (cited earlier) is a case where big and recurring dollars would be involved for the buy, the integration and the going forward investment in evolving the infrastructure around same.



    To be clear, I think that there is a <5% probability that Apple would ever pursue such a path, given all of the things that could go wrong, but I sleep just as well at night knowing that if they thought it was prudent to pull the trigger on something in that league of BHAG (big, hairy, audacious goals) that they could, as I'd sleep at night if they did a buyback or instituted a dividend.



    Then again, my experience on buybacks is that, save for cases of extreme undervaluing of a stock, the primary driver is window dressing. With dividends, it's usually (but not always) a case of being out of ideas.



    In the case of Apple, the ever-growing hoard, and lack of clear (relative) use of same is yet another valid reason for it to be a highly volatile stock. Side note: neither of my other two tech bellwethers - Google or Amazon are issuing dividends.
  • Reply 36 of 43
    Quote:
    Originally Posted by aaarrrgggh View Post


    The conventional wisdom is that companies in rapid growth mode should horde cash to fund their expansion, while companies in stable markets have no effective need for the cash and should return it to shareholders....



    I know you were commenting with a slightly different focus, but I think Apple is still in "rapid growth mode", and therefore I think they should horde cash.



    I could probably write a giant series of blog posts on the topic to back up my views, but since we're in a little discussion, I'll be brief: Apple's moves lead me to believe that they are planning to set the rules for the future of content distribution (and when I say "content", I mean everything).



    This is a Big Deal, and it'll require money. Apple is traditionally a company that makes small, very strategic acquisitions...personally I see them putting all the cogs into place, and when they're really ready to fire up the machine, they're going to make a very audacious play, and that's what the cash horde will be for.



    I'm not quite sure what it could be yet...when the bandwidth technology increases enough buy a wireless carrier and then provide the whole solution? Anyway...maybe not that, but something.
  • Reply 37 of 43
    Who is the one fascinated with the flat red in the bold font?
  • Reply 38 of 43
    mhsrmhsr Posts: 4member
    Quote:
    Originally Posted by AppleInsider View Post


    Mac sales in Italy, France, Switzerland and Spain all grew more than 40 percent. Australia up over 70 percent, China up almost 100 percent.



    Swiss people has a strong affection for high quality gadgets. About 7% of population uses an iPhone! I am sure that a lot of iPhone users bought their first Mac recently (like I did) because the great experience with the iPhone. I'm positive that a tablet computer from apple would be a great success in Switzerland.
  • Reply 39 of 43
    Quote:
    Originally Posted by hypermark View Post


    Your pushback is fair, and Iike I said earlier, I am not specifically an advocate or a believer one way or another; save for I don't subscribe to binary axioms about what public companies should do, save for make great products, delight their customers, convert that delight to loyalty and repeated buying patterns, grow and diversify their revenue sources, and do so profitably and with high margins.



    On those fronts, I am a very satisfied Apple investor, but to your point, love the products, love the company, but don't forget that it's an investment. To the extent that I perceive better places to put dollars, I assuredly would.



    My Comcast example (cited earlier) is a case where big and recurring dollars would be involved for the buy, the integration and the going forward investment in evolving the infrastructure around same.



    To be clear, I think that there is a <5% probability that Apple would ever pursue such a path, given all of the things that could go wrong, but I sleep just as well at night knowing that if they thought it was prudent to pull the trigger on something in that league of BHAG (big, hairy, audacious goals) that they could, as I'd sleep at night if they did a buyback or instituted a dividend.



    Then again, my experience on buybacks is that, save for cases of extreme undervaluing of a stock, the primary driver is window dressing. With dividends, it's usually (but not always) a case of being out of ideas.



    In the case of Apple, the ever-growing hoard, and lack of clear (relative) use of same is yet another valid reason for it to be a highly volatile stock. Side note: neither of my other two tech bellwethers - Google or Amazon are issuing dividends.



    I would not look to what other companies are doing or not doing, in terms of how any given company should treat their investors. Every case is an individual case.



    Capital is for expansion, not hoarding. In Apple's case, I don't believe that they could responsibly use anywhere close to as much cash as they have accumulated for any imaginable amount of R&D, or for responsible acquisition that would expand their business. I probably should not have to point out that most large corporate acquisitions or mergers do not come out well, and for Apple to be able to spend any substantial fraction of even their current cash hoard, it would have to be mega-merger, which history suggests, has even a smaller chance of having a happy ending. I would hate to see Apple risk their carefully constructed approach to the consumer electronics market in the vain hope of achieving "synergy" through major acquisitions. The most likely result would be Agincourt.



    Quote:
    Originally Posted by suzerain View Post


    I know you were commenting with a slightly different focus, but I think Apple is still in "rapid growth mode", and therefore I think they should horde cash.



    I could probably write a giant series of blog posts on the topic to back up my views, but since we're in a little discussion, I'll be brief: Apple's moves lead me to believe that they are planning to set the rules for the future of content distribution (and when I say "content", I mean everything).



    This is a Big Deal, and it'll require money. Apple is traditionally a company that makes small, very strategic acquisitions...personally I see them putting all the cogs into place, and when they're really ready to fire up the machine, they're going to make a very audacious play, and that's what the cash horde will be for.



    I'm not quite sure what it could be yet...when the bandwidth technology increases enough buy a wireless carrier and then provide the whole solution? Anyway...maybe not that, but something.



    These suggestions come up every quarter, like clockwork. Last time we were debating how Apple could spend $35 billion, the quarter before that, $30 billion. Next quarter no doubt, we'll be debating how they should spend $45 billion, and next year, we will be debating how they could spend $60 billion. At some point it becomes incumbent on those who suggest that this sort of money could be spent responsibly on growth opportunities to show how it could be done. Show us a merger that is likely to produce better than one plus one (which it must, in order to be worthwhile). Show how Apple giving back no more than two weeks of free cash flow to patient investors somehow puts this perfect opportunity in peril.



    BTW, it's worth reminding people who aren't AAPL investors that those of us who are AAPL investors have seen zero return in two years. The grim reality is that while Apple has grown profits substantially and fattened its wallet immeasurably over that period, that long-term investors have seen exactly squat as a result.
  • Reply 40 of 43
    vineavinea Posts: 5,585member
    Quote:
    Originally Posted by Dr Millmoss View Post


    Capital is for expansion, not hoarding. In Apple's case, I don't believe that they could responsibly use anywhere close to as much cash as they have accumulated for any imaginable amount of R&D, or for responsible acquisition that would expand their business.



    How do you know it's mere hoarding as opposed to saving for a strategic purpose? There are many multi-billion dollar ventures for massively tapping new markets. The problem, of course, is making that money back.



    However, you don't make any money back from dividends either. I'd rather see Apple invest in a game changing event than a dividend.



    Examples include a second internet that folks have hinted that Google might do someday for the ability to more rapidly push their own content. That would require purchases of companies that provide last mile solutions OR develop a new last mile solution like Clear/Xohm might have done. Or perhaps a mesh network solution.



    Even the ability to threaten to do this has huge strategic advantages. Like Google's $4.6B bid on the 700Mhz spectrum. That's 10% of Apple current cash holdings. Billions more if the threat had to be carried through...and with another $15-20B in the bank the incumbents had to seriously consider if they really pissed Google off what it might do or more importantly do to them. So they caved on the net neutrality points Google cared about even though it was strategically inadvisable to do so from their perspective.



    Besides, even if they are mearly hoarding they have plenty of company. The 500 largest non-financial firms were holding $995B in reserves. Tech companies are traditionally hoarders:



    "At the end of the second quarter, the 54 biggest information-technology firms held $280 billion -- or 27% of their assets -- in cash, according to the Journal's analysis, a higher percentage than any other industry group. Cash balances grew further in the third quarter for the 34 companies in that group that have reported results.



    Consider Google. The search giant's cash and short-term investments rose 53% to $22 billion in the third quarter from a year earlier, accounting for 58% of its total assets.



    The cash provides "operating and strategic flexibility," Google Chief Executive Eric Schmidt told analysts last month. "We're very happy to have it sit in our bank account and earn a modest interest rate.""



    http://online.wsj.com/article/SB125712303877521763.html



    Quote:

    BTW, it's worth reminding people who aren't AAPL investors that those of us who are AAPL investors have seen zero return in two years. The grim reality is that while Apple has grown profits substantially and fattened its wallet immeasurably over that period, that long-term investors have seen exactly squat as a result.



    Then I recommend you sell. Did you notice that there has been some minor economic fluctuations the last couple years? What is it they call that?
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