Steve Jobs didn’t spend much time worrying about shareholders’ complaints. I recall talking with him in 2008 about some mini-crisis that had caused Apple’s stock to dip.
“Who gives a s– about the stock price,” he let slip before getting back on point. It was a moment of unscripted honesty that spoke volumes about his belief that Apple knew more than any shareholder about what was best for the company.
New CEO Tim Cook is taking a different approach. By announcing dividends and stock buybacks that could reach $45 billion in the next three years, he’s responding to years of complaints about Apple’s enormous cash kitty.
He made a recent comment of his own that was telling. He had just ended the company’s annual meeting in February. As the shareholders began rising from their seats to leave, his last words into the microphone were, “We always try to do what is best for you. I know that somebody might occasionally disagree with us, but that is what we do.” It was the kind of comment Jobs would not have gone out of his way to make.
Those two positions aren’t mutually exclusive, for certain. Jobs clearly cared about financial returns (he made Apple the world’s most valuable company, after all). And Cook clearly isn’t throwing out Apple’s strategy to satisfy institutional bean counters.
But the differences in tone matter. On the rare occasions when Jobs did talk about shareholder interests — and it wasn’t often — it was clear his only allegiance was to long-term investors willing to place a bet on his “build-great-products-and-the-stock-will-take-care-of-itself” mantra. Cook makes no bones that the dividend and buyback were designed in part to appeal to more conservative investors, who demand some guaranteed payback.
The fact that Cook chose to take a close look at the use of its cash is in itself significant, said Ron Adner, a professor at Dartmouth College’s Tuck School of Business. “It’s a very big shift because it tells you that management is allocating its attention in new ways,” said Adner. “It certainly tells you they’re no longer purely focused on growth.”
Making decisions to please a broader class of investor — or any investor — has its dangers. If it causes Apple to become more cautious, it could put the company on a slippery slope towards becoming a more conventional company.
Some Apple watchers think the process has already begun. “This is not Steve Jobs’s Apple anymore,” said Trip Chowdhry, an analyst with Global Equities Research. “Apple is becoming just like any other company. I think the dividend and buyback are part of a strategy to maintain the stock price, in the event that its products in the future are not as successful as they have been in the past.”
Few CEOs have had as many levers at their disposal to boost short-term revenue and earnings growth. Cook could expand Apple’s tiny portfolio of just 12 products, providing incremental growth even if it erodes the company’s fierce focus over time. He could more aggressively target lower price-points — say, with an unsubsidized iPhone designed for the budget-conscious consumers who buy 80 percent of cell phones at full price rather than lock into service contracts.
He could also more aggressively expand distribution, by not driving such a hard bargain with foreign carriers such as China Mobile. And with not too much effort, he could crank up efforts to sell to vertical markets such as health care, government and particularly corporate — something Jobs always resisted so as to focus only on consumer products with the widest appeal. Indeed, on the analyst call to discuss the dividend, Cook said the company was already investing in a direct sales force.
Like the dividend, each of these moves would make sense when considered on its own. What company would refuse to tap billion-dollar opportunities like these? What shareholder wouldn’t want it to?
Cook insists Apple will never lose its focus. Indeed, he spent the first few minutes of today’s call with analysts talking not about why the dividend is good, but on why the dividend should not be taken as a sign that Apple is changing its ways.
In the end, it all comes down to whether his Apple can continue to come up with breakthrough new products, as did Jobs’s Apple.
“The cash had become an embarrassment in my opinion, and what Apple is doing is appropriate,” said Needham & Co. analyst Charlie Wolf. “The only real risk is that with Jobs dead, the ‘one more thing’ that was always there in the past may not come.”