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Apple Shareholder Meeting: No Dividend or Stock Split, Majority Vote Requirement for Directors
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This discussion isn't really the domain of economics, which deals with the macro world of supply and demand inputs, global resources allocation, etc. It's the domain of finance and business analytics (two areas that are my core profession). That said, I understand what you meant...
If by "stock pickers" you mean "day traders"... they're not investors by any reasonable definition. They're speculators (and the worst kind) who use what they call "technical analysis" which is the fallacy of believing that the market activity chart history can tell you the market activity chart future. They're not analysts in any professional sense of the word.
What I am talking about is, at its core, business valuation. Any business analyst, M&A consultant or private equity firm can and routinely does know what the operating value of a company is, and can make projections on what their operating potential is (within reason).
What I'm NOT talking about is so-called "technical analysis" whereby laypeople and even low level financial advisors use meaningless ratios like price to equity to rationalize what ultimately is just dart throwing and not hardcore business valuation mechanics which is the process of determining what an institution or company should pay (fair value) to acquire a company.
When I use the term "underpriced" or "overpriced" I'm talking about comparing market price relative to what the actual book or intrinsic value of the company is... the latter of which is absolutely measurable, especially in the world of manufacturing where it's easy to tick and tie inputs to outputs.
A shrewd investor doesn't look at a "stock" as a "stock."
A shrewd investor takes on the responsibility of sound business decisions, and treats every security as a company that they are evaluating (in a process that doesn't take very long or invoke totally esoteric formulas) for the purposes of intelligent acquisition. Then, the shrewd investor concerns themselves only with paying less for the asset than the asset is worth, because more often than not, if you've acquired an otherwise sound company at a reasonable margin of safety (the degree of discount, or difference between market price and intrinsic value), it will advance better than companies that are operating poorly.
But it's not concerning me when they don't advance, because I've not exposed myself to so much risk that I am forced to dispose of any asset at any given time. And I keep repeating this process of staggering realized gains on companies that I purchased at a discount and can now dispose of at a premium... rarely ever am I so heavily invested in any one issue that the dogs are going to kill me. But I don't go after a lot of dogs. The ones that get dogged the worst are companies that people are very aware of, so called "hot stocks" are the ones that become dogs. The ones nobody is looking at unless they're a serious investor, are pretty stable because very few speculators are playing casino with them. This can be either because the market is ignoring them, or, as in the case of Berkshire Common Class A, because the average speculator cannot get on board... and I like it that way.
I agree with the first half, and I *somewhat* agree with the last statement (consistency is possible depending on how you define "winner"; I don't define it as "slam dunk every time"). But I disagree with the middle of this statement, specifically about the trick being picking the next "winner". As does Benjamin Graham, finance professor at Columbia who, in conjunction with David Dodd, wrote the book "Security Analysis" which quickly became the gold standard by which professionals in finance conduct business valuation from within... as well as external analysts who work for ratings agencies, M&A operations and private equity firms (one of my colleagues is an SVP of Operations at Platinum Equity, and can confirm the models they use to evaluate the nominal price they should put forth to facilitate an acquisition). This is particularly relevant since institutional investment and market makers do have an impact on market price... and it's the interplay between their valuation and speculative noise mucking up the markets that results in market price irregularities relative to actual value. These irregularities are the opportunities that a shrewd investor pursues not by aggressive buy and sell, but by aggressively researching the underlying operations of companies that are candidates for investment.
"Price is what you pay. Value is what you get." - Warren Buffett
Graham's star pupil, the only one he ever gave an A+, was Warren Buffett. Along with Walter Schloss, Jean-Marie Eviellard, Stan Perlmeter and Charlie Munger, Buffett is among a group of highly educated individuals who have two things in common: They're all disciples of Graham and Dodd's value investment philosophy and fundamental method of security analysis, and they've all become billionaires as a result of consistently applying his principles.
"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return." - Benjamin Graham
The job of an investor, as Graham puts it above, is not to take huge risks and hit home runs all the time (which as you indicate correctly is not possible). It's to protect one's self from loss of principal, acquire sustainable lower returns, and let them compound over time. Implicit in this is one rule by which all value investors make their fortune: You will invariably make bad decisions from time to time. What wins is not making slam dunks exposing yourself to catastrophic risk, but knowing how to insulate yourself from catastrophic risk when you invariably make bad decisions.
The largest factor in insulating against catastrophic loss is by ignoring what the market has to say. The market is full of morons who behave irrationally. You want to sell to these people, not be these people. So, a shrewd investor looks the other way, on a very long time horizon, for companies that the market has underpriced by a significant margin relative to what the actual net working capital of that company is.
Consistently, decade after decade, these investments recede less in times of market distress but advance farther in times of economic prosperity. The net result is preservation and compounding of accumulated capital. It's great to pursue unrealistic returns but remember: Any number times zero is still zero. Every dollar of principal you risk and lose is years of compounded returns you've lost.
What you're telling me here only reinforces my statement that people seem to want Apple to be that easy cash train because they refuse to do the few minutes of homework it takes to identify the soundness of an investment. And by shifting to no-load index funds, you're doing the right thing that I'd recommend for anyone who isn't a high net worth individual with a comprehensive understanding of finance and business valuation. Most of you are never going to beat the S&P's 9.3% annual compounded average year over year.
But, to pique your curiosity, read the Superinvestors of Graham and Doddsville, to see how every one of Graham's pupils did for decades consistently beat the S&P. It's not rocket science. What it requires is patience and diligence... and a refusal to let Mr. Market tell you what you ought to pay for an asset. Following that, the best possible read on value investing is Graham's The Intelligent Investor. More advanced individuals, who have a background in Finance, may want to add Security Analysis to their reading list.
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Never let what other people are paying for an asset tell you, as an intelligent person, what you should pay for an asset.
Apple's room to grow shrinks with each quarter of growth.... think about it.
If they make $100 billion and then grow 30% in revenue, that's what? $130 billion.
Now what's it going to take to keep growing 30% year over year? $39 billion more revenue than prior year. Then $50 billion. Then $65.7 billion...
But every year as they do this, share of wallet they haven't acquired is shrinking. They can only replace products at a certain pace, because if they've already got 20% of your disposable income, and your disposable income is stagnating.... where's that additional $39, $50, $65 billion coming from?
Even Buffett has noted that the 22% year over year growth Berkshire has enjoyed is going to shrink, because at the $100 billion plus revenue scale they are at now, it will take humongous moves of the needle to keep producing double digit growth into the future. In Berkshire's world this requires more float than they have, or in Apple's world it means more products than consumers will buy in a given year.
An easier analogy is filling a glass... if the glass doesn't keep getting bigger faster than you pour into it, what is happening to the area of the glass that isn't filled? It's shrinking.
Even if existing customers replace products, that's just accounting for maintaining zero growth and not a decline. That isn't going to generate the needed growth of share of wallet to keep the needle moving at the pace that it has been.
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By stock pickers, I mean people who pick stocks. As opposed to the other way of investing.
I don't have the time to respond to your entire post but it may suffice to say that I've been reading Swensen, Hebner, et. al. lately, and I think they would certainly not agree with some of what you've said. They make what seems to me to be a very convincing case that even the best stock pickers will only rarely beat market averages over time. They are even less likely to beat a constantly balanced sectors investment approach. This includes professional investors such as fund managers. In their respective books they argue that the advantages of index fund investing has nothing to do with an individual's net worth or even much to do with their knowledge, but with the mathematics of the markets, and human nature. They make impressively detailed and sustained cases that virtually nobody is going to outguess the markets more than occasionally, and occasionally isn't going to cut it if maximizing your returns at an acceptable risk level is what investment is all about. It is for me.
For others I understand it's more about proving themselves to be smarter than the average bear. So they take larger risks for the potential to make larger returns. They're going to lose more often than they win. Me, I won big, once. I don't think I'm smart enough to repeat it, but I do think I'm smart enough know when to push away from the table and not be ask to be dealt in again.
I probably didn't do a very good job of explaining my position. I'm not saying anything different here. What I'm saying is that application of value investing principles will insulate you against catastrophic loss... while producing adequate, not outrageous returns.
These adequate returns, which may occasionally beat the S&P but in most years aren't likely to, will eventually snowball thanks to compounding... because the shrewd value investor is not exposing his principal to considerable risk of loss. Even a 2% year is a good year in that respect, because that's still forward movement. People who risk big are likely to lose big, sacrificing principal and therefore compounding their losses by way of time value of money*. These speculators try to sprint a marathon only to get the wind knocked out of them every few hundred meters, beaten by anyone who paced themselves the whole way.
My main disagreement is not over how many people are likely to beat the S&P in any given year ... most won't, a few will do it in some years. My main disagreement is over the perception of the usefulness of business valuation in the process of investment decision making.
I've already stated those points above so you may want to circle back to them.... but I think that you're doing the right thing in two ways:
a) Acknowledging that your gains on Apple were a rare occurrence.
b) Taking the gains of that rare occurrence and shifting them to index funds.
Very smart move, and I think you'll do well in the long term.
* TVM equation, the most fundamental, most important and simplest no-brainer lesson in Finance:
FV = PV * (1 + r)^nt
Be on the right side of this equation (literally and figuratively) and you will win in the long term.
Threads about AAPL the stock serve primarily to convince me an upsetting number of people on this forum have no idea how the stock market works.
I was rooting for a dividend because it would involve a modest payout for a company I don't really want to sell - my holdings in AAPL are something of a side emotional investment - which would be the only other way to actually take profits from being a very long time shareholder.
But I really don't blame Apple for not going down that road. Mostly I pity the writers of financial websites - they'll have to find something else to speculate about for awhile.
I was rooting for a dividend because it would involve a modest payout for a company I don't really want to sell - my holdings in AAPL are something of a side emotional investment - which would be the only other way to actually take profits from being a very long time shareholder.
But I really don't blame Apple for not going down that road. Mostly I pity the writers of financial websites - they'll have to find something else to speculate about for awhile.
I'm sure this wasn't directed at me.
First rule of any investment... never get emotionally attached. Emotional attachments will cloud your better judgment.
That's a bit like saying that a cruise ship carried 1000s of life preservers and never used them once, therefore it was carrying unnecessary weight and wasting storage space.
Just because Apple hasn't been spending it's money doesn't mean it hasn't been using it. A company that can go to a supplier and say we have a ton of cash in our pocket, not just bank loan guarantees, holds a lot of power in negotiations. That's what Apple's been doing. It's just short sighted to say Apple isn't using it's money just because the balance isn't getting lower or accusations getting higher.
That's a very dubious analogy, unless you are really predicting that the USS Apple is in serious danger of sinking. If it is, I want off at the next port, and I believe that any other sensible passenger would want the same. I'm not cruising on any leaky ships, thank you.
The scale and growth rate of Apple's cash hoard is under-appreciated it seems. They don't have tons of money, they have megatons. Many megatons, with more megatons added every quarter.
They are "using" the money, yes, but for short-term liquid investments. Much of it is probably lent out as commercial paper, I would guess. The most basic principle of capitalism is that profits are not for saving, or lending to someone else, they are for reinvesting back into the business. The capitalist assumption is, the best way for a company to increase profits is by using profits to do more of what they do best. Being a bank is not what Apple does best. At least, that's my opinion.
Even the most wide-eyed dividend optimists among us are suggesting nothing higher than a 3% dividend. As I pointed out earlier, a dividend of this size could be paid out of three or four months of free cash flow, at the current rate of accumulation. The cash mountain continues to grow, albeit at a slightly slower rate. Meanwhile, institutional investors who are currently locked out of AAPL can buy in, driving up the stock's market value. Investors get cash-money shoved into their pockets (which is taxed at the low preferred rate).
Score: Investors, 10; Naysayers 0
Yes and no. Your cruise ship is a good example and I think the correct one. Jobs wanted to make sure that Apple had the billions so that even if there were some major screw ups, his company could survive them and continue and wouldn't need a bailout from Microsoft or anyone. That is probably what these billions are actually being used for. But Apple seems to be too cautious here.
But you are wrong that having a hundred billion really helps you anymore than having 10 billion in the bank. If you are going to a supplier and promising to to make a huge order, the person filling that order takes what is called your credit risk. The risk that you will be able to pay for the stuff that you are ordering or manufacturing for them. The longer the timeline of your order, the more risk for the supplier. The supplier is wondering if Apple will be around to pay me when I deliver the goods. Since Apple doesn't really order much on long time horizons because the parts change so frequently, the suppliers really only take short term risk. Maybe orders are in place a year and a half in advance. Most stuff is probably ordered, delivered, and paid for within six months. The largest long term order that we have ever heard of apple doing was for iPad and iPhone screens where they cornered the market for a period and it was less than $4 billion. So those manufacturers took the risk that Apple might not have the $4 billion to pay them ( or whatever Apple didn't pay upfront). Most supply contracts are probably only in the 10s of millions. A nice war chest helps for that, but not that much and it doesn't help more just because it gets bigger. Apple has a AAA rating. They could have credit facilities of nearly unlimited size from AA rated banks (I'm not sure if any banks are AAA rated these days). And keep in mind the supplier has to sell to someone, so they have to take some credit risk from someone. Do you think if Apple dividend out $20 billion that its credit rating would go down? Do you think suppliers doing short term contracts really see Apple as having a credit risk advantage compared to sony or samsung or even amazon, (which are the competitors buying the same types of products)? Do you think suppliers are at all worried that those companies won't be able to satisfy their payment obligations six months from now?
I think this cash is being used as a survival cushion. It allows Apple and its employees the luxury of knowing that even if they screw up big time, Apple can still make their paychecks. It is the kind of cushion that could allow a company to get soft. Jobs probably would never have let that happen, but he also would never have allowed a dividend.
If so, it's more like the world's largest parachute. How might you feel if the captain on your next airline trip came aboard wearing a parachute? Less than confident, perhaps? For Apple's "survival cushion" to come into play, they'd have to turn from being hugely profitable to unprofitable. As with the airline passenger, is a disaster scenario one you'd feel comfortable with the people in charge anticipating?
You are right that Steve was peculiar about any number of things. Whatever was his reasoning, the lack of a dividend was probably his doing. Now I expect the debate on the board is about his legacy. There's probably a lot of "what would Steve do?" questions being asked. His widow might also have some real influence here too, as she would be able to vote his shares.
In the end, I think the answer to this question will say a lot about Tim Cook's leadership, and about the future of the company in the post-Steve era.
Yes, I think it is just reserve cash incase of problems. For Steve who wanted to and was able to change the world with his products, the cash reserve meant that his company would be able to survive anything and do any daring thing he wanted it to. It was also a control thing for Steve. Even if they couldn't think of anything to do with the cash, they might in the future. And as long as the cash sat at Apple, Steve had control of it. Steve trusted his control much more than anyone else's.
I'm very pro dividend. But this is in part because I think iPhone 5 and iPad 3 are going to sell like nothing has ever sold before. If Apple is making $1 billion a week now, I could see that doubling once iPhone 5 comes out taking into account the presumably larger manufacturing capacity that is coming online.
There is no definitive wrong or right. It's relative to the order size. Apple recently has not just placed a larger order, it has bought out a factories entire production for a year to ensure availability and price. Multiply that times the number of deals Apple has to make for it's various products.
I think Apple mgmt is taking the right course, and I'm also certain that when Apple does start issuing a dividend there will be much belly aching b/c it's not big enough. When M$ starting issuing a dividend it was .10. Great if you are Bill Gates or a mutual fund manager, but meaningless for avg owners. Meanwhile MSFT has done zero growthwise.
The discussion about what Apple should do with its excess cash flow started in earnest a few years ago, when the reserve was a quarter the size it is today. Even the $25b they had then was still a hell of a lot of money, now it's four times that much. I think you really have to appreciate the immense scale of the thing and how fast it is growing.
Obviously Steve did a lot of things very well, but he was certainly idiosyncratic about many others. This means to me that he wasn't right about everything just because he was Steve. The cash accumulation becomes a red flag for many sophisticated investors. It suggests to them that the company may not be totally confident about its future. Clearly Steve didn't give a hoot about any of that. Stockholders who attended the annual meetings got the "talk to the hand" treatment from Steve whenever that question was asked.
I really see this issue as a test of Tim Cook's leadership. Is he his own CEO or is he still ruled by the ghost of Steve? I think no matter how the dividend issue is resolved, it will be read as an answer to that question. So the implications are deeper than just whether we stockholders get a taste.
And yet, the cash mountain continues to grow at an almost exponential rate.
Dividends are calculated by dividing the per share annual dividend by the value of the share, arriving at a percentage. MSFT started out with a $0.32 dividend in 2003 for a return of about 1.0% based on the then-share price. In 2004 they made a one-time lump payout of $3.08, which was around 10% of the share price at that time. Since then they have steadily increased the dividend payout to $0.80 for a current yield of 2.5%. That's better than a 10-year treasury note, and even more importantly for income sensitive investors, it has continued to grow.
And again, MSFT has done nothing for over a decade because their leadership stinks, not because they pay a dividend.
If Apple declared a 2% dividend, which is at the lower end of the predictions, I don't foresee anyone complaining.
Anyway, a good story on dividends from today's LA Times:
http://www.latimes.com/business/la-fi-dividend-stocks-20120226,0,6400716.story
Yeah, it helps but the order size really isn't large enough and Apple's credit rating is so high and would stay high even with significantly less cash on hand that I just don't think Apple is getting better prices on its orders from folks because it can point to a $100 billion cash pile versus a $50 billion cash pile. While what I fear the cash pile allows Apple to do is to have the conversation about if the cash should be used to buy Facebook.
Dividends aren't meaningless, even small ones. I like my 2% Microsoft dividend, it allows me to accumulate additional Microsoft shares. It isn't much, but with the dividend, Microsoft at least beats the rate of inflation year in and year out. The main problem with Microsoft is that they can't come up with anything else that is profitable besides Windows and their core software products. They basically haven't created a new profit center in ten years (with the possible exception of XBox, but I don't know if that has ever turned a profit despite its large sales numbers).
Three articles for those saying that Apple is overvalued:
An Apple Dividend Is On Its Way And The Smart Money Knows It
http://seekingalpha.com/article/358321-an-apple-dividend-is-on-its-way-and-the-smart-money-knows-it
Apple: Future Trillion Dollar Company Trading At 46% Discount
http://seekingalpha.com/article/349881-apple-future-trillion-dollar-company-trading-at-46-discount
Apple Price Target: $790 Per Share
http://seekingalpha.com/article/359881-apple-price-target-790-per-share?source=feed
An Apple Dividend Is On Its Way And The Smart Money Knows It
http://seekingalpha.com/article/358321-an-apple-dividend-is-on-its-way-and-the-smart-money-knows-it
Apple: Future Trillion Dollar Company Trading At 46% Discount
http://seekingalpha.com/article/349881-apple-future-trillion-dollar-company-trading-at-46-discount
Apple Price Target: $790 Per Share
http://seekingalpha.com/article/359881-apple-price-target-790-per-share?source=feed
Not in the slightest, you just happened to be the person posting before me
True, if the purpose of that investment is indeed the investment. The point was that the reason I own stock in Apple is not actually as an investment.
It's like owning stock in say, the Green Bay Packers, if you live in Green Bay. It's got nothing to do with the return.
Each of these articles is written by a layperson who is not in the business of business analysis or valuation. There's a reason I don't read motley fool or seeking alpha.
I've heard about Leitao, and while his earnings estimates may be fortunately right for several periods... he doesn't really convince me that his valuation estimate is correct. He doesn't connect those dots. The other problem is that he doesn't take churn and other limiting factors into account, including shrinkage of remaining share of wallet.
That's ok, the concept of dynamics of the remaining pool tends to be frequently overlooked by lay analysts and even some professional analysts... but it happens to be a specific and professional specialty of mine, as is market segmentation analysis.
Unless Apple makes the employment universe substantially increase every prospective consumer's discretionary income, and consequently increase the frequency with which MARGINAL revenue can be generated, Apple's growth rate is going to shrink by virtue of two impenetrable mathematical realities:
1. The larger existing revenue gets, marginal revenue growth has to grow exponentially and continuously in order to just maintain the same percentage growth rate.
2. By market segmentation analysis, Apple has 25% of the smartphone market... even though overall revenues are up, iPhone sales are dipping... Every time they increase their pool of customers for "renewal", they reduce their "new acquisition" pool from which growth will come. Shrewd businesses have to pace this during any given purchasing cycle (the interval it takes before a consumer has the available share of wallet to replace the product), or they risk creating very uneven ups and downs in operating revenue outside of normal seasonality.
Every business at this scale experiences this flattening... even Berkshire isn't immune. As Buffett sharply pointed out... Now that they're doing over $100 billion in annual revenue, in order to continue a 22% year over year growth rate in per share book value of investments they need a much larger elephant gun. In Berkshire's case that would require a substantial increase in float from P/C operations (because they do not leverage acquisitions with debt), and in Apple's case it would require, as aforementioned, a dramatic increase in consumer wallet size in order for wallet size to keep outpacing acquisition of share of wallet.
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Recently MR ran a front page article belaboring what I thought was the bloody obvious, so I suppose I won't feel too shameful for mentioning it here again: Apple's phenomenal earnings growth rate hasn't been predicated so much on expanding the market for existing products as by pushing into new markets. What they need more than the process you have described above is the ability to continue to pull rabbits out of their hat. Not that this is necessarily easy, but whenever we've wondered whether it was possible, out comes another rabbit. This is how they've beaten the laws of large numbers, until now at least. The rumor consensus has the next rabbit being TV but of course it's far from clear now whether Apple can continue to defy the odds and mathematics by introducing yet another blockbuster product. But I think we know now that if they do it, this is how they will do it.
What you're describing is the idea of introducing a 4th or 5th or 6th product category but there are a couple of also obvious hindrances to this which I see all the time in my world of software even though our business unit alone is segmented fourfold: organic growth, growth by acquisition, customer retention and new acquisition. Every year that we grow, our available pool to generate marginal growth the following year gets smaller... for several reasons...
As each additional product is introduced, three of the possible limiting factors are:
1. Share of Wallet - the growth rate of size of wallet is finite, and it's been stagnating in the upper middle class for more than a decade. If Apple introduces a fifth, sixth, seventh product, what is the capacity for demand as dictated by available share of wallet that, here's the kicker I've repeated several times before, Apple (and their competitors) already have part of. It's a strategic blunder to commit resources to more product releases than the market can bear in a given timeframe.
Imagine if Apple had 50 differentiated product lines each averaging $500 ARPC. Could even every iPhone consumer afford to own all of them at any given time? No. Given the average disposable income of Americans, not a chance. So this is where either the wallet has to grow, or the share of wallet recedes as Apple leaves less and less marginal share of wallet for itself to acquire with every additional product they get people to buy in a given cycle.
2. Product Lifecycle - As new products emerge, sometimes they replace old ones. This doesn't account for marginal growth so much as it accounts for sustained levels of income. It's basically something every business has to do just to keep running in place. So count this one out of the growth equation.
3. Product Cannibalism - Apple introduces laptops, which by itself supplants desktop sales. Apple introduces mobile devices, which by themselves supplant laptop sales... and so on. This facilitates growth but it also inhibits growth.
Between these three key activities in continued operating income, a company has to be very clever, and strategic about how and when they release products. They can't add new products more quickly than the market can bear, they have to phase in new product lines as they phase out old ones, so as to avoid cannibalizing existing product lines for which there are fixed costs and Street expectations on segment performance acting as additional boundaries yet. And so on...
The other aspect of this is brand dilution. Apple can not be both the Ford and the Ferrari of consumer electronics. They have to choose. If they go the route of Omega and dilute their brand, they'll be right back where they were in 1996.
All of these suggest to me, with Apple's already strong financial position with a very limited product matrix, to be rather conservative about product releases and product line introductions.
Yes, all these considerations apply, and more. The only mitigation I can offer to this argument is that these forecasts were made three, four, five and more years ago. And yet Apple defied every rule of economic gravity, blasting through one barrier of conventional wisdom after another.
Yes it does get steadily harder as they go along, but they are now is a very special place, where their ability to leverage one product into the next has to be factored in somewhere, somehow. Leverage was the magic that built Microsoft into a powerhouse. Their mistake was to become both arrogant and lazy, a deadly combination of foibles. Will Apple fall into that trap? Some might argue that this is inevitable, and I have no counter to that argument, except that we simply don't know.
Yes it does get steadily harder as they go along, but they are now is a very special place, where their ability to leverage one product into the next has to be factored in somewhere, somehow. Leverage was the magic that built Microsoft into a powerhouse. Their mistake was to become both arrogant and lazy, a deadly combination of foibles. Will Apple fall into that trap? Some might argue that this is inevitable, and I have no counter to that argument, except that we simply don't know.
Let me add: My analysis doesn't even include rising exposure to litigation and cost of warranty claims (which pretty much doubled year over year) as a percentage of beginning warranty accruals. Apple completely depleted their warranty reserve for the nine months ended June 25, 2011, and consequently had to recover not only that but write back the $790 million and an additional $429 million. Who do you think they passed the cost on to, even though it was the consumer they shafted in the first place by... surprise, releasing a product that wasn't ready: iPhone 4 (re: antennagate). It can't be because iPhone 4S shipments took care of it... because iPhone 4S unit sales fell shy of expectations by 3 million units. In unsubsidized terms, that's a 2% shortfall on revenue expectations (across the entire business). That's enough to make my bosses crap their pants.
Microsoft is a perfect example of what happens when you experience explosive growth, and then have to rely on customer retention to drive growth. Every company on Earth limits its available pool with every additional sale... but the difference is that Apple is in, as you say, a special place... where they are much closer to that wall and running much faster toward it than any competitor in the tech world.
And finally, they have no Steve Jobs to coax those rabbits out of the hat. No one who follows him will be driven in the same way, because no successor will ever be the founder for whom Apple was a personal mission of doing the insanely great. It was his baby. It will never be anyone else's.
Microsoft is a perfect example of what happens when you experience explosive growth, and then have to rely on customer retention to drive growth. Every company on Earth limits its available pool with every additional sale... but the difference is that Apple is in, as you say, a special place... where they are much closer to that wall and running much faster toward it than any competitor in the tech world.
And finally, they have no Steve Jobs to coax those rabbits out of the hat. No one who follows him will be driven in the same way, because no successor will ever be the founder for whom Apple was a personal mission of doing the insanely great. It was his baby. It will never be anyone else's.
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In the end, conjecture. Only the actual future will tell.
Microsoft didn't need to depend on customer retention for growth, they chose that path. It's pretty difficult to grow a 95% market share.
Microsoft didn't need to depend on customer retention for growth, they chose that path. It's pretty difficult to grow a 95% market share.
My point is once you get there, your business has to shift its focus to retention... and it's not a fun business to be in because of the dynamics of existing customer expectations and all kinds of other fun and complicated metrics. Apple is getting closer as they keep growing, period. Their share of wallet increases, so remaining share of wallet shrinks. It's not rocket science and there's no way around this except by expanding the wallet faster than you expand into new product lines.
I don't make business/investment decisions on conjecture. What I simply do is evaluate the position of the business today, because the soundness of the business today is the engine that drives its operating prospects tomorrow. (Look at it from the converse... and you'll see what I mean)
I also don't make predictions about where I think they'll be.... all I'm saying is they're nearer to the wall than many other underpriced companies I can find in various industries. In the end, I'm looking for growth. It's not more special to me what products they are or aren't in... If a chewing gum company costs me less than working capital and they have solid growth, I don't care that it's an unsexy product. The internet isn't going to change how people chew gum 5, 10 or 100 years from now.
But technology is a much faster moving target... and that makes me uncomfortable. Rapid growth equals high risk, and I'm not in a hurry to risk loss of principal.
Famous last words of passengers on the Titanic and Costa Concordia. All ships are potentially leaky. Including all the ones you are currently riding (planet Earth and etc.).
Those who "predicted" they were on unsinkable ships are just fooling themselves about making a guess than turned out lucky. Your very life is a leaky ship: a common very first symptom of unknown heart desease is sudden death. The same thing has happened and will happen to world economies, markets, companies, and products. Complex systems never continue in one direction.