Apple's Cook needs to answer $137B question

Waiting for Apple's chief to address the numerous questions on the minds of investors is an exercise in futility.

By The Fiscal Times Feb 14, 2013 11:59AM
Apple iPhoneBy Suzanne McGee 

The Fiscal Times logoForget about the frustrations of waiting for Godot, as depicted in Samuel Beckett’s famous play. Waiting for Apple CEO Tim Cook to say anything significant to address the numerous questions that weigh on the minds of many investors -- and that appear to be weighing heavily on the company’s stock price -- may be just as much of an exercise in futility.

As market indexes have crept ever closer to their highest levels since 2007 in recent weeks, Apple’s (AAPL) share price has largely moved in the opposite direction. The company’s earnings, as impressive as they were, disappointed Wall Street, and so far there is no clear indication of what the company will do in order to return to the days of high growth and high margins.

Yesterday morning marked what was widely anticipated to be a significant appearance by Cook at the Goldman Sachs (GS) Technology and Internet conference out in California. Policy wonks may have spent the day eagerly anticipating President Obama’s comments at Tuesday night’s State of the Union address; for many investors, however, what Tim Cook might have had to say about the state of Apple was even more important.
But what's next?
The problem was that Cook ended up saying remarkably little of significance, and even less that was at all surprising or revelatory. Does it shock anyone to hear that Apple's "only religion" is to never "make a crappy product" or that its corporate mantra may be "We must do something great"? Was it really all that noteworthy that Cook thinks the display screens on the iPhone’s archrival Samsung Galaxy S III are "awful"?
In the unlikely event that he found something worth praising about the Galaxy smartphone -- and the still more unlikely scenario in which he uttered that praise aloud during his comments -- Cook’s thoughts might have merited headlines. As it was, not so much.

Apple "innovates like magic," Cook reminded his audience. Yes, but what is coming next? 
With the smartphone market rapidly maturing (except for emerging countries, where both Apple and its rivals likely will face more price pressure from competitors like Huawei) and margins on the iPad tablets contracting on average, thanks to the introduction of the iPad mini, investors were eager for some hints about what all that innovation magic might lead to in the way of new products. But there wasn’t any of that, either.

In fact, as Estragon and Vladimir discover peering into their hat or their boot in Beckett’s play, there was a lot of nothing. Except, perhaps, frustration on the part of Cook that his investors (and especially hedge fund manager David Einhorn of Greenlight Capital) want Apple to do something. In Einhorn’s case, that is to create a special class of shares that would pay out a whopping dividend to their owners, addressing the peculiar problem of Apple’s $137 billion cash mountain. Einhorn is even suing the company to prevent a change in policy that he believes would make this more difficult to execute.
For his part, Cook simply dismissed Einhorn’s lawsuit and, implicitly, his arguments, as a
"silly sideshow."
Tired of waiting
Clearly, if some of Apple’s shareholders and investors are frustrated by all the waiting for the company to do something -- launch a new product and not just a version five or six of an existing one; announce a big dividend payout; take the first step in a new direction through an acquisition -- Cook’s response is irritation and incomprehension.

Maybe that’s because he failed to put on his "listening ears" (as the parents of one kindergartner I know phrase it) before he started talking. Cook made it clear, for instance, that Apple has no plans to launch a cheaper iPhone. 
That’s fine, but had he been listening, he would have picked up on the uncertainty surrounding the sales of the iPhone 5 and the fact that Apple didn’t break out model-specific sales when it reported its results last month.
He would have understood that the questions surrounding a cheaper iPhone stem from multiple research reports suggesting that the smartphone market is more mature, and owners are less willing to upgrade their devices every few months. Just because he sees sales of iPads and mini iPads, with their lower margins, as an opportunity to convince those buyers to move on and buy other Apple products doesn’t mean that investors will automatically have faith that this will happen, or be enough to drive sales and margins higher across the board.

Apple’s stock drifted lower in the aftermath of Cook’s comments, having risen slightly as he spoke. The reaction isn’t surprising; aside from an offhand confirmation that Apple has contemplated large acquisitions but ultimately not proceeded with any of them (no names mentioned), there wasn’t much here that would challenge an investor’s preconceived opinions.

Resolute bulls will take comfort in Cook’s optimism and confidence; those made anxious by the stock’s fall from grace won’t find much here to revive their enthusiasm. And the status quo remains in place, at a time when what Apple really needed to do was deliver something that would jolt investors into remembering that this is Apple, the innovator par excellence.

Suzanne McGee is a columnist at The Fiscal Times. Subscribe to The Fiscal Times' FREE newsletter.

More from The Fiscal Times:

Feb 14, 2013 3:20PM
If they want to rise above and stay there, there is 1 thing that will get them there without some advanced technology, what is it? 

Make everything in the USA. They are making huge percentage profits on each of their products so they can afford a smaller margin per item, but they will see more items selling increasing profits. Do this and market it and see market share grow. Remember me if you do it!
Feb 14, 2013 4:56PM
apple is a great phone, but the iphone 5 was a huge dissappointment to me. i left apple and went to  the galaxy note 2, which is the best phone iv ever had.  So mucb more i can do on the phone and with the phone. Best of all i can upgrade my memory if ever need, well add to it.  I would never tell any one not to buy a iphone or a apple prdut but i would deff show them how much better the galaxy phones and tablets are.
Feb 19, 2013 3:50PM

It`s not just Apple, but many companies are sitting on tons of cash.Don`t tell me companies can`t afford

to offer health insurance and to raise the minimum wage.It should match all raises the congress

gets.Didn`t congress get a 100% raise when Ronnie was Pres?

Feb 14, 2013 4:01PM
Feb 14, 2013 3:05PM
ipod came out in 2001, 6 years later iPhone came out in 2007, 3 years later iPad came out in 2010.  2013 or 2014 would fit within their time frame for unleashing a new product.  It will happen, don't get caught up in the noise.
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