Apple just announced that they would initiate dividend payments as well as a share re-purchase program. Is this the first step away from Steve Jobs vision and towards the inevitable toil towards the quarterly report experienced by all other companies?
The company plans to use about $45Bn for these activities and claims that this will still leave them with a significant war-chest of cash holdings out of the nearly $100Bn they have today.
I am saddened by this news as I am worried that this is a huge strategic mistake. Wall Street is a hungry beast and if you feed it with dividends, its strength and power will only increase over time. Steve Jobs was a master of regaining and maintaining control through visionary leadership, making the company deliver but also by starving the beast.
Apple is not a startup company where investors need cash to exit. They can simply sell their shares on the open market if they no longer fancy their position in the technology giant.
When people in finance talk about dividends, something that often comes up is the term “signaling”. I feel that the major signal we were sent by Apple is that Tim Cook is a weak CEO in relation to Wall Street compared to Jobs.
A fair question is of course, what I think Apple should be doing with all the money they have amassed over recent years. Why not give it away to investors?
First I have to say that I can’t give you a straight answer to that. I agree that it is unlikely that Apple would spend large amounts of the cash on a merger or significant acquisition because that would most likely go against their culture and ideas.
The best answer I can give is that if I was Tim Cook, I would spend a significant portion of it to buy increased independence for Apple, probably through a share buy-back program similar to what they are now proposing. Absolutely no dividends though.
Also, I would maintain a significant cash position for rainy days. I do not believe in running companies “lean” from a financial perspective because many competitive opportunities present themselves in severe market downturns when it is often hard to access cash to take advantage of the opportunity without becoming beholden to Wall Street banks. Something that the recent market downturns have made very clear.
I also think that creative companies like Apple in extremely competitive industries need more cash on hand as well as freedom from investors, in order to maintain performance towards their primary stakeholders, their customers. If not, I’m worried that Apple and other tech-companies will end up like their Telecom brothers and sisters. Utilities with no strategic outlook or connection to their customers.