Steve Jobs is not serving shareholders well, but Apple zealots don't get it, says a Journal columnist.

Bob Evans, Contributor

January 11, 2010

5 Min Read

Them's fightin' words indeed, as Wall Street Journal financial columnist Brett Arends says Jobs is inappropriately hoarding cash instead of returning some to Apple shareholders, and that the behavior of some Apple zealots proves his theory that "the stupidest people own the smartest phones." Well, flame on, Brett!

What's the right balance for Apple—or any other tech company—as it looks build up a significant war chest in these highly acquisitive times while also rewarding loyal shareholders that have helped make Apple and Jobs phenomenally successful and wealthy?

Do Apple's owners, many of whom project a devotion to Jobs and Apple that sits somewhere between the merely rabid and the unconditionally fanatic, want their brilliant and quirky CEO ("I didn't know what stock options were") to push the company's cash stockpile beyond its current $30 billion to be ready to buy great young companies that will enhance Apple's mythical status? If so, how much cash does Apple need to buy great young companies—wouldn't $30 billion seem to be about enough?

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Or is chairman Steve looking beyond the small fish to some big ones: movie companies, animation companies, music companies, concert halls, TV studios, car companies, media companies, wireless companies, or maybe even another global icon with an unconventional CEO: Nike? Then it'd be really, really easy to synch up your iTouch with your Apple running shoes.

Or maybe Steve Jobs wants do a Richard Branson and establish a new kind of transportation empire called Apple Jetlines, with service to Apple Space Stations coming soon to an iRocketPod near you?

The cash-stash seems to rest on the strategic arc Jobs has in mind for his company. And since Apple guards its strategy about as tight as two coats of cheap paint, we probably shouldn't expect to see too much detail on any of that. But here's what got Arends so upset: "Apple's cash hoard is rising," writes Arends. "Operating cash flow has recently been about $10 billion or so per year. The word now: The company had a very strong fourth quarter -- analysts are predicting more than 9 million iPhones sold, and Ben Reitzes, analyst at Barclays Capital, says his company's research suggest terrific sales in Europe, especially in the U.K. and France.

"The next quarterly update will surely show the net cash has risen still further. Even by conservative estimates the surplus is probably nearing $30 per share. This is not all money Apple needs to run its business. Most of it is sitting in low-yielding investments like short-term corporate bonds. It's earning next to nothing. "

And that, Arends says, is "dragging down" returns for Apple investors—but don't get the impression that his concern is that they're all widows and orphans hoping that Apple dividends will keep roofs over their heads and gruel on the table. Quite the contrary—Arends expresses naked contempt for the many Apple shareholders who are also Apple zealots, and therefore unlikely—or in his estimation, unable—to think clearly about anything having to do with Apple and Steve Jobs:

"Last summer, writes Arends, "I observed that Apple stockholders were unlikely to get the same kind of 55% annual returns over the next five years that they had gotten over the previous five.

"Some Apple partisans, apparently unable to read or do basic math without an "app" to help them, took this as a prediction that Apple stock was going to fall. This illustrates Arends' First Law of Technology: As phones get smarter, people seem to be getting more stupid—and the stupidest people own the smartest phones."

Now, I'm all for wide-open debate but that seems a touch defensive, wouldn't you say? Lord knows, the Apple faithful can be a vociferous bunch and to them, the only thing worse than not having more than 5,000 songs on your iPhone is saying something critical about Steve Jobs or the company he has run so brilliantly for the past decade. Doesn't matter how accurate, insightful, or potentially valuable that observation might be: if it's not a hosanna, they're gonna bring the heat.

Think about that in terms of brand-building and your own company: how vigorously would your best customers defend you? Or do you give them reason to think that you're just another in a long line of suppliers, with the only difference being that your turn has come to be at the front of the line for a fleeting moment? Behind the silliness of some of the stuff above lies a very powerful message: Jobs and Apple have created products and services that transcend categories, transcend seller/buyer roles, and transcend—as Arends points out—the norms of rational self-interest shareholders almost always express.

Nevertheless, Arends has a strong point to make, and he hammers it home again:

"Why is Apple hoarding its cash? A company spokesman explains: "We have maintained our cash and strong balance sheet to preserve the flexibility to make strategic investments and/or acquisitions," writes Arends. "Steve Jobs really doesn't need an acquisitions warchest of around $30 billion, and it is alarming to think he wants one. He should start handing back this money to stockholders through dividends. Regular, quarterly dividends are better than a one-off special payout because they impose financial discipline on the management. But the core principle is the same in either case. The money belongs to stockholders: Give."

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About the Author(s)

Bob Evans


Bob Evans is senior VP, communications, for Oracle Corp. He is a former InformationWeek editor.

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