Monday, March 19, 2012

I fear Apple is about to make a massive mistake: will investors get the money or will Apple continue to invest?

I can't think of a worst thing Apple could do with its massive cash reserves than to pass on a big portion of it to its shareholders. But that might be exactly what Apple might announce today.

For past months, as Apple's cash reserves have grown, cries from inside the investment community have grown that Apple should share the wealth with its shareholders by issuing a dividend. These same investors, who weren't investing in Apple when the company really needed the money (that important cash infusion came from Microsoft), have been benefitting hugely from the run up in the stock's price. They want more. They demand more.

Reuters is reporting this morning that Apple will discuss the notion of a dividend – either a one-time cash outlay, or a recurring dividend – at a meeting today. I hope this untrue, but I fear Apple's CEO Tim Cook is far more vulnerable to the cries he hears from the wolves at the door than Steve Jobs would have been – who most likely would have told those same investors to stick it. He would have asked them "where were you when I need you?"

Apple's stock price may have run up in value due to the explosive growth in revenue and profits, but speculation is also part of this run up, as will it always be part of any company's stock price. To play this game with its cash reserves is a bad sign. If and when the company reports a disappointing quarter, and the stock price tanks, is it in the intention of the company to defend the stock price? Investors will surely demand it, but it is the beginning of the same cycle that kills off so many companies.

Apple's cash should be put to the same use in the future as it has in the past: R&D and investments. Siri is but one of the many examples of a technology bought thanks to its healthy bank account. If Apple decides it is time to "give back to the investors" then maybe it really is time to short the stock.

Update: a dividend has been confirmed. Clearly the Steve Jobs era is dead, dead, dead.