To say the least, it has been a wild couple of months for tech giant Apple Inc. (AAPL). From a 30% stock drop to management changes to increased competition diminishing market share, it seems as though nothing can go right for the iPhone and iPad maker these days. Most recently, Apple has faced scrutiny from big-time investors like David Einhorn regarding the stockpile of cash the company is just sitting on. While many speculate on what Apple should do with its large amount of cash, there does not seem to be any consensus view on what the company can do to pull it up from its stock price’s falling state. But maybe the company doesn’t have a cash problem after all; it seems like its a product problem that is failing to get investors’ satisfaction.
In an event at Goldman Sachs on Tuesday, CEO Tim Cook called the recent lawsuit from David Einhorn as “bizarre” and a “silly sideshow.” In his lawsuit, Einhorn states that Apple needs to let go of its cash, whether its through reinvestment or paid back to shareholders.
Many analysts agree with Cook’s negative assessment of the lawsuit, believing that Einhorn and other investors’ dissatisfaction with Apple has more to do with a 30% stock drop since September than the $137 billion in cash it is storing away. Cook says that they are being sued for something that is good for shareholders; having this tremendous amount of cash will only be good for the long-term growth of Apple.
He went on to say that Apple is open to several possibilities, even a potentially large acquisition. But there are no immediate plans for Apple to jump into such a deal. He made a point to say that Apple is focused on long term growth and that the money is not burning a hole in their pocket.
Despite all of Tim Cook’s predictable optimism regarding the future for Apple, there is still a black cloud casting a shadow over the tech giant’s recent struggles. Even after the event at Goldman Sachs, investors have not shared Cook’s optimism, with shares falling roughly 2% by mid-afternoon. Cook may be right saying that Apple’s cash is a good thing for investors; maybe Einhorn is just unsatisfied because the company is not making him even more wealthy. However, if Apple doesn’t turn a corner with regards to its products, it is unlikely that any one will be ultimately satisfied.
The Product Problem
When it comes down to it, the problem facing Apple is not its large stockpile of cash, but its stunted product innovation that is drawing away customers and thus investors. In the past couple of years, especially since Steve Jobs’ passing, Apple has failed to maintain a stranglehold on the state of tech innovation. Instead, the company has continued to roll out new versions of old products at lower prices; stale and cheap products are no way to maintain the title of “most valuable company.”
Though Tim Cook maintains a position that Apple’s culture of innovation is stronger than it’s ever been, his time at the top of the company has not supported his claim. There have been talks that the company is developing a high-tech wrist watch and a TV that will revolutionize home viewing, but it is hard to say whether these products actually will make an impact on Apple’s bottom line and status as the tech king.
It doesn’t matter if Apple has a lot of cash to reinvest or payout to shareholders; if it doesn’t do something to impact its product line then none of it matters. The company is losing investors and customers. A stockpile of cash won’t save them from their competitors — only new and fresh products will.
The Bottom Line
In all honesty, no one knows exactly what is in store Apple going forward. Analysts, pundits, and investors all have a variety of opinions regarding the future of Apple. There are many options for Apple going forward, with many paths to take for a successful future; only time will tell whether the company takes the right path. Apple may be a sleeping giant or one of yesterday’s heroes; spending its stockpile of cash will only answer this question if its products take our breath away once again.
Apple Inc. (AAPL) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.
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