The Apple doesn't fall
Apple should put its wealth toward developing new technologies to improve its products
Last Wednesday, Apple Inc. reported its quarterly results to investors, and though revenues and profits set new company records, the stock sunk nearly 12 percent during trading the next day. The drop in this one company was enough to shake up major market indices — especially Apple’s index, the NASDAQ, which fell nearly 1 percent.
Many investors were spooked by some things that were said — and not said — during the conference call. Tim Cook, the company’s CEO, rushed to take an optimistic view of the company’s results. While the CEO is supposed to sugarcoat results a little to quell investor concerns, with results and guidance not meeting investor expectations, was it really wise to make no mention of how the company is going to revive itself?
During the call, Peter Oppenheimer, Apple’s chief financial officer, announced a change in how the company would provide earnings forecasts. Apple is known for releasing conservative estimates, which it then easily exceeds when reporting earnings. Oppenheimer said Apple would start providing a range of guidance instead of a single figure in an effort to increase transparency.
Hearing this on the call, I watched the after-market react negatively. The stock gave up another 6 percent in addition to the 5 percent prior to Oppenheimer’s statement.
For the past quarter, Apple sold an average of six iPhones and three iPads per second, yet investors wanted to see more. Shrewd investors feared the iPhone and iPad, which served as Apple’s primary cash cows for the past few years, are losing their popularity because of competitors like Samsung on the Android platform, which has been bridging the divide in quality and features.
Additionally, investors hoped the iPhone, iPad and iPod (considered Halo products) would drive new customers to the Mac. Mac Sales were down 18 percent from the previous quarter, signaling a general market trend away from the personal computer. Additionally, there were no mentions of breakthrough products in the pipeline. All this, combined with the fact that Apple has more cash on hand than the U.S. government, leaves investors understandably wanting more.
What could Apple do with its $137 billion in cash? It could pay back investors in the form of a dividend, but that would be boring. It could also repurchase more of its stock, but again, similarly boring, and that does not create future growth. Apple needs to invest more in people and research.
Take, for instance, some research currently being done with battery technology. By procuring some of the best researchers in the field and creating a better, patented battery, every single one of Apple’s products could see substantial improvement over the competition.
While money cannot directly buy people, it can buy companies that have people. Companies like Intel, Visa and Ebay are all well within Apple’s buying power, and the people at these companies are extremely good at what they do. Apple could even buy Amazon, but antitrust laws would bar the acquisition, as Amazon competes with Apple in both the music and tablet industries.
Visa, for example, has a well-deployed payment infrastructure Apple could acquire in order to harness the relationships Visa already has with merchants. In this way, Apple could become a dominant player in the mobile-payment avenue.
In the near-term future, Apple needs to capitalize on foreign growth with its iOS platform. One main impediment to foreign expansion in China is Apple’s inability to sign a deal with China Mobile, one of China’s main 3G carriers. But nothing can seal a deal like $137 billion in cash.
Though some investors worry that Apple’s magic is lost with the death of Steve Jobs, I think investors are overly pessimistic about the company’s future prospects.
Andrew Kouri’s column appears bi-weekly Thursdays in The Cavalier Daily. He can be reached at email@example.com.