By the time Steve Jobs died, Apple was rolling in cash. Now Jobs might be rolling in his grave over how the company is using it.
In just two weeks after it reported quarterly financial results on Jan. 27, Apple bought back $14 billion of its own stock as part of a plan to return $100 billion of its corporate cash pile to investors by the end of 2015. CEO Tim Cook, who took over as chief executive shortly before Jobs' death in October 2011, was reportedly "surprised" at the recent 8 percent drop in Apple's share price — which came the day after the company reported those disappointing fourth-quarter results. Cook told The Wall Street Journal he saw an "opportunistic" moment to buy back shares.
Apple can afford to take advantage of such opportunities, expensive or not, because it's so well capitalized. The company's current cash reserves total around $160 billion. But just because Apple can afford to return so much money to investors doesn't mean it has to, or even should. Jobs himself famously disagreed with the notion. Prior to Cook's takeover, Apple was known for not buying back shares or paying dividends. “We know if we need to acquire something — a piece of the puzzle to make something big and bold — we can write a check for it and not borrow a lot of money and put our whole company at risk,” Jobs once said.
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Investor Carl Icahn has been vocal in pushing Apple to be even more aggressive in returning money to shareholders. "Given [Apple's] massive net cash position and robust earnings generation," Icahn wrote in a recent open letter to Cook, "Apple is perhaps the most overcapitalized company in corporate history." As such, the activist investor believes that the company should not only be returning the money it already is, but that it should be returning more — $50 billion more, paid for with debt. Apple has already repurchased $40 billion of its own shares in the past year, and has paid out $3 billion in dividends as part of its capital return program.
What Would Steve Do?
Observers generally see Apple's capital return program, and this most recent round of eye-watering share buybacks in particular, in one of two ways. Tech-stock purists tend to read the onset of dividend payments as a sure sign a cutting-edge company has matured and left its innovative days behind. Apple's disappointing fourth-quarter iPhone sales and resultant share-price drop reflects this viewpoint, though it should be noted that sales were 51 million — a record for the company, but four million short of Wall Street forecasts.
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That Cook saw Apple's share price drop as an opportunity to buy back stock reflects optimism in the future of Apple: very bullish on his part but generally less so for others. "[The buyback] means that we are betting on Apple," Cook told The Journal. "It means that we are really confident on what we are doing and what we plan to do. We're not just saying that. We're showing that with our actions."
Actions that Jobs probably wouldn't have agreed with. But with Jobs gone, Apple has moved on, which is exactly what has investors worried — anyway you look at it.
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