Go to the Globe and Mail homepage

Jump to main navigationJump to main content

(Natalia Lukiyanova)
(Natalia Lukiyanova)

Apple investors set for 2012 cash battle Add to ...

2012 looks set to be an eventful year for Apple , with new CEO Tim Cook expected to launch a host of new products, including the iPhone 5, iPad 3 and the eagerly-anticipated Apple TV.

Many investors, though, are more preoccupied with Apple’s vast $81.6-billion (U.S.) cash haul, particularly with Cook hinting that that he could open the company’s wallet by making a strategic acquisition or even bringing back the dividend.

More related to this story

Apple has cash and investments worth $81.6-billion.

“There are two schools of thought,” explained Michael Yoshikami, CEO of YCMNET Advisors. “The allocation of capital matters, but what really matters is that Apple is a growth company – what will really drive that forward are innovative products and chipping away at competitors’ market share.”

Yoshikami cites the new versions of the iPad, iPhone, and Apple TV as catalysts, and also predicts that Apple may bring iPad technology to the MacBook Air with improved screen resolution and touch pads.

All the signs certainly point to Apple enjoying a strong start to 2012, boosted by robust holiday season sales.

Longer term, though, some investors are questioning whether gadgets alone are enough to maintain Apple’s stellar share growth of recent years.

“For the first time I can remember, I think a new stance on capital allocation would be just as strong of a catalyst for the stock going forward, than anything on the product front,” explained Chad Brand, president of Peridot Capital Management and author of the Peridot Capitalist blog. “Apple has gotten large enough that investors have priced in the fact that they will dominate their markets – I don’t think a company this size, even one as magical as Apple, can really surprise investors on the upside with sales of iPads or iPhones anymore.”

Brand notes that everyone expects Apple gadgets to sell like “gangbusters” in 2012, and warns that even sexy new offerings such as Apple TV may not move the needle for the company’s stock.

“Given that everything has essentially gone right for them in recent years, Wall Street is no longer affording the stock a premium valuation,” he said. “How can they really surprise us on the product side in 2012? I doubt they can – TVs would be a large, new market, but that new product is the worst kept secret today (and already factored in by investors as a result).”

With a new sheriff (or, rather, CEO) in town, there are hopes that Apple may reverse its dividend stance sometime during the coming year.

The tech giant stopped paying dividends in 1995, opting to focus on growth at a time when it was facing stiff competition from the likes of Microsoft. Fast forward more than a decade and a half ahead, though, and Apple is the king of Silicon Valley, dwarfing its rivals with a colossal $353.28-billion market cap.

Cook’s predecessor, Steve Jobs, had a long-standing aversion to dividends, preferring to keep hold of cash for potential acquisitions and “bold” investments.

“Now that Steve Jobs is gone, I want Tim Cook to modify/enhance these policies to position Apple to penetrate corporate markets,” explained Apple shareholder Ernie Varitimos, who runs the Apple Investor Web site. “So, while I think Mr. Cook should hold in reverence the needs of the customer, he should also make Apple attractive to institutional investors by offering a dividend.”

“Since the days of premium valuations are over, doing something with that cash balance would jolt the stock as much, if not more, than a strong quarterly earnings report,” added Peridot’s Brand. “Why they insist on doing nothing is beyond me.”

Cook was recently quizzed by analysts on the possibility of a dividend or share buyback. Speaking during Apple’s fourth-quarter conference call, the CEO hinted that while the money “isn’t burning a hole” in his pocket, he could be open to revisiting the company’s cash strategy.

“I’m not religious about holding cash or not holding it,” explained Cook. “We will continue to ask ourselves what’s in Apple’s best interest – it’s a topic for the board on an ongoing basis.”

With tech heavyweights such as Cisco and Microsoft eventually caving to investors’ dividend demands, though, Cook will face more questions on this topic during the next 12 months. There has also been chatter that Apple may open up its coffers for M&A.

“What I think we could see is an acquisition of some sort – I continue to believe that Apple will get into the streaming business,” added YCMNET’s Yoshikami. This, he explained, could center on content for Apple products.

There have already been rumors, for example, that the Cupertino, Calif.-based firm would make a move for online video service Hulu.

Ultimately, though, the sheer size of Apple’s cash hoard opens up plenty of options for the gadget maker, according to Yoshikami. “I think that we could see some sort of dividend, but I don’t think it’s going to be enough to seriously impact Apple’s cash position,” he said.

In the know

Top videos »