Apple's Cook: We're Not Done Innovating Yet
Feb 13, 2013 5:00 AM PT
Despite a stock drop, a lawsuit from a hedge fund manager and questions about future products, Apple CEO Tim Cook told the audience at a Goldman Sachs technology conference Tuesday that innovation remains "deeply embedded" in the company's culture, and that it has "never been stronger."
Apple recently announced quarterly earnings that would have been the envy of many other companies but fell short of its high standards. Apple has lately seemed focused more on product refreshes than the innovative gadget launches that have become its trademark, and its stock is down more than 25 percent since its US$705 peak in September.
This week's conference in San Francisco gave Cook an opportunity to shoot down rumors, such as the one that has Apple releasing a smaller, more affordable iPhone designed to compete with cheaper competitors.
What About the Cash?
Apple is sitting on about $137 billion in cash. That has prompted hedge fund manager David Einhorn of Greenlight Capital to sue the company as a way to force Apple to distribute some of that money to shareholders. Apple wants to do away with issuing "blank check" preferred stock, and it has bundled that change to company bylaws along with other matters for its shareholders to consider.
Apple investors will vote on the proposed changes at the annual shareholder meeting at the end of this month, and Einhorn is arguing it is illegal for those proposals to be bundled together in a vote.
Typically, a lawsuit that wants an established company to change the way it hoards its cash wouldn't gain much traction, said Robert Heim, securities attorney at Meyers & Heim.
"Generally it will be unlikely that a judge would second guess the decision by Apple's board to retain a significant amount of cash, particularly since the board of Apple has articulated why it has kept the cash and what its future plans are," Heim told MacNewsWorld.
Even if the proposals were unbundled and brought to an individual vote, Apple likely has more of a hold over the majority of its investors than Einhorn, Heim said.
"Securities laws do not permit companies to bundle unrelated issues, and Einhorn has made a strong argument that Apple has bundled three unrelated proposals into one," he noted, "but Apple would be likely to still come out ahead on any such vote, because it has the support of other major shareholders who disagree with Einhorn's proposals for Apple."
Not So Fast, Einhorn
Apple responded in a public statement to Einhorn's lawsuit regarding the cash. The company said it was fortunate to be in such a position and that it was always open to dialogue about how best to return that cash to shareholders.
Cook was more direct about his feelings when he briefly acknowledged the legal action during Tuesday's presentation. He said it was an enviable problem to have and called Einhorn's stock ideas "creative," but dismissed the lawsuit as a "silly sideshow" and a "waste of shareholder money."
Instead of creative stock options, some investors and industry consultants have also suggested that Apple use a chunk of its cash for large-scale acquisitions. A purchase in the entertainment or semiconductor industry, for instance, could give Apple more control of the content and technology behind many of its current or future gadgets.
Cook addressed the suggestion Tuesday. Without going into specifics, he said that Apple had looked into "large companies," but declined to make a buy. The company will keep considering the idea, but wouldn't buy a company just for the sake of an acquisition, Cook said.
That very public admission -- that Apple's first priority is what's best for the company and its future product line, rather than pleasing shareholders - is exactly what Cook needed to say, said Trip Chowdhry, senior analyst for Global Equities Research.
"Every investor has seen what happened to Microsoft and Cisco once they started issuing dividends and caring more about the stock price than they did about innovation and being the first to market," Chowdhry told MacNewsWorld. "Cook had an ideal platform to put it squarely that an investment in Apple is an investment in long-term business."