Apple should do more than just pay off stockholders with a dividend. It should take the opportunity to redefine what it means to be a corporation.
It's hard to imagine how big a billion is. Now try with $97.6 billion (call it an even $100 billion), the wad of cash Apple has squirreled away. One hundred billion one-dollar bills weigh about 200 million pounds (or 100,000 tons, give or take) and if you laid them end-to-end they'd circle the earth 40 times at its widest point, the equator. Layer one bill on top of the other and you could build a tower 6.8 miles (36,000 feet) into the air, high enough to obstruct air traffic. Convert Apple's cash stash into a giant stack of pennies and you could reach the moon. Twice. The company that sprouted modestly from Steve Jobs' garage on April Fool's Day 36 years ago has enough cash on hand to pay off the total public debt of eight European Union countries. It could buy Facebook outright, or spring for 33 billion Starbucks tall cappuccinos or 100 billion packs of Skittles.
That's just cash. Apple's market capitalization is, as I write this, $566 billion, bigger than the entire U.S. retail sector, and some predict Apple could become the first trillion-dollar company. It's already worth more than Ford, GM, Boeing, and General Electric combined, twice the size of Microsoft, and equal to two Walmarts, five Amazons, or 10 eBays. Its half-a-trillion-dollar market cap would place it 25th in the world in gross domestic product between Thailand + South Africa (not an exact comparison, but you get my drift). Meanwhile, Apple gets richer, reporting revenue of $46.33 billion and net profit of $13.06 billion in its last quarter.
So I was disappointed that Apple's big announcement earlier this week turned out to involve dividends to stockholders. The company had issued a press release on a Sunday, which gave the impression that CEO Tim Cook planned an earth-shattering announcement. Instead we hear news only a stockholder could love. What happened to the company that once lionized "the crazy ones," "the misfits," "the rebels," "the troublemakers," "the round pegs in the square holes," "the ones who see things differently," and "push the human race forward"?
Now that Apple is the richest company in the world, it has an historic opportunity to redefine the role a corporation can play, and if Apple leads others will follow. When Steve Jobs recruited Pepsi president John Scully to jump to Apple, he asked,
"Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?"
Now that Jobs is gone, I'm throwing down a similar challenge to Tim Cook and Apple's board:
"Do you want to sell entertainment devices for the rest of your collective lives? Or would like to do something that takes real courage and make the world a better place?"
Here's how I propose Apple spend some of its billions and invest in the collective good:
About the iPad Apple boasts "the device that changed everything is now changing the classroom." If Apple is serious about changing education it should invest in the classroom of the future. The company could work with top educators to create a learning environment that would not only improve the efficiency of education, but would tap the imaginations of our nation's school children. In other words, do to education what the Apple Store has done to retail.
In Walter Isaacson's biography of Steve Jobs, Jobs says he told President Obama that Apple could relocate more manufacturing plants from China to the U.S. if the company could hire an additional 30,000 American engineers. They would not have to be PhDs from MIT or Carnegie Mellon. They just needed basic engineering skills for manufacturing, which could be learned at community colleges or trade schools. Apple could--and should--fund programs across the country to train these engineers. It could provide grants to these trade schools and community colleges and offer free tuition as an incentive.
Steve Jobs believed that Apple's success ultimate depended on controlling the entire ecosystem so that hardware and software worked seamlessly together. Yet this tightfisted control hasn't extended to its supply chain management. A former Apple executive told The New York Times.
"We've known about labor abuses in some factories for four years, and they're still going on Why? Because the system works for us. Suppliers would change everything tomorrow if Apple told them they didn't have another choice."
Apple should apply the same ironfisted control it exerts over its design process to its working conditions overseas. This, admittedly, is a much taller order, as the factories are not owned and operated by Apple. There has been speculation lately that bringing production to the U.S. would not crush the company's bottom line, but the issue is complicated, as the Times has illuminated in a recent series.
Nicholas Thompson, the editor of New Yorker.com, served up a suggestion over Twitter:
"Personally, I wish Apple decided to use its cash on futuristic R&D---like the old Xerox model."
Apple could create the modern equivalent to Bell Labs and let great minds working in tandem conceive of even greater inventions, the kind that dazzle the mind and nourish the human spirit. Realize that "the minute that you understand that you can poke life ... that you can change it, you can mold it ... that's maybe the most important thing."
Yep, that's Steve Jobs. Here's hoping Apple grows up to change the world beyond selling mere electronics, that it embraces a new kind of corporate heroism at a time when we could use some heroes.
COMMENTARY: I was also very disappointed when I heard that Apple CEO Tim Cook had announced, subject to declaration by the Board of Directors, Apple plans to initiate a quarterly dividend of $2.65 per share sometime in the fourth quarter of its fiscal 2012, which begins on July 1, 2012.
Additionally, Apple’s Board of Directors has authorized a $10 billion share repurchase program commencing in the Company’s fiscal 2013, which begins on September 30, 2012. The repurchase program is expected to be executed over three years, with the primary objective of neutralizing the impact of dilution from future employee equity grants and employee stock purchase programs.
Peter Oppenheimer, Apple’s CFO said.
"Combining dividends, share repurchases, and cash used to net-share-settle vesting RSUs, we anticipate utilizing approximately $45 billion of domestic cash in the first three years of our programs. We are extremely confident in our future and see tremendous opportunities ahead.”
It is not too uncommon for corporations whose stock price skyrockets, to buyback shares in order to keep earnings-per-share manageable. That's the only reason they are instituting a share repurchase program.
It is my opinion that Apple is not a socially conscience company, but one driven strictly by increasing shareholder value and profitability. Steve Jobs never really cared about people, particularly Chinese workers. In fact, he was incredulous when presented with the facts. He said during an interview with All Things Digital, "Our plants don't operate sweat shops." He was obviously wrong.
It was only after the true situation with the Chinese factories, the factory worker suicides, complaints by Chinese environmental protection agencies over massive pollution caused by Apple's Chinese plants, and the actions of thousands of people complaining through the press and workers rights organizations, that Steve Jobs, and now Tim Cook, have taken action to improve worker conditions, increase factory worker wages and reduce hazardous wastes. How those efforts finally pan out remains to be seen. I am not so confident.
It would be nice for Apple to "think differently," but I just don't see it happening. Apple culture cannot be changed overnight. Tim Cook, the Steve Jobs estate, and other Apple executivs will benefit substantially from the any dividends declared. I looked into the matter, and Tim Cook alone stands to gain the most--dividends of $240,000 per year beginning in late 2012. Over three years, that's $720,000, not including the increased value of the stock options he will have vested over the next ten years.
Apple does intend to sell iPads to the schools, but don't expect the company to offer the schools much in the way of discounts. The schools that bought the originally iPad paid about $500 each, which isn't much of a discount. I don't expect much to change. Apple will screw the schools on price. You can count on that.
I also think that Steve Jobs lied or was joking around when he told Obama he would move manufacturing jobs from China to the U.S. Apple is not about to giveup the highest profit margins in the computer industry. I think Apple will continue to manufacture its magical devices in China in order to insure those high profit margins. No corporation that I know would fund the training of engineers. They can get them a whole lot cheaper from India, China, Western Europe, Russia and other nations. Apple keeps nearly $50 billion of that $100 billion in cash in foreign banks to avoid U.S. income taxes on foreign earnings. This is all wishful thinking. Like I said before, Apple is not a socially conscience company. They put up a nice front, but its all fake.
When it comes to R&D Apple spends the least of any high-tech company because its entire business model is based on producing just a few truly great products. Apple's R&D does not operate like a GE, HP, Intel or any other high-tech company. Apple's R&D is structured like Lockheed's Skunkworks. Super secret, small teams of designers and engineers. Steve Jobs wanted it that way. Something he adapted while working on secret alien technology for NASA. The least number of people who know things, the better. Once Apple decides on what the new product will be, Apple's R&D sets up small R&D teams, all working on a few key aspects of the new product.
Sure, I would love for Apple to "think differently," but it is never going to happen. However, it sure is cool to dream and fantasize, isn't it?
Courtesy of an article dated March 19, 2012 appearing in Fast Company