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The Apple Starts to Roll from the Tree

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Steve Jobs was famously disdainful of Wall Street.  When an analyst at the Apple 2011 Annual Meeting asked, “What keeps you awake at night?”  He replied, “Shareholder Meetings.”  On the other end of the spectrum was Al Dunlap.  Dunlap made decisions to appease institutional investors of Wall Street, long-term health of the company notwithstanding.  The book Chainsaw recounts the story of Dunlap dictating the closure of a 125-person factory, at a cost of $10 million,“to save less than $200,000 a year in transportation costs” because “Dunlap understood that Wall Street handsomely rewarded companies that shuttered plants and laid off workers.”

Thus the two ends of the continuum of positioning a company for Wall Street. On one end, Steve Jobs’ Apple focusing on the customer, and on the other, Al Dunlap’s Sunbeam focusing on the investment community.  Roger Martin makes a fascinating argument in Fixing the Game that companies cannot maximize two objectives at the same time. Companies can focus on the real world of customer satisfaction and long-term investment, or the short-term world of feeding large institutional investors on Wall Street.

So what’s that got to do with Apple today?  If you look closely, you’ll see a company moving ever so slowly in the direction of positioning for Wall Street.

In today’s news we learn Apple is reportedly testing a new tablet with a smaller screen to head off price competition.  Yet in October 2010, on the fiscal fourth quarter call, Jobs was disdainful of smaller screens because they simply cannot provide the greatest customer experience.  Asked if Apple is ready to “cede market share” to smaller, less expensive tablets, Jobs replies, “You’re looking at it wrong...You're looking at it as a hardware manufacturer.. [who] assumes the software will somehow take care of itself. And you're sitting around saying, ‘Well, how can we make this cheaper? Well, we can put on a smaller screen on it and a slower processor, and less memory.’ And you assume that the software will somehow just come alive on this product, but it won't.  The reason we wouldn't make a seven inch tablet isn't because we don't want to hit a price point, it's because we don't think you can make a great tablet with a seven inch screen.”

Or the news that Apple is actively considering uses for cash.  January 2012, first fiscal quarter call, analyst question: I'd like to follow-up on your comment that you are actively discussing uses of cash.”  Apple answer:  “We recognize that the cash is growing for all the right reasons and I would characterize our discussions today as active about what makes the most sense to do with the cash balance. We don't have anything to announce specifically today.”

On use of cash, Jobs was firm.   Analyst question: Will the company return the cash to shareholders in the form of a buyback or dividend?  Jobs answer:  “We don't let it burn a hole in our pocket, we don't allow it to motivate us to do stupid acquisitions.  And so I think that we'd like to continue to keep our powder dry because we do feel that there are one or more strategic opportunities in the future for our cash.”

What does this mean for investors?  At $500+ per share, AAPL continues to shoot the moon, delivering extraordinary products for customers and performance for investors. Longer term, however, competitors may have more of an opening to plant seeds for customers than previously expected.