|TheStreet.com, Winter, 2013. This article was written with Oliver Pursche, the Co-Portfolio Manager of the GMG Defensive Beta Fund. It was part of a series of articles developed under an agreement with thestreet.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week.|
An open letter to Apple (AAPL) from Oliver Pursche, shareholder.
Dear Apple: It pains me to write this. It really does. I’ve been a huge fan of yours — in the stock and consumer electronics markets — buying more shares and more iPhones, iPads and iTunes than might be considered prudent. And as recently as November of 2012, I went on record saying that in 2013, Apple shares would likely hit $800. My good fellows, I think you have besmirched my reputation.
And given the problems that have surfaced recently, I can only say one thing: What was I thinking?
First, there’s profitability. Yes, I understand you made about $13 billion for the quarter ended December 31, 2012, the highest of any American company. Yes, I know that it was 30% more than the next highest company, ExxonMobil (XOM). And yes I know it was a record quarter for the company.
But shouldn’t it have been more? Like, a lot more?
I mean, Exxon has to extract oil from three miles under the Gulf of Mexico to make any money, and all you have to do is add another shift at the Foxconn plant in China. At this rate, you’re running at about $52 billion in profits for 2013. If you’re ever going to be the world’s first trillion-dollar company, I think it’s time to get the lead out.
Then there’s that whole mess with the $137 billion in cash just languishing on your balance sheet. Even worse, it appears to be growing!
Listen, we all need a cushion against adversity, but you are challenging credibility, my friend. I think if we learned anything from AIG (AIG), it was that keeping a lot of cash on hand isn’t the prudent form of management it once was. The world could go to hell in a hand basket, as it very nearly did, then Uncle Sam steps in, and things turn out just fine. Despite all the hue and cry, Goldman Sachs still got 100 cents on the dollar for what it was owed from AIG credit default swaps. Talk about a bunch of Chicken Littles!
Then there seems to be this very nasty, very public, and in my view, very unnecessary fight with that nice young man at Greenlight Capital. Yes, I understand that if he was a long-term investor, he might look at the value that’s been unlocked over 10 years, but that’s not what’s happening. What he’s looking at is what’s happened over the last six months. And believe you me, when you shorten your time horizons, it’s amazing what a different world it is indeed!
I read in a research report that you and Samsung together have 103% of the smart phone industry profits. My current pique notwithstanding, I will admit that grabbing so much of the profits that you give many of your competitors a loss is a pretty good trick. But just so we are clear, my expectations are losses for everyone! Except you, of course, because now that I’ve bet my good name on the fact that you will someday soon put a comma in the price of your stock, I’m very anxious that you get on with things and do it.
Very truly yours,
A Frustrated Shareholder