Tuesday, January 18, 2011

Steve Jobs' Medical Leave, Cash Levels & Apple Pundits

Since I wrote this morning's post over the weekend, I didn't include the recent news of Steve Jobs' latest medical leave. Nor this morning's Wall Street Journal pieces concerning Apple. One focused on new Android devices, the other on an institutional manager's fury over the tens of billions of cash on the firm's balance sheet.

Of the three developments, I'd say that Jobs' departure will be the most critical. As expected, it knocked some value off of the equity's price this morning, causing a 3.7% drop by 11AM, as I write this post. As a growth equity, it's understandable that uncertainties over Jobs' future at the company will affect the forward-looking component of its price. So even strong quarterly performance reports will probably be overshadowed by these worries.

As to the cash concerns, I continue to be surprised by whining fund managers who can't simply make a buy/sell/hold decision. They keep wanting to push management by complaining in public, whereas simply dumping the equity if they really object to Apple's financing policies would probably have far more effect. Until these managers mount an Ed Lampert-style takeover of Apple, however, they'd be better off just voting with their trades.

As to Android-based smart phones, the back page piece in the Journal's Money & Investing Section didn't really impress me all that much. The major gripe the author had was that, like its laptops, Apple commands a high price premium for its iPhone, making Android devices more attractive to carriers for discounting. But at the very end of the piece, he admits that Apple's apps are triple the current number for Android phones.

Isn't the real issue, however, growth of Apple's iPhone base, not total market share? Apple's share of PCs and laptops hasn't been dominant, but their sales certainly have continued to help fuel the firm's revenue and income growth.

I remain comfortable trusting the management that brought Apple to its path of consistently superior performance. If Steve Jobs becomes unavailable in the long term, that will probably affect the company's share price and, thus, it's implied performance for shareholders. It's a self-fulfilling prophecy that could very well remove Apple from my equity selection process' results. So be it.

But the other concerns seem, to me, pointless. Such second-guessing is akin to trying to influence the same management which has produced the results which drive investors to buy the equity in the first place.

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