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Selective hearing

24 Jan 2014 By Robert Cyran

Apple’s stubbornness is on show before its quarterly earnings report, expected on Monday. The longevity of the Macintosh computer, 30 years old on Friday, is one sign of Apple’s persistence. Sure, the company occasionally bows to external demands – but rarely admits it. It will add to its product lineup and, as investor Carl Icahn is demanding, it will one day return more cash to shareholders. But outside pressure won’t get any credit.

Obstinacy can be a strength, deployed wisely. Apple paid no heed to calls to liquidate its business in the late 1990s when its Macs seemed irrelevant. In recent years it has faced down demands that it introduce cheaper versions of its gadgets.

Sure, a low-cost iPhone would bump up revenue growth and earnings for a couple of quarters. But Apple’s reputation for producing luxury items that work well allows it to charge high prices and reap nearly 40 percent gross margins. If it went down-market and damaged its brand, the company’s profitability would suffer.

Introducing a new product, like the rumored TV, before the kinks are worked out could have the same result. Though it involved software rather than hardware, the premature launch of Apple’s flawed maps application in 2012 will have taught Chief Executive Tim Cook that lesson. On Monday’s earnings call, executives will surely stonewall any questions about new products, as usual.

Apple can’t ignore all pressure, however. The company clumsily tried to jam three good-governance measures together for a shareholder vote a year ago. After a legal challenge by hedge fund boss David Einhorn, it had to withdraw the proposal. Apple has quietly brought back the measures this year, unbundled as the court required into three separate votes.

Einhorn had also called for the company to return more capital to shareholders. Though Apple initially ignored him, in April last year it increased its dividends and its buyback program to return $100 billion to investors by the end of 2015 – based on its own analysis, of course.

Icahn has now demanded an increase in buybacks in the current fiscal year to $50 billion. He seems to be getting a polite version of the stonewall response, too. But with almost $150 billion of cash on its balance sheet, Apple will eventually see for itself the merits of returning more to investors.


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