Is Apple (AAPL) CEO Tim Cook insane? He’s certainly acting that way, at least according to Global Equities Research analyst Trip Chowdhry.
Following last week’s quarterly conference call — and mostly in response to the way the company is capitalizing itself and sharing the wealth with owners of Apple stock — Chowdhry suggests Tim Cook is doing the same thing over and over again yet expecting a different result. That’s one of the well-loved cliche definition of insanity.
They’re strong words from Chowdhry, who arguably used them more for the purpose of making a point then assessing Cook’s mental status.
Still, should current owners of Apple stock start to worry that the company’s CEO has lost enough touch with reality that it could be problematic for Apple’s future?
AAPL Investors Should Start Asking Questions
Just to set the record straight, Chowdhry doesn’t think Tim Cook belongs in the loony bin. His assessment was more directed at comments made by CFO Luca Maestri during last week’s conference call. Maestri stated the company plans to remain “very active in the U.S. and international debt markets in 2016 in order to fund our capital return activities.”
In other words, Apple intends to increase its debt load in an effort to continue funding stock buybacks and dividend payments.
Chowdhry wasn’t wrong when he said “Obviously, share buybacks and dividends are not working, and somehow the current CFO thinks that doing the same thing over and over again may generate different results,” referencing the 28% pullback from AAPL shares since last July’s high. The company has been buying back Apple stock that whole time and has been a faithful payer of solid dividends since 2013.
Although one could expect some normal ebb and flow of the stock over the course of a few weeks, the trend has been decidedly bearish for several months now.
In a more philosophical (yet literal too) sense, the decision to borrow as a means of funding stock buybacks and pay dividends — rather than dive into the more than $200 billion it allegedly has stashed overseas — leaves investors wondering just how accessible that unpatriated money really is … if it’s accessible at all. And to the extent it is, 40% of whatever is brought back into this country will be passed along to the Federal government as taxes.
All of a sudden that $63 billion worth of debt Apple added to the books since 2012 makes a lot more sense. And not in a good way.
What Tim Cook Really Is
Broadly speaking, it’s no real surprise this issue is coming up now, and in this way.
Prior to the most recent quarterly report, Apple was able to continue its growth streak, selling more and more iPhones. Now, though, it looks like iPhone mania is nearing the point of saturation, while the iPad seems to have already peaked.
It’s not something most AAPL shareholders are accustomed to. Tim Cook knows this, and likely knows he’s running on borrowed time as chief if he can’t work a little magic somewhere. If it’s not going to be product sales growth, then it better be stock price appreciation … even if that’s engineered.
Lately, he’s given investors neither, and that can make any chief executive officer very, very nervous.
From that perspective, while Chowdhry may not have properly put the brakes on using inappropriate words and analogies, it wasn’t an entirely unfair call; paranoia can indeed look like insanity in certain lights.
Bottom Line For Apple Stock
As is invariably the case, the truth about Apple and Tim cook is somewhere in the middle of the two extreme opinions. That is, Tim Cook is neither insane nor is he a hero. In the same sense, Apple is neither the king of all consumer technology (anymore), nor is it a living, breathing disaster.
If nothing else, Chowdhry’s over-the-top choice of words has been good for the people sitting on both sides of the table, in that it got investors asking good questions about the company’s and Tim Cook’s plausible future. Something clearly needs to change, even if we don’t quite know what it is yet.
After four years, though, it’s becoming clear the most meaningful change available does indeed start with Cook’s replacement. He did, after all, fail to deliver on a ballyhooed cable television service, and the new audio streaming service has failed to impress. While Cook didn’t design them, he conceptualizes their deployment.
And those are just two of the ho-hum responses consumers have given new or revamped Apple products of late.
Whatever the case, until someone figures it out and can actually articulate what needs to change, Apple stock isn’t the must-have it used to be.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.