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Forget Icahn: Apple Should Take Some Advice From Ford

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Since Tim Cook took the helm at Apple (NASDAQ: AAPL  ) in 2011, there's been a steady flow of voices telling the CEO how he should be spending Apple's money. Chief among them has been billionaire investor Carl Icahn, who just won't end his quest to convince Cook to cut a sweetheart deal to reward investors in the here and now.

Apple should ignore Icahn and all the others clamoring for preferred shares, a bigger buyback, a fatter dividend, a dirt cheap iPhone, or whatever the latest push is. Instead, Cook and company should look to Henry Ford, who had his fair share of clashes with inpatient, meddling investors.

In a crowded, competitive, and fast-evolving automobile market in the early 1900s -- another time of tectonic cultural and technological shifting -- Ford prevailed by staying true to his vision and resisting the forces that got in the way. Apple can win by following the same path. Recent evidence backs this up.

Getting things right
But first, flash back a little more than a century ago. A young Ford creates a company with the intent on delivering a motorized, horseless carriage to the common man. Ford is a believer in research and development. He isn't concerned about getting a product to market first, despite increasing and formidable competition. He is determined to put out a vehicle that's simply better than what other companies are making. Ford wants to get things right.

His investors, however, aren't so thrilled with his approach. They want to bring a car to market, pronto. They want to see sales and profits, and they don't want to wait for them. They put money in, they want money back, and they see an easy way to make that happen: Put what you have on the market.

What followed was a clash that hurt Ford in the short term, but also set him up to become the industry leader years later, while his then-former investors foundered.

Author Steven Watts chronicled the rift in his biography of Ford, The People's Tycoon. Ford's investors saw a time when their money was languishing. Ford saw a time when he was learning, setting himself and his company up for their ultimate goal. He resented the investors for growing impatient.

Flash-forward to today
Apple finds itself in a somewhat similar predicament these days. On one hand, it has investors like Icahn, who hate seeing the company sitting on $147 billion in cash, and want it back in their hands, quickly. On the other, there are those who worry about Apple's innovation. They see competitors like Google (NASDAQ: GOOGL  ) on the software side and Samsung (NASDAQOTH: SSNLF  ) on the hardware side taking market share in phones and tablets, especially overseas. Android is dominant in emerging markets. They also see competitors like Samsung releasing products like smart watches and Microsoft and Asus building good convertibles. They want Apple to put out a cheap phone, a smart TV, a phablet ... something ...

But like Ford in his day, Apple has never been one to rush a product to market to be first -- and certainly not just to be present. Until it declared its dividend and buyback in March 2012 -- something this Fool could have done without -- it also never seemed focused on returning money to shareholders. Its focus was on delivering the products it knew people would want, much the same as Ford's was a century earlier.

What really matters
Despite the ongoing hue and cry, many investors have figured out that it's the innovation that matters at Apple -- not how quickly it can return cash to shareholders.  For evidence, let's look at how Apple's stock performed in the period following the announcement of the dividend and share buyback.

AAPL Chart

AAPL data by YCharts

These were two measures that were not only considered shareholder-friendly, but that many commentators were clamoring for. Yet Apple barely outpaced the S&P 500 over the next three months.

Now let's look at Apple's stock price over the three months following the release of the iPhone 5s, a surprise high-end win for Apple in the overcrowded smartphone market.

AAPL Chart

AAPL data by YCharts

Investors responded to Apple's product innovation -- not so much its new shareholder-friendliness.

The Foolish bottom line
By fending off meddling investors, Henry Ford forged ahead with his vision. He didn't put out the first commercial car, but he produced the definitive product of its time: the Model T.

Apple has done much the same, putting out the iconic iPod, iPhone, and iPad, all of which defined the expectations of their product categories. Apple will do so yet again. But it must power past the voices who want things done their way, and want it now.

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Read/Post Comments (6) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 29, 2013, at 1:11 PM, Notig wrote:

    There is a problem with the comparison with Ford and Cook, Ford is a creator as well as Jobs, Cook is a manager of someone else's creation and thus doesn't have the same respect, trust or whatever that a true visionary would have.

    I do agree that companies need strong leaders to fend off activist investors.

  • Report this Comment On December 29, 2013, at 1:28 PM, MightyMinnow wrote:

    Bumping up the dividend enough to match the 10 year isn't irresponsible. I agree with Icahn that (some) buy backs are in order but I think Apple should wait till after Icahn sells to do it.

    The cash is Icahn insurance. He's not going to become the discount catalyst that sold short and missed the buybacks bull run.

  • Report this Comment On December 29, 2013, at 1:44 PM, MightyMinnow wrote:

    The great Carl Icahn is an American success story, but he needs to butt out. I can't help thinking the deal in China was compromised by Icahn's pressure. China is in a crack down phase and I bet Cook could have got a better deal if he played it cool and waited.

  • Report this Comment On December 29, 2013, at 1:52 PM, jekoslosky wrote:

    Notig, you're right that Cook is a manager, and not a creator, as you put it, the way Jobs was. But Jobs wasn't the lone creator at Apple. There were plenty of others driving Apple's innovations, Jony Ive chief among them. And they're still around, continuing that work. It's going to be very interesting to see what 2014 holds for Apple.

  • Report this Comment On December 29, 2013, at 3:01 PM, bcweir wrote:

    How about telling investors this: "Fine, tell you what. I will refund EVERY PENNY you invested in my company, PROVIDING YOU SIGN AN AGREEMENT NEVER BUY STOCK IN MY COMPANY AGAIN."

    Then when my stock price skyrockets, kick yourself on your own time.

    I would have no patience for these fools. If you can't get OFF MY BACK and let me build my company and make it great, I don't need YOU or YOUR money.

  • Report this Comment On December 29, 2013, at 3:04 PM, johnestromjr wrote:

    Apple's performance had nothing to do with Apple buying shares back or issuing a dividend and a LOT more about stock manipulation and a flat and old product line. It would have been the same whether Apple paid a dividend or not. The market saw a chance to drive Apple into the ground and they did.

    How much is enough? Apple has, as you know, $147 BILLION in cash or short term investments. They could pay cash for Verizon or two Time Warners. They are [and I'm glad they are] very frugal about spending money and prefer to buy technology they develop internally. To compare Ford and Apple is a bit of nonsense.

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