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Why should Apple not pay dividends when there is 100 billion cash lying on the account

Source: Shangpin China | Type: website encyclopedia | Date: 2013-02-03
Why should Tim Cook not pay dividends

Against the backdrop of the soaring growth of Apple, people are also increasingly clamoring for Apple to pay dividends - the company now has a cash reserve of $100 billion (the number is still growing). For example, an analyst from Reuters called on Apple to return half of its revenue to investors in the form of large additional dividends and regular dividends. If Apple does, it will make a big mistake.

Apple has the opportunity to dominate the booming PC related industry in the next decade, but it will also be an expensive and fierce battle. Apple's resources should focus on the possibility of winning future battles, rather than returning to investors for past victories. Let's not forget that Apple's future success is not guaranteed. This company once became a pioneer in the early development of the personal computer field with Macintosh, but unfortunately, Apple was only on the verge of bankruptcy in the ten years when it enjoyed the early advantages.

Smartphones and tablets are the battlefield in front of us. Apple's huge profits and high valuation are due to its leadership in these two fields. However, compared with the future development prospects, the market size of smart phones and tablets today can be said to be insignificant.

In the next decade, smart phones will become the main communication equipment used by most people on the planet. In 2011, Apple sold 93 million iPhones, while the total sales of mobile phones in the world is 1.6 billion. Let's not stop here. Imagine a scenario where Apple's annual sales will reach 900 million or more in 2021.

In addition, as Tim Cook predicted at Apple's latest quarterly earnings conference call, tablets will surpass personal computers as the main personal computing devices. In 2010, the total sales volume of personal computers was nearly 350 million, while the total sales volume of iPads in 2011 was only 40.7 million. For Apple, the dominant product in the market, it still has a lot of room for improvement if the iPad can continue to maintain this position.

Apple's advantages are not limited to this. Given that hardware devices are intertwined with content, e-commerce, communications and entertainment, Apple's dominant position in the smartphone and tablet field also gives it a favorable position in adjacent markets such as advertising, product promotion, streaming media, music, publishing, games, voice and text communications, and payment.

However, in some key aspects, the battle Apple will face in the future seems to be a replay of the war it lost in the personal computer field. In the field of smart phones and tablet computers, Apple has defeated those rough and open systems involving multiple companies by relying on elegant product design and easy to use closed systems. Apple is once again trapped in a lonely battle. Faced with the open Android ecosystem, it has to catch up with its competitors in innovation. Apple has an early advantage - just as it did with Macintosh computers - but remember that it failed to make it better than the open "WeChat" (Microsoft+Intel) ecosystem in innovation.

In order to maintain its leading position, Apple must successfully introduce all its resources into six key areas (rather than continuously introducing better iPhones and iPads):

1. Win the cloud war. Compared with the rise of smart phones and tablets, the migration of computing to the cloud may be a greater technological change. Tim Cook called iCloud "the strategy for the next ten years". While locking users firmly in Apple devices, the company also uses this to guide users to transition to cloud computing. Can Apple provide products that are simple and functional enough for users to accept that kind of lock? Amazon, Google, Dropbox and other competitors have given the answer "No", while 85 million iCloud registered users have revealed the signal "Maybe", but if we want to expand the number of iCloud users to billions, it will definitely cost Apple a lot of money.

2. Keep Apple retail stores thriving. Apple now has 361 direct retail stores, and its retail strategy seems to be vibrant - both in terms of sales and brand value. Apple still has a lot of room for expansion in retail stores, especially in the international market, which will cost a lot. As the most intuitive symbol of its fashion factors, Apple needs to constantly update and invigorate its retail stores, which may cost more. After Apple lost Steve Jobs and Ron Johnson, the above challenges will become more difficult. It is the latter who built the Apple retail store network. He recently left Apple to serve as CEO of JCPenney.

3. Correct the name of your own supply chain. Recent reports of the New York Times not only show us Apple's strength in the supply chain, but also highlight its vulnerability to the behavior of suppliers and partners in its own ecosystem. One commentator summed it up as "describing the iPhone and iPad as the blood diamond of today - a commodity that has market demand and causes serious harm to producers." As Apple grows into the company with the highest market value in the world (and strives to maintain this position), it will have to take responsibility for its entire ecosystem - both need to maintain the necessary flexibility, But also to protect their hard won good reputation.

4. Make Siri better. Siri's voice personal assistant service helped the iPhone 4S launch, but it only provided us with a glimpse of the next generation of AI. Smartphones and tablets are still waiting for this technology to mature. Siri has also raised the threshold for future competition. As I discussed in an earlier article on Knowledge Navigator and iPad 3, early smartphones and tablets competed with each other mainly in terms of hardware functions, such as screen size and camera quality, The future differentiated products will be based on software functions, such as intelligent personal assistant, deep voice integration, data analysis and powerful digital simulation.

5. Consolidate weak links in telecommunications services. Apple attaches great importance to end-to-end control in the user experience. For such a company, its weak link is very obvious: the telecom operator between Apple and its end users. Poor bandwidth, connections and services in telecom services will not only damage the experience of Apple's devices, but also limit Apple's own strategic choices. Just imagine, if Apple does not have to be constrained by the strategic factors of telecom operators, what achievements can it make with iCloud, iTunes, Apple TV and other products? Before Jobs died, he considered whether Apple should set up its own telecom company, but finally decided that it was too complicated and expensive. With unstoppable technological progress and ample war readiness funds, Apple will be able to revisit the options Jobs gave up in the next five years.

6. Avoid distractions and deadly acquisitions. As for corporate strategy, deciding what not to do is as important as choosing what to do. I hope Apple can continue to keep the door open to large-scale acquisitions. Unfortunately, there is no more eye-catching way to make the CEO famous than a major acquisition transaction. Such suggestions are endless on how Apple can use $100 billion in cash for acquisition transactions. In people's discussions, Facebook, Cisco, Sony, Eastman Kodak, Netflix and Sprint have all become potential acquisition targets for Apple. However, except for small-scale overall acquisition transactions, Jobs has always avoided acquiring other companies. We still hope Tim Cook can follow the rules.

In the game where Apple leads, the winner can get the biggest reward. However, as my friend Mel Bergstein likes to say, this race is a marathon rather than a 100 meter sprint, and starting dividends now is like celebrating victory after running 5 miles. For the next race, Apple needs to reserve its own resources.

If you were Tim Cook, what would you do with the 100 billion yuan?

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