Forget Icahn: Apple Should Take Some Advice From Ford

Since Tim Cook took the helm at Apple 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 on the software side and Samsung 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 ...
anything.

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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The article Forget Icahn: Apple Should Take Some Advice From Ford originally appeared on Fool.com.

John-Erik Koslosky owns shares of Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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