Hacker News Reader

Comment by marcus_holmes | Hacker News Reader

I might be too cynical, but when a company thinks that the best use of its cash is to buyback shares (and not, say, invest in a new product line) then it has reached its limits. It's a sign that the company is no longer engaged in developing new things (which requires cash) and is merely engaged in maintaining an existing business.

Kinda sad to see Apple doing this.

View on HN

Apple spent $100 billion in R&D over the last five years. They have a stated goal to get to net cash neutral through buybacks, dividends, and investments. They can’t easily pour another $100 billion into R&D in a year and expect to get a good return on that investment.

The idea that they are doing a share buyback and not investing in new product lines is also not well founded. They are almost certainly doing both.

Yeah, good point. I kinda agree that it would be hard for Apple to spend all their vast cash reserves on R&D. But the point still stands that a company has choices about what to spend its money on, and if the best use it has for the money is buying back shares then it's not really innovating any more. Share buybacks are not creating more product lines, or investing in the company's future; they're (literally) shrinking the company. The executive team is saying "the best thing we can think of to spend this money on is shrinking the company". That's not a good sign, even if they are also spending big on R&D.

Apples Stock price is has pretty much remained flat YTD whereas Google, Meta and Microsoft have ballooned thanks to the AI hype.

> The executive team is saying "the best thing we can think of to spend this money on is shrinking the company". That's not a good sign, even if they are also spending big on R&D.

As an executive, buying back shares makes a lot of sense if you believe that your company is currently undervalued and you have a large cash pile.

Tim Cook seems to be very optimistic about Apple's future [1], so doing a buyback in the current market might be a smart move.

[1] https://finance.yahoo.com/news/apple-ceo-tim-cook-boasts-of-...

They probably are still innovating but not spending as much on it as the cash they have coming in. There's a lot be said for spending an appropriate amount rather than just tipping in vast excesses of cash because you happen to have it.

I used to be involved in the games industry and some company would have a hit, I think MasterMind was an example, and you'd think they must be rich now but no. The process was lots of money comes in, management think we are geniuses we'll put it all into new products, new stuff flops, cash cow declines, can't pay all the new staff, bankruptcy. There's a lot to be said for keeping the spending down.

They're clearly trying. Look at the vast sums put into Vision Pro. Given the ramped down shipments, maybe that entire decade+ R&D effort will end up financially a write-off. Or maybe they can turn it around and with more improvements sales will pick up. That risk is the core of innovation, wouldn't you say?

Vision Pro matured out of R&D, Apple Car got scrapped and written off.

I am sure there is more in the works or in stealth mode (Ai?), but the big R&D projects appear to have been forced to ship or been canncelled.

I suspect Jobs would have been all over AI years ago, while Cook has allowed the grass to grow under Apple's feet.

The car was always a bad idea, and - ironically - always needed strong AI anyway.

Phones are basically pocket internet terminals. The metaphor is about to change to pocket personal assistants. There's going to be an awkward period of chaos where the leading edge tech isn't quite good enough to live up to the expectations, but everyone is going to need and want a strong presence anyway.

We're about to go from a bicycle for the mind to a sports car for the mind. And unlike a bicycle, the sports car is going to have strong ideas of its own about where it wants to go.

The claim that Tim Cook has let the grass grow under their feet with respect to AI doesn’t match history. Tim hired John Giannandrea away from Google six years ago to lead Apple’s machine learning and AI strategy. He reports directly to Tim, an indication of how important Tim viewed this area (most of the rest of Tim’s reports have been at Apple for decades).

But also if you want to buy shares of your own company, you must think that current shares are undervalued. If say you think you are undervalued 10x then it would be no brainer to buy as many shares as you can.

The one I would fault them on a bit is security. Nobody is perfect there but imagine if they took even 10% to hire a bunch of top people with the goal of replacing every internet-facing bit of memory unsafe code. That’s a huge project but with their resources you could invest in things like tooling for conversion and analysis, and methodically replace every media codec, parser, etc.

I agree with you. In fact I also think Apple has reached its limits in terms of growth, and I think Apple itself thinks the same. Besides buying back shares, Apple has (re-)started paying dividends in 2013. Meta and Alphabet also did starting this year. All the large tech companies began to feel the limit to their growth.

I think it was just the expectation of economy for tech companies to at some point reach profitability and also start giving out money to shareholders.

That is an interesting discussion and I think making generalizations work for many companies but Apple is in the top which make it important to analyze them particularly.

If we follow [1] and a monetary policy point of view (even if we are not talking about a central bank) we can say that removing stocks from circulation is a strong and positive measure in favour of the company. The P/E goes down which financially makes Apple, if you trust in them, a good target to buy and hold a position.

[1] https://www.investopedia.com/ask/answers/05/retiredstock.asp

I think it follows from basic corporate economics: growing businesses sell shares to raise capital to spend on growing the business. Over-capitalised businesses buy back shares to soak up excess cash and prop up the share price.

Apple used to be the former, now is the latter. You can argue that this is because it has succeeded beyond all comparisons and so it has more cash than it would ever need to keep growing the business (and I can see that argument has merit). But that doesn't contradict the point that it doesn't have enough good ideas to use its cash on. That the best use of its cash that it can think of is to shrink the business instead of growing it. That might be (as you say) a sound decision based on the economics of the situation and its relation to Wall St. I still think it's sad, because Apple used to be endlessly inventive. There are still problems it could solve, and markets it could address. But it doesn't want to. It wants to give that cash back to investors for them to invest elsewhere.

> Kinda sad to see Apple doing this.

Maybe, but what are the alternatives? Develop yet another device that does pretty much the same thing as all the other devices? Long-shot projects like a car. Or, the worst; buying up other companies and entering other markets for no good reason until it becomes an amorphous conglomerate?

Investors might prefer to take the profits, and do their own investing.

Good question. What are the problems that tech could be solving but isn't? I don't think the answer to that is "nothing".

> Investors might prefer to take the profits, and do their own investing.

Yes, exactly the point; if the investors think their money is better used by other companies to solve those problems, then Apple is recognising that it is no longer the best at doing that. I think that's sad.

Lower prices

If they have more demand than supply then they are not charging a market clearing price, they are charging rent which nobody that believes in efficient market theory should accept

However there are ZERO analysts or economists arguing for that

Funny how that works huh

So you would agree that Apple reached its limits more than a decade ago?

My dude, what do you call the Apple Vision Pro? I don't like the technology or product, but they're LITERALLY making a new product line.

A half-hearted product launch of something even iPhone loyalists didn't buy because it costs 2 months' rent and has no real use case out of the box. Zero buzz online; even Apple appears to have forgotten it, seeding rumours instead of on-device LLMs to get the hype train going again.

The news of production cuts is probably the biggest indicator that this isn't the Apple we know.

Reply on news.ycombinator.com