David Einhorn’s iPrefs proposal was among the factors that influenced Apple’s decision to launch one of the biggest share buybacks in history. So what’s the hedge fund manager’s feeling on the company’s capital allocation plan these days?
Now that Apple has abandoned the Depression-era grandmother mentality with which it managed its cash hoard, Einhorn’s view of the company has tempered a bit. But not that much.
“I think that that moves Apple’s capital management from a D- to a C or something like that,” Einhorn told CNBC Thursday. “Obviously more could be done that would probably unlock additional value, but it’s not so bad at this point that I really want to complain about it.”
And to be clear, Einhorn does understand the rationale for Apple’s conservative cash management, which he attributes to co-founder Steve Jobs.
“You had a culture under Steve Jobs where there was a concern to keep a cushion of cash if the markets are not there in some period,” Einhorn said. “I think it makes sense for Apple to maintain a very good, strong cushion, so they can continue to innovate even if the market hits a bad cycle.”
Given what has happened to BlackBerry in the past few years, that does seem wise. Einhorn noted this himself, though he did also observe that the virtuous purchasing cycle Apple has created around the iPhone should temper such fears.
“People look at Apple and ask, ‘Is it the next Motorola or BlackBerry?'” Einhorn said. “People paid fancy multiples for those stocks and got crushed and they don’t want to go through that again. But I think Apple’s a little bit different from those companies, because the ecosystem component [drives] recurring sale[s]. If you have an iPhone, you’re more likely to buy the next iPhone. They have over a 90 percent renewal rate on that basis, which is something those other companies never had.”
