Apple Inc. (AAPL): A History Lesson

Apple Inc. (NASDAQ:AAPL) sits on an enormous $137 billion cash pile — more than the gross domestic product of Vietnam. Until recently, Apple Inc. (NASDAQ:AAPL) was also debt-free. That combination appears to leave Apple Inc. (NASDAQ:AAPL) poised to unleash the next world-changing innovation. But without passion, it doesn’t matter how much money Apple Inc. (NASDAQ:AAPL) — or any company — has. Money alone can’t drive a company to greatness.

A History Lesson

Samuel Pierpont Langley had an impressive resume: mathematician, scientist, and advisor to the U.S. military. If anyone could invent a motorized, piloted airplane, surely he could. In 1898, he received $70,000 in grants — just over $60 million in today’s dollars — to do just that.

Brothers Orville and Wilbur Wright, in contrast, had no high school diplomas, no college experience, and no funding.  While Langley hired Cornell graduates to build his flying machine, they hired a guy from their bicycle repair shop. With no grant money to spend, they funded their risky project with their profits from the bike shop.

If you were a gambler, you’d likely bet on the Harvard man, his brilliant team, and his piles of money. But on Dec. 17, 1903, Orville Wright took a 12-second flight into the history books. Langley spent five fruitless years working on his flyer. But in the battle between his money and the Wrights’ passion, Langley still fell short.

Just like the Wrights, today’s tech innovators continue to prove that a passion for new discoveries matters more than money in the bank.

More Than Just Money

Investors like it when a company has large cash assets; that money supposedly makes their investment more secure. Here are the three companies with the biggest stockpiles of cash:

We’ve all speculated on what these companies could do with their cash piles.  Apple Inc. (NASDAQ:AAPL) could innovate the next great product. Google Inc (NASDAQ:GOOG) or Microsoft Corporation (NASDAQ:MSFT) could buy out Yahoo! Inc. (NASDAQ:YHOO).  But as we’ve observed from history, if these companies lose their souls — and their passion for developing exciting new products — their cash piles won’t guarantee success.

The Men in Charge

Passion can’t be quantified — but you can make a decent case that it’s driven largely by a company’s CEO. Here’s how our three companies have fared in terms of net income over the past five years.

AAPL Net Income TTM data by YCharts

Microsoft Corporation (NASDAQ:MSFT)‘s CEO Steve Ballmer has been with the company since 1980.  But spending more than 30 years in the industry doesn’t mean he can foresee tech trends.  In 2007, Ballmer famously told USA TODAY, “No chance the iPhone is going to get any significant market share.”  Last year, revenue from the iPhone alone surpassed that of Microsoft Corporation (NASDAQ:MSFT).

In a recent memoir, former Microsoft VP Joachim Kempin claims that Ballmer “is not a visionary.”  The net income data seems to support this.  Since Bill Gates completely stepped out of the picture in June of 2008, Microsoft’s revenue has largely stalled, and as seen in the chart above, net income has declined.

Meanwhile, Apple Inc. (NASDAQ:AAPL) CEO Tim Cook has the world’s biggest shoes to fill:  Steve Jobs’s.  A simple search will yield hundreds of articles showing how these two men aren’t alike.  And to a certain extent, that is fair.  Tim Cook isn’t Steve Jobs, nor should he try to be. Jobs even told Cook “I never want you to ask what I would have done. Just do what’s right.”

Tim Cook is different, and has done some things that Jobs never did.  He implemented a dividend.  He took the company in debt for the massive share buy-back program.  iPad releases have been closer together.  He released a new sized product in the iPad mini.  And now there are even rumors that a cheaper version of the iPhone may come out to combat cheaper Android phones. Steve Jobs probably wouldn’t have done any of these things, but Cook believes they’re the right course of action.

From a business perspective, all of these moves make great sense. But several smell like a company transitioning from the greatest innovator of all time to a mature business model.  As far as Cook’s passion goes, I believe we still need more time to see what else he has planned for the company.

A True Model for Passionate Success

Larry Page is one of the co-founders of Google Inc (NASDAQ:GOOG).  He helped lead the company until 2001. But ten years later, the company called him back up to the CEO office.  His goal from the that time on was to re-ignite in Google “the passion and soul of a startup.”

His crystal-clear vision for the search giant is eye-catching:

“Invent wild things that will help humanity, get them adopted by users, profit, and then use the corporate structure to keep inventing new things.”

The major takeaway from that statement is not how many gadgets they want to sell, or increasing profit margins.  Page has given the company a purpose beyond money.  Yes, money is definitely in there.  But it is not the driving factor.  Much like the Wright Brothers wanting to fly, Page wants to invent one wild thing after another.

GOOG Revenue TTM data by YCharts

Since Page took the lead, not only has revenue skyrocketed, but there have also been substantial increases in spending both in strategic growth and research and development. These increases in spending match Google’s plan for the future.

Strategic growth and development helped spawn the “wild” Google Glass project.  We are all still eagerly waiting to see whether these glasses live up to the hype, but there are fantastic claims like voice-command picture-taking, onscreen GPS, and automatic language translation.  If it lives up to those claims, it may be one of the most innovative inventions this decade.  But now with increased spending, what else could Google cook up? Rumors include things such as refrigerators that order milk for you and cars that drive themselves.

Unlike the Wright Brothers, Google does have money.  But it also has an underlying motivating purpose.  The above chart demonstrates how passionate they are about using their money to accomplish their purpose.  This seems to be the true recipe for success that will drive Google for years to come.

In the race to invent powered human flight, Samuel Langley had plenty of money and know-how, but lacked the Wright Brothers’ passion.  Apple needs to hang on to its passion.  Microsoft needs to find it again.  Without that driving inspiration, their piles of cash are nothing more than money.

Going forward, keep an eye on how Tim Cook and Steve Ballmer continue to define what their companies are all about, now that they are without their founders. The underlying motivations for why their companies exist will be a big factor for defining future success.  For Google, they are still transitioning to Page’s vision.  Watch how the company, and in particular its finances, continue to align with its purpose.

The article Don’t Invest Just for This Company’s Cash Reserve originally appeared on Fool.com and is written by Jon Quast.

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