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As a fund that focuses on companies with a long term sustainable growth and a competitive advantage among its peers.
Does apple still fit as the William Blair growth fund's top holdings.
According to the fund's manager Dave affording it does and he's sticking with -- David is joining us now to tell us why apple.
It's still your top pick even -- what is now reverted.
Too negative for the past year it is down 2% year over year you're still sticking with that you ready to ride it through.
Out we are absolutely.
You know a year ago actually last six months ago apple could do no wrong.
Everyone thought they are the most innovative company in the world suddenly fast forward six months later.
And they can do nothing right we -- view on apple here is there's a couple of key things one is what's the sustainability of the top line revenue growth.
-- to keep growing they're gonna have to expand beyond the core high end of the Smartphone market we think they'll do that.
You saw that even in the tablet market today where the announcer -- last day or -- they announced a 128 gig -- which we think is gonna go after the notebook market.
The same thing's gonna happen in Smartphones which -- you both now is about 60% 65% of their profits.
They're gonna start taking on go going up.
Up up market a little bit but probably higher priced Smartphones but they're also gonna have to -- many speakers have noted -- mid range.
I -- but in pursuit of that mid range.
Which of course Steve Jobs didn't really deal much we have because he said look you should pay a premium for our product because it's so.
Unique it's so inventive it's so break -- -- people were willing to do it.
Doesn't that bring down the brand a bit if you go for the mid range from the top range doesn't it doesn't pull the brand down and then you're just competing with with hundreds of other companies instead of a couple -- the key will be like any company and -- at a point now where I think they have to segment the market and you have to do that very carefully when you -- -- the high end.
I think they go mid range they're gonna have to.
You know reduce some of the features and functionality those phones but still continue to innovate and bring those innovations both to the high end of the market and to the mid range.
What about doing something exciting that would excite -- you're already there you're already.
Their people say where's the dividend where's the share buyback where's the acquisition where's the use.
Well so for instance you're right there's latent option value and -- based on the fact that they've got a 135 billion of cash from their balance sheet and and fiscal twelve they generated almost fifty billion dollars of free cash flow.
So how they'll be doing things -- I'll give -- an example mean you know they haven't indicated yet they're gonna increase the dividend I would encourage the board to think about doing so.
Have they have -- ten billion dollar share repurchase plan.
But they could easily do that just with their cash that's on -- here in the US to generate about ten or twelve billion dollars -- US capitol.
And and I -- -- that becomes the real question what if there's a shareholder lawsuit that pushes them to.
Unleash some of that cash.
As -- and I think that you know not now that Apple's trading where it is which is you know 10% free cash flow yield.
I think you'll get more activist type investors saying you have to do something well that's -- the problem is if you use the cash to -- -- the stock as opposed to reinvest in the company in May become out with a new.
Kind of apple TV or whatever it is.
Won't that be seen by some as panic as panic on the part of apple just to kind of short the stock.
As opposed have been they're reinvesting his drug used to all the cash right back into their products can't know apple generates so much free cash -- they can afford to keep investing in new products and new services except they don't make both sides of that equation happen -- yeah they care about stockholders and and the company interest -- correct I mean between their dividend the current dividend and their share repurchase plan -- -- -- out about 30%.
Of their annual free cash flow so there is a long way to go to raise dividends buy back more stock and still continue invest in innovation in the future.
As a inflates their products have been evolutionary vs revolutionary -- it's the next iteration of -- I founder of the next of the iPad.
Apple TV everybody still waiting for it will that really come to -- I wouldn't -- by I would -- not now not necessarily because Apple's also -- you know dates and times been criticized for bringing out products known to too quickly when it's not quite ready mean that thing with the maps situation last September was a situation where.
Software wasn't quite ready for prime time relative to what people were used to.
So no I think apple TV will come out -- you know when I don't know exactly Tom and I think they'll continue to innovate and remember.
Nine months ago this was the most innovative company in the world and today as is not uncommon on Wall Street these -- It's like they've lost their complete edge where innovation is concerned we just think that is gone too far that attitude.
By the way lest lest you think that the William -- fund has has a 100% and apple -- only 9% of our holdings is it's actually about 77 pushed for the -- -- so it's it's not the major you do like Amazon other stocks we'll have you back to talk about those David for bidding is.
William Blair growth fund manager congratulations on your success thank you very much.
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