Why One Star Manager Dumped Apple Stock

Marsico saw a slowdown in iPhone sales and no big hits coming | “Everybody is waiting to see what the next innovation will be”

Adam Satariano



Tom Marsico, whose Denver investment firm Marsico Capital Management manages about $30 billion, started pouring money into Apple six years ago when the stock was below $100. He had a hunch Steve Jobs would enter the phone business. So it was striking when Marsico started selling the stock last year when it was near a record high. The firm dumped the last of its holdings before Apple’s disappointing earnings report in January, avoiding much of a fall that has wiped more than 30 percent off the stock’s price since September.

When did you first invest in Apple?

We met with [then-] Motorola CEO Ed Zander in New York the day in 2006 they were launching the Rokr, the first cell phone to also run iTunes. I was with my technology analyst, and we left thinking this was a way for Steve to understand the cellular phone industry. We walked out of that meeting thinking there was a big opportunity for Apple here, and that was the genesis for understanding what that potential for Apple was.

How much money did Marsico Capital make from investments in Apple?

We had greater than $1 billion of profits on a holding that was worth more than $2 billion during the summer of last year.

Why did you sell?

The penetration level for the iPhone is approaching a limit, the company’s profit margins have probably reached a peak, and when we looked at the major new products they could introduce, we didn’t think anything could be as substantial as the iPhone. The main driver of Apple’s profit is the phone. I’ve been following the cellular telephone industry ever since the spectrum was created and divided among the Bell systems. We saw the penetration of the iPhone had reached a level that you knew the growth rate would have to slow. The competition also has improved. Samsung has really come on with very competitive products.

We looked at what further opportunities are there for the iPad. We’ve never seen a product being adopted as fast as the iPad, but the profit margins are not at the same level as the iPhone. We also started looking at other market opportunities for Apple, such as what an iTV market would look like. We came away thinking the market wasn’t as large as the cellular phone market and would not have the same profit margins.

Is the absence of Steve Jobs contributing to the pessimism that investors currently have toward Apple?

Culture is as important or more important than numbers. It’s been difficult for companies that have been driven by one entrepreneur when that entrepreneur leaves. For Apple, it remains to be seen — you can’t say this team hasn’t continued onward and met with success in the culture Steve developed. Everybody is waiting to see what that next innovation will be. I don’t think it would be much different had Steve survived. There would still be these questions.

The bottom line After earning more than $1 billion on Apple stock, Marsico sold when he saw iPhone sales — and the company’s profit margin — peaking.


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