And, since company owned stock is not voting stock, it also increases the power of a large stock holder like Ichan.
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Carl Icahn Pushed for $150 Billion Stock Buyback at Dinner with Apple CEO Tim Cook [Update: Has $2 Billion Invested]
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And, since company owned stock is not voting stock, it also increases the power of a large stock holder like Ichan.
Actually not quite. Only partially right as many people (including myself) have corrected. A public company does not ever become "more privately owned". It is an all or nothing state.
Yes I agree they're not doing anything with the cash. That's the point. They should be. They should be investing that cash to grow the business, increase the profits, invest in the future. A buyback is a short term fix which does nothing to address the long term future of the business. If they've got excess cash then increase the dividend and reward loyal shareholders who are not just looking to sell out and make a quick buck.
I don't believe the share price is undervalued. It's worth what it's worth. Simple supply and demand.
Sure, we can assume that, but is this assumption based on them optimizing their CapEx with regards to their current product mix or with regards to future expansion? Apple is a very large company that's reliant on very, very few revenue streams and very very few product launches to keep itself afloat. To me, optimal capital expenditures would allow for being able to smooth that out with a somewhat more varied product line, with launches throughout the year. Right now, Apple is like a pharma company reliant on only one drug, and nobody knows if there's another blockbuster drug coming down the pipe anytime soon. But I'm digressing.
Ok, optimal CapEx, impressive vertical integration with no production shortages (which isn't the case), growing product portfolio (which isn't really the case), stable quarter to quarter income (which isn't the case), all assumed in this scenario. I would then use this low-risk opportunity to look at the pricing sensitivity on the highest margin products - in this case, iPhone and full size iPad. Given that everything's optimal and there are no product shortages, a reduction in margin on each device sold should only increase the number of devices sold, which should allow for an increase in market share and a more market-dominant position where you can afford to use your second mover advantage. Arguable whether or not Apple's in this situation right now given the high-teens iPhone marketshare.
The flipside of the argument is "what if price sensitivity is inelastic and there are no more incremental sales from lower prices?" Given that the market isn't saturated, that then means that someone else is fulfilling a need that your product can't fill, which then goes back to the question as to whether or not your optimally spending the money that you have.
Now, if we assume marketshare dominance (not just mindshare, or even just cashflow dominance), then yes, Apple could start buying back stock as it would then assume the position of a utility, one where incremental CapEx would merely be viewed as a cost rather than an investment.
You are not understanding buybacks - they benefit shareholders who do not sell as well. As long as multiples hold up (which is a separate issue from the buyback itself) then each share still held will have claim to a larger claim to residual profits.
I didn't say responsibility to the original investor, I said the original investment, i.e. one share of stock. No matter who owns it, no matter how many times the share has been bought or sold or what the original value of the share was, the company still has a responsibility to that one share. Which is binding by contract.
Ok, then why not just cut to the chase and give the shareholders most (not all) of the money back as a one time (or otherwise) dividend?
This way it's not "guessing" if the the stock will rise due to buyback, it's going directly back to the shareholder for them to do as they please (which includes buying back the stock on their own).
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Roughly translated: "Tim Cook's a push-over, give me 3 weeks and i'll wear him down".
Egotistical T*at.
I think I see where you are coming from, but we are not even in the same ballpark... Apple has a huge $10B capex (they are smoothing out their supply chain, add new equipment, etc, it takes time). We are talking about $150B and growing. So even if there was improvement and they increased spending by billions, it's still not not in the same ballpark.
If you want diversified product line wouldn't you invest more in R&D? And if this is the case, does pumping 10x (figuratively) more money in R&D mean a more successful company? I'm asking this because AAPL has traditionally been a focused one disruptive product at a time (eg, like PIXAR's one blockbuster at time) - their R&D/sales is at 2.8% - way,way below other companies... yet they have been more successful.
It takes 5-7 years to come out with "the next big thing"... so if they flop understandably they have to have reserves to last for the next one... but is even so, do they still have too much?
My point is if they drastically increased Capex, R&D or even if the built more stores, we are not in same ball park.
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I hope they aren't seriously considering anything this douchebag has to say. 2 billion is a drop in the bucket compared to their overall market cap (somewhere around 440B, currently). He's in no position to try a hostile takeover and I'd say he still has no leverage, considering the sheer weight of other institutional holders.
The meeting should have been a formal way of saying, "piss off", nothing more.
The meeting should have been a formal way of saying, "piss off", nothing more.
And yet, the only two parts of Apple's product line that actually matter get released in September and October. Apple botches one of three products (iPhone, iPad, or iOS) and the entire company would be in jeopardy. They're not far enough ahead that something like that would be easy to recover from.
$10B in R&D? I'm sure that's a lot for just a phone and it's related tablet, but you can't deny that there are obvious gaps in Apple's lineup that haven't been addressed in (quite literally) years. Minimal facelifts to the desktop lineup, a laptop lineup that has seen many products languish on the vine, and a singular, not-necessarily competitive monitor that (despite the Thunderbolt update) is over three years old.
Maybe they don't need to invest much more in the 4" iPhone, but they sure as heck need to invest in more businesses that they participate in, all while exploring new business opportunities.
As for Apple's previous laser focus, it was great when you had someone who knew what to focus on - if there's a vision and a path forward, then you don't have to worry about anything else - thus keeping R&D cost down. Right now, Apple (and the mobile industry as a whole) has no idea what to do next, which definitely necessitates a "see what sticks" mentality to R&D. Mind you, not all of it needs to make it into a shipping product (did you know you can wash your hands and do the dishes with a Galaxy S4?), but it's better to come up with something and be able to say 'no' than to have someone else come up with it and you having to say "copy that."
They don't have to do 10x the investment - 2 or 3x would be fine. an incremental $30B in investments over the next three years would be better than buying back an incremental $30B in stock.
I think my viewpoint can be summed up this way: if your business isn't business, then don't make it your business to think business because your business should be your products. good business will follow once you have good product.
... come to think of it, that's not really that clear.
Why would that be illegal? He's recommending ways of capital allocation that would benefit shareholders. It's not like he's forcing anyone's hand... Activist investors get involved with a company's capital allocation decisions if it can create shareholder value.
that's correct. That's the risk you take with AAPL, they make hits like Pixar, if you want constant solid contractual based revenue streams MS or Oracle would be a better company to invest. I guess their transition to solid revenue streams would be their iCloud strategy.
$10B in M&E (machine/equipment)... it's alot less for R&D.
$30B in M&E is probably not possible, it's a slow ramp up. Spending $8B on M&E was looked on as outrageous in the tech industry (only oil companies spend that for big projects).
It's easy to throw numbers around and say invest x Billions in R&D or Machine & Equipment, but short of an acquisition, it's hard to spend (without being foolish).
Apple has already underwriting Foxxconns' machinery, Sharp's displays, and more recently TSMC managed Fab... but it takes *years* to build out... it's not about not having the money. Likewise For R&D, just hiring 10,000 R&D engineers won't get you a new product ... they'll most likely be more unfocused and likely collapse from the admin.
Apple has the money, they don't have time to allocate it, so it's sitting there growing.
Icahn should have twitted "has forced Tim to have dinner with me last night" instead of "had a cordial dinner with Tim last night" 
They already spend a lot on R&D. Any more spending would hurt shareholders because those extra dollars would have an extremely low return, probably even much lower than the 10-year treasury rate. Seriously, what more can they do? We don't even know what the pipeline is for the next 5 years! I'm sure they planned that out already. A buyback is very beneficial to long-term shareholder value, especially if Apple is buying back at a cheap price. Buybacks are much better for shareholders because shareholders are getting the cash with higher share prices and they don't have to pay tax!
How would you know how much Apple is really worth when you know nothing about investments? The stock market is not a weighing machine... $150/sh in excess cash, ~$40/sh in FCF, and a market price of ~$490/sh. Thats about a 10% FCF yield. Seems pretty cheap to me.
doom! Dooom! DOOOOM!!! apple is so DOOOMED!
seriously. do you know how dramatic that post comes off? cook is continuing to run the biggest and most profitable tech company in history, as he had for years under jobs. theyre fine. im fine. youre fine. everybody's fine.