I don't know that I've ever advocated this before, heck, I'm not even sure I believe it, but...The time has come for Apple manage to "manage" the stock. Oh, not in any big way, just a tweak here or there to stop this wild overshoot and hysteria that seems to enveloped the shares the last month or two.I know, I know, people will tell me "manage the business, the stock will take care of itself." I've believed that for my 40 years of investing (although I noticed a few places where "managing the stock" might have been appropriate back in the 90's - generally to the "less frothy" side of things, as I recall.)In fact, isn't "managing the stock" precisely what companies do when they provide guidance of any kind? What other reason would there be, except to tell holders what to expect going forward. Do consumers care about that? Not a drop.So, having convinced myself of the righteousness of my cause (heh), I note that the Annual Meeting is coming up just about a month from today, a perfect time to drop the bomb(s).1) Announce a dividend increase. This is a no brainer, since the company has more in the bank than it had when it announced the dividend in the first place. Profits are increasing (not that the Street has noticed.) There are literally hundreds of billions of dollars parked in low interest bonds or other liquid investments, and even if the company had to pay some repatriation tax to get at it (unnecessary, but I'm trying to overcome arguments that haven't yet been made), it would be worth it.[As a sidebar, I understand why Apple and other companies don't want to do this. Who wants to pay the repatriation tax, only to have a tax holiday declared a few months down the road? This is one of those cases where expectations have been set, since such a holiday has happened in the past.] I will brook no argument that Apple needs to have $200 billion sitting overseas doing nothing. They couldn't open enough stores, build enough fab plants, or take over FoxConn facilities to make such an argument legit.2) Announce a one-time "special dividend." Whack the Street upside the head, and say "Did you notice? We have enough cash on hand to give every shareholder size dollars, and we'll have more next quarter."3) Announce a stock buyback. Oh, sure, they already have one, barely enough to keep up with dilution for bonuses to employees. Make it meaningful. Manage the ownership base (and manage the stock.) With the stock at these (insanely) cheap prices, now would be the time to acquire - if you have the money. Apple has the money. They have $16 billion more than they had three months ago - and that's including having paid out a dividend of $2 billion and modest buybacks of another $2 billion.4) Share some meaningful information to counter the worst of the conventional wisdom in circulation. Admit that ASPs on the mini are lower, but give some actual numbers so people see the explosion in sales. Talk about the split between the 5, the 4, and the 4S. Success in China isn't saying "We increased sales" it's saying "Our strategy for a lower priced phone is to keep making the 4 and 4S available at ever decreasing price points in emerging markets." (OK, maybe those aren't the points that need to be made; they're just examples.)Well, that's it. No great magic, there, just a few suggestions on how to get out of the barrel. The barrel? When I was in corporate life we used to talk about having "your turn in the barrel", i.e. when you'd done something stupid or wrong and everybody else wanted to stay far far away from you lest they get the stink on themselves. Then eventually you would do something good (really really good) and get out of the barrel, or you would be fired. It appears that many shareholders (fund managers, mostly, judging from the size of the flows) have fired Apple, and probably won't come back in until the stink fades away.Just as it was important for funds to show Apple in the portfolio when it was zooming to the top, it seems it's not such a good idea to show it now that it's bi-polaring its way to the bottom. Manage the stock. Bring them back. Climb out of the barrel. It's a shame you have to worry about it, given the incredible performance of the company, but sometimes logic doesn't work as well as the rest of us think it should. There's an opportunity just four weeks away. Use it.
Concerning a stock buy back-- I'm usually unenthusiastic about stock buy backs, because most companies have no idea when their stock is really undervalued. They often totally miss that the whole industry group is in trouble. They use debt (indirectly or directly) to finance buy backs. Management often use the buy backs to cover obscene option grants to themselves.But these mostly don't apply to Apple. The mobile computing device market is still in it's infancy. Apple stock is cheap by any measure. They have more cash than they need, and no debt. A modest increased dividend would be OK, I like this better than a special dividend. The market is likely to value something better if it knows more is coming in the future. Re taxes on overseas income -- I've heard (don't know if it is true) that the US tax on profits accumulated overseas is already expensed on the books, so paying some wouldn't hurt profits .
Regarding buybacks, management has exactly the wrong rationale for buybacks stated in the 10K and 10Q - to mop up stock option dilution. Bad reason. Very bad. The only reason to repurchase shares is when they are selling for much less than the stock is worth on a conservative basis. If a stock is overvalued and a company repurchases shares to mop up option issuance, management is compounding one form of dilution (the options) with another (buying out shareholders at a premium to fair value).I hate it when I see companies justify repurchases based on avoiding option dilution. If a stock is overvalued, the option dilution isn't a problem since the employees are being paid with overvalued shares. If a stock is undervalued, however, option issuance is very bad but repurchases can be good.Management should be buying back shares here in my opinion. A very large authorization would alleviate concerns regarding the fate of the growing cash pile. The market is giving zero credit to Apple for having all that cash. Distributing it to shareholders is a logical thing to do, although the repatriation issue is a thorny one.
I mentioned this in a post above which got buried.... but I'll relink because it hints that they are doing exactly this.––––––––Apple hiring Maestri could also mean an increase in buybacks and dividends, as the company looks to take advantage of its cash hoard, Reitzes said.“Maestri is a champion of shareholder return,” Reitzes said in the note. “The hiring of Maestri could mean that Apple is leaning in that direction long-term.”–––––––– http://www.bloomberg.com/news/2013-01-11/xerox-cfo-maestri-l...Seems like a champion hire if they are planning on 'managing the stock' in the future.
I disagree.Having the stock move around like its having a seizure is exciting.Stock market is all about winners vs losers.Apple produces big winners and big losers.Generates mountains of articles speculating on this,that and everything.I like Apple just as it is.
I agree completely that Apple needs to get its act together.But rather than calling it "managing the stock", I call it intelligent capital allocation.Of course, of course, their first priority should be to continue to innovate and offer products and services that delight the customer. Without that, everything else is in vain.But why should they not have a second priority? Is it really too hard for the most profitable business in the history of the world to walk and chew gum at the same time? Isn't this the job of the CFO? He's not designing new iProducts.And it does have a bearing on the business, not simply the stock. Given the options grants are a substantial portion of employee compensation and incentive, it will obviously help Apple attract and retain the best talent if their stock does well. This matters! If the stock continuously languishes, they simply will not be able to have as good of talent compared to if the stock thrives. So even if the management couldn't care less about the average shareholder, they should care about the value of the incentives they are using to compensate their employees.The size of the cash hoard and the rate of its growth, yet with it all sitting idle and gradually-yet-persistently losing purchasing power to inflation has gone beyond stupid and is now absurd. I wish the shareholder base could get organized enough to compel management to do something about this.
So even if the management couldn't care less about the average shareholder, they should care about the value of the incentives they are using to compensate their employees.Or they could pay employees in cash (that green stuff Infinite Loop is awash in) and employees who want to own shares can buy them like everyone else.
Or they could pay employees in cash (that green stuff Infinite Loop is awash in) and employees who want to own shares can buy them like everyone else.Sure. That's what I would do. Either cash or stock that is locked up for at least five years.But this is America, Apple is a technology company, and it's 2013. So that simply isn't going to happen. Period. And Apple might as well do the best with the stock on which its employees have options.
But this is America, Apple is a technology company, and it's 2013. So that simply isn't going to happen. Period.You are probably correct. People have weird emotional issues when it comes to stock options. Like if they don't get options they aren't "valued by the company", etc. I think it is nonsense personally and one of the most corrosive things about technology companies is what happens when a stock blows up and you have thousands of irritated employees. Of course, then the options get repriced like Google did a few years ago. Heads I win, tails you lose. Options do nothing to align incentives with results for anyone outside the top executive levels at a company where the make or break strategic decisions are made. But if you say that you're perceived as a heartless capitalist jerk even if you are paying all of your employees cash wages that reflect market value and those employees could simply buy shares if they believe in the company's investment merits.
Heads I win, tails you lose. Options do nothing to align incentives with results for anyone outside the top executive levels at a company where the make or break strategic decisions are made.Can't argue with that. That may be the worst thing about options: they masquerade as a tool to align workers' incentive with that of the shareholder. But they don't for the average worker, for as you point out, the average worker is simply too far removed from the stock price action. Even for top management, this is probably not the best tool. Stock that is restricted for a significant period is much better.For an example of great incentive compensation and its effects, take a look at Expeditors International. IIRC, they keep 20% of the profit from each of the roughly 150 offices, and that particular office shares that bonus. So each worker's efforts make a significant difference, and their effort is reward based on profits, rather than a fickle marketplace. Has worked wonders for them.
For an example of great incentive compensation and its effects, take a look at Expeditors International.I did some work on Expeditors last year. Great company. I wish it was cheaper. But I believe they also use options.
The market is reading Apples position, which if you were to summarise in a word it would be "stable". In the case of the iPhone this means that plus or minus a few percentages points Apples marketshare is steady in each of the markets it sells into.iPod sales are declining, iMac sales are not large enough to make a difference and there are no new products in the pipeline that will make a material difference to revenue, iPhone 6, iMac, Mac Book refreshes etc are irrelevant. Rightly or wrongly that is the way the situation is being read, whilst iPad sales are likely to not yet have peaked, and you could argue about what is fair value of the stock, this is the way it is being read. Now there is nothing wrong with this picture, if Apple maintains ~30% US market share for iPhones in the US for the next five years thats great, but that is not going to satisfy Wall Street. So the question is where does the growth come from for the existing product set? The easy answer is China. China is a bigger market than the US, succeed there and it will be material. Not just China, there is Indonesia, india, Phillipines etc, all good markets with a lot of users with Nokia feature phones. Price matters in these markets and they operate with different commercial models, this is why I do not discount the rumours of a cheaper iPhone.Next way for growth is new products, my predication is that Apple will introduce a wearable device of some sort and that is why they discontinued the iPod Nano. Apple TV, no idea what Apple are doing here except futzing around. Apart from that what else do they have in the pipeline?But there are problems let me mention only two both of which are a waste of shareholder funds.Firstly Apple Maps, what a fiasco this was, people who used it got lost and moreover it was widely reported in the press as useless. It may not have been that bad in the States, but in Oz it was rubbish, I breathed a sigh of relief when I put Google Maps back on. The same in other countries, if Apple can up with another dud like this it will be very badpublicity. (I still cannot explain the POS the Podcast app is). Regardless of the truth Apple Maps has been reported as rubbish, now you may say Apple will fix this over time, sure given enough time and resources they may catch up to Google. But my question as a shareholder would be Why? Why bother pumping resources into this when they could just use the Google service. Does Apple have a secret plan to monetize their Map service? If so what is it? How much revenue is being forecast to justify the Billions being pumped into.The simple fact is there is no plan to monetize Apple Maps it is only being done to spite Google as a consequence of Steve Jobs wanting to get them and the shareholders are paying.Second example is the Eighth Wonder of the World Apple are building the "Spaceship Campus". Would not a series of tasteful office blocks be just as functional it not more so and far cheaper than this glass extravagance.
Historically management's record of correctly recognizing when a company's shares are undervalued is absolutely dismal. If a company has excess cash in accounts in the United States that excess cash is best used by paying dividends either instituting regular quarterly dividends or paying - out a special one-time dividend to shareholders,Well, I suspect that the problem in general has not been that management is confused as to when the stock is undervalued or not. The problem is that their incentives and motivation are different than the shareholder. When you have a boatload of options, dividends being paid out hurt your cause, as the shares will inevitably have a lower intrinsic value in the future if cash is paid out in the present. So for holders of options, retaining the cash is always the most attractive use.You can confirm this by looking at the success of stock purchases from private funds. The same CEO who is eager to buy back tons of stock is rarely buying the same stock with his own funds...unless it is undervalued.
iPod sales are declining, iMac sales are not large enough to make a difference and there are no new products in the pipeline that will make a material difference to revenue, iPhone 6, iMac, Mac Book refreshes etc are irrelevant. Were you or they in Ives' office? How does anyone know what is in the pipeline?Firstly Apple Maps, what a fiasco this was, people who used it got lost and moreover it was widely reported in the press as useless. It may not have been that bad in the States, but in Oz it was rubbish, I breathed a sigh of relief when I put Google Maps back on.Does your iPhone do better with mapping now than it did a year ago? Do you have solid reason to believe that Google would have released their amazing upgrade of Google Maps for iOS absent Apple's move (given that they had all those "improvements" in Android for quite some time, I doubt it)?
Does Apple have a secret plan to monetize their Map service? If so what is it? The secret plan is to NOT let Google determine the usefulness of the iPhone. Did it escape you that Android phones had turn by turn map directions for three years while iPhones did not? Why was that? (Hint: Google)Do you really want Google taking over the 'wallet' function? What good are all those iTunes credit card numbers then? And how long after they get traction in that arena before they take over selling music from Apple? After music comes video. With video comes clout with producers and studios. How does Apple TV work if Apple becomes a bit player?Second example is the Eighth Wonder of the World Apple are building the "Spaceship Campus". Would not a series of tasteful office blocks be just as functional it not more so and far cheaper than this glass extravagance.Ask Sears if the layout of a headquarters building matters. If it doesn't, why did they leave the Tower behind for a horizontal campus outside the city? And you might want to read up on the history of the Pentagon, which left a series of "office blocks" for a campus which promotes interservice interactivity and cooperation, something that was in short supply prior to World War II.
So for holders of options, retaining the cash is always the most attractive use.–––––––––––While I do strongly believe a company has an obligation to its shareholders, I'd question whether Apple has any obligation to owners of derivatives. Regardless, this isn't true.Recurring dividends affect stock price which obviously affects options indirectly. One time aka special dividends directly affect the price of stock options. If a one time dividend of $50 is declared, all apple options have their strike price adjusted by $50 of the dividend on the ex date.
Does Apple have a secret plan to monetize their Map service? If so what is it? –––––––––It's the same as their secret plan to monetize pretty much anything on iOS. They include it on their phones and people buy the phones. Not sure why that's so difficult to figure out.
Second example is the Eighth Wonder of the World Apple are building the "Spaceship Campus". Would not a series of tasteful office blocks be just as functional it not more so and far cheaper than this glass extravagance.Ask Sears if the layout of a headquarters building matters. If it doesn't, why did they leave the Tower behind for a horizontal campus outside the city? And you might want to read up on the history of the Pentagon, which left a series of "office blocks" for a campus which promotes interservice interactivity and cooperation, something that was in short supply prior to World War II.Beyond that, things like that matter for recruiting. There is great competition for the very best talent out there, and getting your share of that talent is critical for long-term success. Obviously, having an amazing physical plant for your work is not the sole consideration. On the other hand, many of those best-of-the-best are going to be spending the better part of their lives there for many years to come. That's got to mean something.
The time has come for Apple manage to "manage" the stock. Oh, not in any big way, just a tweak here or there to stop this wild overshoot and hysteria that seems to enveloped the shares the last month or two.I'm not sure 30% constitutes hysteria, many tech stocks go more hysterical than that. But if it does, I'm all for wild & crazy Mr. Market. It seems to happen regularly about every year to eighteen months. Just the right time interval for me to save up some dough to buy more on the cheap.
the Eighth Wonder of the World Apple are building the "Spaceship Campus". Would not a series of tasteful office blocks be just as functional it not more so and far cheaper than this glass extravagance.When you grow so much as Apple has, it may be cheaper and more efficient to consolidate all the ad-hoc space into one place. Less staff time lost to driving around to different buildings etc. And owning your own is usually cheaper than renting in the long run. I suppose Apple's current landlords are drill baby drilling as far as they can into those deep pockets.I guess Apple coulda done like Microsoft though - save money by leaving out the glass, and having no windows at all. All hail concrete prefab, slap it up in no time. Boy that would sure eliminate distractions. We've been astonished at the market-leading creativity that's surged out of Microsoft's dungeons ;-) Only one of their employees deserved to be shackled in a dungeon, though. The head ogre.
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