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Apple to Buy Back $10bn of Its Shares and Pay Dividend

Posted by samzenpus on from the everyone-likes-money dept.

floydman writes "Apple has said it will use its cash to start paying a dividend to shareholders and to buy back some of its shares. The technology giant said it would pay a quarterly dividend of $2.65 per share from July. It will buy back up to $10bn of its own shares starting in the company's next financial year, which begins on 30 September 2012. Apple CEO Tim Cook said, 'We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure. You'll see more of all of these in the future. Even with these investments, we can maintain a war chest for strategic opportunities and have plenty of cash to run our business. So we are going to initiate a dividend and share repurchase program.'"

71 of 301 comments (clear)

  1. Context? by TaoPhoenix · · Score: 4, Insightful

    Any finance experts here? What does this buyback do? It probably makes the remaining shares more valuable, but are there any nasty angles to this?

    --
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    1. Re:Context? by Anonymous Coward · · Score: 4, Funny

      More importantly, if it reached over 50% ownership of its own shares would it become sentient?

    2. Re:Context? by LordKaT · · Score: 5, Informative

      There are some medium-long term downsides to this, should Apple fall hard in the long term (ie; tablets prove to just be a trend, iPhone sales fall, etc...), but this is what investors have been waiting for. This is a fairly large buyback, which will inflate the price of the shares even more, but it's a small amount of money for Apple to be investing in itself.

      This will more than likely force AAPL above $600 for the remainder of the financial year (and probably closer to $700).

    3. Re:Context? by stevel · · Score: 5, Informative

      Stock buybacks indeed make the shares more valuable. Paying dividends can entice some institutional investors to buy shares which they would not otherwise do. As long as Apple keeps sufficient cash on hand, this is a general win.

    4. Re:Context? by Billly+Gates · · Score: 4, Interesting

      It means Apple (according to many guru's and those on Wall Street in this day and age) think they do not know how to invest in themselves and what is valuable. Instead they feel to give the money back to the shareholders as they can invest in the money better than they can. Apple's stock price went down after the bell opened, but did go up in pre-trading (why is that legal ?)

      However, my opinions are more old fashioned and feel Apple should give money back to its owners after they invested the risk duh. Doing so in old school theoretical sense means they want less pressure on quarterly results and on just raising the share price and giving investors some of their earnings back eleviates this and allows for the same amount of money for slower growth from investors. Which is what the the thinking was even if that is rejected for newer investors as growth not revenue is everything.

      If I made you a partner in a company but didn't pay you because Hairyfeet, might just pay you then you will be on my ass to rise the share price as you see no return anyway. If it goes up then you gain money. That is how Apple has been operating since 1997.

      Apple is trying to eleviate that.

      It also is a little disapointing as Apple could start a 4G network to compete with the big boys, use the money for more R&D, or pay their Foxconn employers more and educate them to work for Apple China through scholarships. But Apple did not want to take that risk.

      --
      http://saveie6.com/
    5. Re:Context? by vlm · · Score: 2, Interesting

      Not arrogant enough to call myself an expert, but using made up numbers, if you had 100 shares outstanding, and $10B in the bank, this is claiming you have nothing in the pipeline...

      Option 1 to raise the value of outstanding shares by investing : Spend the dough on R+D or marketing or creating new markets or buying a productive company or "productive activity in general"

      Option 2 buy the shares, dropping the supply in the wild to 90 shares, lower supply at constant demand equals higher price.

      In the short run opt 2 makes the most money. In the long run opt 1 destroys the company. To some extent opt 1 means they can't think of anything productive to do with the money, so they're giving it back. Frankly this might be true.

      To some extent its a vote of non-confidence in the execs or general market pessimism... if the execs were enhancing shareholder value by 10% per year (made up number) then diluting the existing shares by issuing 1% more shares to give to the execs seems "OK" to the stockholders because they're still getting 9% rate of return (again, made up). However if you expect the stock to flatline or drop, then the stockholders will get pissed off at the idea of paying 1% of their capital to the execs... even if the rest of the market tanks 50% and apple flatlines, that capital loss will still piss off the shareholders.

      Also note that we live in a centrally controlled economy and the tax implications are wildly different if the $1 lives in book value (cash per share) aka paper profit which is a capital gain at a date of your choice in the future, vs $1 in dividends this year taxable as dividend income this year. On the date of record or whatever the exact term is, the stock drops in price by about the value of the share. If your dividend tax rate is high enough you can sell before that date and buy after that date, at a standard commission of course for each trade, which might be less than your tax loss. Assuming you believe in relatively constant taxes and relatively constant valuation.

      The TLDR version is they are pessimistic about the future and can't think of any way to avoid problems.

      --
      "Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
    6. Re:Context? by Space+cowboy · · Score: 2

      The stated intent of the buyback is to prevent dilution of outstanding shares when Apple gives RSU shares to its employees. I guess that means they spend $15B/year on their employee share bonuses.

      Simon.

      --
      Physicists get Hadrons!
    7. Re:Context? by Anonymous Coward · · Score: 2, Insightful

      It's worth noting that at the current share price, $2.65/quarter amounts to a ~1.8% return from dividends. That's a pretty low rate of return. Which more-or-less means that the stock price is still very much based on expectations of future growth in the company (and thus increase in the value of the stock itself). This is a pretty sensible prediction: Apple are still well-positioned to make money and branch into new areas.

      On the other hand, it does shift Apple stock ever-so-slightly into the land of more-stable/less-risky investment. With a few % dividend return, you can invest in AAPL and not worry so much about short-term successes or failures. This is indeed a rather cheap way for Apple to maintain the value of their stock, and draw in new investors.

    8. Re:Context? by blueg3 · · Score: 2

      The buyback is intended to offset exercised employee stock options, so the net effect is intended to be that the existing shares retain their current value (rather than being diluted by the new shares).

    9. Re:Context? by LordSchnitzel · · Score: 3, Informative

      No, it doesn't make the remaining shares any more valuable. Right now the market cap is ~$500 billion, and the liquid assets are known to be about $100B, so the non-liquid asset part of the company is ~$400 billion. When apple buys back the shares, the number of shares in circulation goes down, but so does the market cap, since now it's ~400 billion + ~90 billion assets. These should exactly match. You can imagine this as the board separating out the bits of the company that are apple's ip, employee capital, buildings etc, and the bits of the company that are just the ownership of a huge wadge of cash. They're getting rid of the latter without touching the former. You would expect this to not impact the share price in itself.

    10. Re:Context? by nedlohs · · Score: 2

      A share buyback shouldn't change the share price (though of course in practice...). It reduces the number of available shares but it also reduces the wroth of the company (it now has less cash) - by equal amounts.

      If a company had 100 shares and a price of $10 and bought back 10 shares. Then there are now 90 shares, but the company has $100 less cash on hand. Before the buy back the company was valued at being wroth $10*100 = $1000. It should now be worth $1000-$100 = $900 - and there are 90 shares left so $900/90 = $10 is stil the share price.

      It essentially works the same as a dividend payment, but reduces tax liability.

      The main downside is that (like a dividend) it's an indication that Apple doesn't think it can generate better than market returns on the cash (since if it could that would be better value for shareholders than paying it out as a dividend/share buy back). But when you are talking about the amount of cash Apple has that shouldn't be news.

    11. Re:Context? by tverbeek · · Score: 4, Insightful

      "To some extent opt 1 means they can't think of anything productive to do with the money, so they're giving it back. Frankly this might be true."

      Or (getting in touch with reality briefly) it means that they can't think of anything that they need 100 billion dollars for, but they think that merely tens of billions of dollars, plus the ongoing profits from their money-printing iProducts, will be enough working capital for what they do have planned.

      --
      http://alternatives.rzero.com/
    12. Re:Context? by Anonymous Coward · · Score: 5, Informative

      I have two Finance degrees and close to a Master's.

      1) In theory the stock buyback would do nothing to the value of shares. The remaining shares would own a bigger part of the company, but this company is ten billion dollars less valuable. In an efficient market, this would offset

      Fact: We do not operate in an efficient market.

      2) Investors will look at this as a signal that the company is bullish on its future, and you will see a disproportionate rise in the stock.

      Essentially, Apple is saying "our shares are undervalued". They have more information than the general public (hence the inefficient market comment). Apple says it is willing to buy at this low price, so th market says "time to buy".

    13. Re:Context? by Anonymous Coward · · Score: 3, Interesting

      Around February 2011, Jobs had to properly step back from the company as his illness was beginning to bite, he still hung around as best he could but this is the point where he really had to step away from the day to day running of the company, and Cook took over.

      This is also about the point at which Apple's legal attacks really started to escalate, whilst there had been some before the sheer number and weight of the attacks - the amount of money being put into the legal attacks at this point increased massively.

      Shortly after the iPad 2 was released, it was an "okay" update on the first one, but relatively lacklustre. It was hard to think much of that at the time, but it and the increase in legal attacks started to really set the stage for what was going on at Apple.

      The June/July period came and went, with no iPhone release, it didn't seem too big a deal but when the iPhone4S eventually came, it came late and was a major dissapointment, being little more than a weak incremental upgrade, much like the iPad 2. Similarly, iOS 5 brought nothing new to the table, and contained mostly updates that simply copied long held Android features. But regardless, for the iPhone 4S it didn't really matter because it still sold- and in record numbers, but when you examine what happened here it's quite telling, todays news only further demonstrates Apple's problem.

      They're out of ideas.

      Here's why:

      Ignoring the point that all hardware and software releases have brought really little new to the table, with Siri being perhaps the most innovative thing (but still ultimately little more than a voice to text interface for Woflram Alpha) you have to look at Apple's actions.

      They started off by starting to sue serious competition like crazy - companies that were pushing out devices that were a genuine threat to their sales. The next issue was the realisation that the iPhone 4S looked really, really, weak, so to release on their usual yearly mid-year cycle would've not netted great sales, their plan was to delay it, and try and back up sales to people invested in the Apple ecosystem a few months such that the sales that would've been spread more evenly over the second half of the year in the usual iPhone release cycle were compressed into a much smaller period, making for great headline numbers, but at the expense of sales that dissapointed the markets in the earlier quarter.

      Now step forward to today, and we've got Apple's announcement that they're going to spend money to inflate their share price, rather than continue to inflate it based on the continued strength of their innovation and the sales growth that has netted them.

      I don't think anyone's going to argue that Apple is still going to be making an absolute bucket load of cash, but what's happened here is quite interesting - this is really the point at which it seems clear Apple has accepted that it's hit or nearing it's peak based on innovative product based growth, their last 3 key product refreshes (the iPhone 4S, and iPad 2 and 3) have been rather uninteresting.

      I never really liked Jobs, but it's become clear that without him, Apple is just another tech company, and like Microsoft before them they've now peaked and are about to plateau. The share buy back is likely the point at which their share price will peak, and then they'll slowly decline as Microsoft's did before them to a level at which they'll stabilise - still placing them as a major technological company, but not the runaway "Apple's bigger than Polan" type of headline hysteria we see today.

      They've had a good run but this last year coupled with the next year is their turning point. The change from innovation to lawsuits, delaying to build up expired contract demand, and now to spending 10% of their total cash pile to grow their share price artificially, rather than organically are the key points demonstrating a changing tide.

      Many fanboys will tell you it's different, many will tell you that I'm wrong to suggest Apple product X wasn't lacklustre a

    14. Re:Context? by ILongForDarkness · · Score: 3, Insightful

      Exactly. What worth 100B dollars could Apple buy that they also could have a good fit with? They aren't about to buy SAP or controlling interest in oracle, or 2 HP's, or 3 Dells, or 5 Nokias, etc. There just aren't enough big enough targets out there, and even if they are they are pretty much worthless because Apple wins by having their systems completely designed as a integrated whole in house. I can't see how Apple + a Facebook, or HP or something makes sense. They still would be two completely different companies so all the "synergies" that deal-makers always like to conjure up are not so easy to imagine.

    15. Re:Context? by busyqth · · Score: 2

      It seems like you think Apple has zero value apart from it's cash.
      I think you're wrong.

    16. Re:Context? by Anonymous Coward · · Score: 5, Informative

      Your TLDR version is wrong.

      Corporate investments are (in theory) all about how to get the best return. Cash is a powerful asset, and can be used for all sorts of stuff. A company paying dividends/doing buybacks is signalling the market that they don't have an option that produces a return for shareholders that beats the market, for that particular piece of money.

      Holding cash causes a loss in value due to the inflation. AAPL is saying that they don't have a market-beating option for that chunk of money. Thus, they give it back to the shareholders (so they can get a better return). Likewise, the buyback will push up stock value (a return for shareholders), at least in the short-term, and consolidates control. Which the company believes is a better use of the money right now.

      Note that (I'm 99% sure) this is a special dividend - they aren't committed to it for ever and ever (like some companies). They still invest like crazy in R&D, and have said they will continue to do so. They just don't have $100B worth of R&D opportunities that will generate a market-beating ROI, in their opinion.

      This doesn't say anything about pessimism or avoiding problems - it's an ROI thing. A regular dividend from a tech company would be a discouraging sign, esp. one with as much growth lately as AAPL, in the markets they play in. I think this just says they made a shitpile of money, and couldn't spend it fast enough on worthwhile stuff. That's all.

    17. Re:Context? by dwightk · · Score: 2

      You know Cook's parachute doesn't deploy for 10 years, right? It half deploys in 5 years.

      --
      Like anyone can even know that
    18. Re:Context? by phantomfive · · Score: 2

      No, repurchased shares are 'retired' and are not held or controlled by the board.

      Not always, they can also be left in the treasury, available for reissue at a later date.

      --
      "First they came for the slanderers and i said nothing."
    19. Re:Context? by drinkypoo · · Score: 2

      I can see a Foxconn takeover making sense.

      No. That makes no sense. Then Apple would be directly responsible for the conditions there. Also, it's legally impossible.

      Intel's assets in Israel would be a good fit, too, since we're talking pie in the sky stuff.

      You mean, since we're talking pure, anonymous, cowardly bullshit. We're talking about one of the most contentious regions on the planet, Apple would only be buying themselves headaches.

      --
      "You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
    20. Re:Context? by JazzHarper · · Score: 2

      Your example would be correct if the company were valued based solely on the current cash divided by the number of shares--10% less cash and 10% fewer shares would result in the same share price. However, the value of a share is a function of the earnings and expected growth rate of those earnings, not just the cash on hand. A buyback, if large enough, can increase the earnings per share by reducing the number of shares, even for a mature company with a slow growth rate.

      However, in this case, the buyback is relatively small and may only offset the increase in the number of shares (dilution) caused by restricted stock and option grants made to employees, so I would not expect it to move the stock price noticeably.

      Also, the difference in tax liability is for the shareholder, not the company. The shareholder must pay taxes on dividends every year, but capital gains are not taxed until the shares are sold. The company pays taxes on earnings, either way.

      The main driver of Apple's stock price is earnings growth. Even at today's price, Apple shares are cheap, in terms of price/earnings multiple, compared to other tech companies and particularly compared to companies with similar growth rates.

    21. Re:Context? by phantomfive · · Score: 5, Insightful

      My best estimate is that Apple shares should be priced around $130-$150/share, not the idiotic $600 that people have bid it up to. If I had the cash to short Apple stock over the long term, I would do that.

      lol now we know why you don't have the cash. At the rate Apple is making money, if their stock were $130 a share, they could buy back all of it by the end of the year.

      Also stop looking at the absolute number of stock price, because it's unimportant. You need to consider the total value of the company VS total profits. At a P/E ratio of 15, Apple IS cheap, unless you think they are not going to be able to keep making money like they are now (a case could be argued to that point, but you haven't done that).

      --
      "First they came for the slanderers and i said nothing."
    22. Re:Context? by DarkOx · · Score: 2

      If APPL leaves the number of shares out standing constant, and retains them as treasury stock it does dilute the voting power of investors. Part of this may be to free the board and management to take more independent actions.

      --
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    23. Re:Context? by mrxak · · Score: 2

      It's hard to argue that the products you named are lackluster if each time they sell better than the previous product. Perhaps you were unimpressed, but consumers loved them all and as a business, that's all that matters.

      Stock markets may have been unimpressed by announcements, but Apple has the highest market cap right now, so clearly they're doing something right. Shareholders are apparently stupid, and have no idea what customers like, but each time Apple comes out with an earnings report, or says how many iPhones sold or whatever, the stock price shoots back up again when shareholders realize they were wrong about the new products and customer's willingness to buy them like crazy. Stocks will fluctuate, but the trend here is clearly quite positive.

      Your argument about Apple suing rather than innovating is a bit silly, too, since Apple is suing to protect their innovations from companies who can't. Are you really going to argue that having an extensive patent portfolio is a sign that Apple has no ideas?

      --
      -mrxak
      Onions Will Kill You
    24. Re:Context? by rsborg · · Score: 5, Informative

      Shortly after the iPad 2 was released, it was an "okay" update on the first one, but relatively lacklustre. It was hard to think much of that at the time, but it and the increase in legal attacks started to really set the stage for what was going on at Apple.

      The June/July period came and went, with no iPhone release, it didn't seem too big a deal but when the iPhone4S eventually came, it came late and was a major dissapointment

      Do you work for the Enderle Corp or some "technology analyst" firm that feels they can ignore market reality? Those products you state as "disappointments" were the best-selling and most profitable products of their respective markets. Just because you can't see past the horizon doesn't mean the earth is flat.

      --
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    25. Re:Context? by Anthony+Mouse · · Score: 4, Interesting

      Essentially, Apple is saying "our shares are undervalued". They have more information than the general public (hence the inefficient market comment). Apple says it is willing to buy at this low price, so th market says "time to buy".

      I think it's important to point out something else here: They just have a huge pile of cash and nothing to do with it.

      What they could do is issue it all as dividends, but that actually makes the share price go down. Because you start with a company that has ~$140B in cash, and you end up with a company that has the same non-cash assets but now has $120B in cash. Obviously the latter company is not worth as much money, because it doesn't have as much cash. The shareholders start with a share in a company worth $550, the company issues the dividend and the shareholders end up with a share worth $530 and $20 in cash. The cash has to come from somewhere and it comes out of the share price.

      Allowing the share price to go down like will cause a lot of people to be unhappy. It's especially bad for employees who have stock options.

      Doing the buyback instead has a lot of advantages, primarily as a result of leaving the share price where it is while still giving investors who want cash a way to get it without diluting their ownership stake in the company. If the company buys back 5% of its outstanding shares and you tender 5% of your holdings, you end up with cash in your pocket but no smaller percentage ownership of the company, and the employees and others who don't want the share price to go down are happy to see that it hasn't.

    26. Re:Context? by Billly+Gates · · Score: 2

      How about making it better as innovation?

      Too many companies are on the race to the buttom and it really shows. They do not listen to consumers and always try to pull a fastone on them.

      Wall Street is schzo in this regard as they reward companies for doing this. In Business School the good companies invest in long term strategies are better picks. Apple is included in this. If you watch undercover boss on TV, the first thing every CEO says is "I will go in and look for inefficines and ways we are wasting money to reduce costs". Then they get all butt hurt when they see all their employees overworked to the point of losing returns because of the insane cheapness. It is every single episode I see.

      Apple is old school when companies did not only focus on cost and instead on value. If others followed their league they would be worth more than their competitors.

      Seriously the Apple Iphone was lightyears ahead of anyone when it came out. It was better and not made from some cheap marketing guys in Tiawan. But real thought with pretty icons, GPU graphics, HTML 5, etc. The WindowsMobile 6.5 team were trying to catch up to IE 6 pocket addition to give you an idea how far behind they were when they scoffed the Iphone.

      Steve Jobs is a great CEO and I rank him as high as Bill Gates.

      --
      http://saveie6.com/
    27. Re:Context? by L3370 · · Score: 4, Insightful

      This should not be modded insightful, and the person should be glad that they posted as AC.

      $130 per share would barely cover the amount of PURE CASH the company holds, let alone there assets in real estate, patents, office furniture/equipment etc.... Factor in other details such as...oh I dunno... actual profits... projected earnings and other profit making assets, one could argue that this is one of the few companies IN THE WORLD that deserve such a high valuation. How many multibillion dollar companies can you name that have the same profit margins as Apple? That's a tough list to compile. How many companies beat analyst estimates nearly every single quarter and post record profits on a regular basis?

      Your opinion on share buyback is sound, however. It's popular right now to believe share buybacks are a waste of money. Investors don't seem to be moved very much by this gesture now days. You can rightfully argue the buyback plan is a waste, but on paper less stock available should equal more value per share.

    28. Re:Context? by swb · · Score: 2

      Why would a stock buyback do nothing in theory to share price?

      It seems like there's an assumption that there's no demand for the stock or the needed shares for a buyback are 'excess' shares otherwise unavailable through normal markets.

      It seems to me under normal market conditions, a stock buy-back of meaningful volume should increase share price at least minimally because the buyback is taking shares out of the marketplace -- reducing supply without an increase in demand should result in increased prices, right?

    29. Re:Context? by jesseck · · Score: 2

      You talk almost as if you were a sage or mystic, and it unsettles me all the more.

      Isn't that how economics work? No one knows, they just make educated guesses and hope they come out correct at the end.

    30. Re:Context? by s73v3r · · Score: 2

      The June/July period came and went, with no iPhone release, it didn't seem too big a deal but when the iPhone4S eventually came, it came late and was a major dissapointment

      A "major disappointment" that happened to sell more units that month than any other smartphone did all year, and became the highest selling smartphone in the world.

    31. Re:Context? by dgatwood · · Score: 4, Insightful

      You're pulling your punches. Apple has a little over a hundred bucks per share in cash position, and made about $20 per share in Q4 2011. So the GP is suggesting that Apple's value should be based on their current cash position plus one quarter worth of sales, which means after you take out the cash, the company would have an effective P/E ratio of 0.25.... That's so far removed from proper investing advice that it's absurd. Such a low P/E ratio would make sense only for a company on the verge of bankruptcy.

      --

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    32. Re:Context? by Joe+Decker · · Score: 4, Informative

      By itself it is (here) a small concentration of power, roughly speaking offset in Apple's plan by the deconcentration of power that happens when they issue new shares of stock for stock option grants and so on. No big deal.

      Another way of thinking about it is that there's a lot of money sitting around that isn't actually doing much for it's share owners. It's making maybe a couple percent in government bonds. By returning some of the "wealth of the company" to owners, it allows those owners to decide how they want that additional money invested. If Apple could make a new product that cost $50B to make and returned a good profit on that, it'd be much better for investors if they didn't issue a buyback. But it doesn't do anyone much good for a cash pile that big to just sit around in low-yielding bonds, unless it can eventually be put to work.

      --
      I'm a nature photographer.
    33. Re:Context? by s122604 · · Score: 5, Informative

      In theory the stock buyback would do nothing to the value of shares. The remaining shares would own a bigger part of the company, but this company is ten billion dollars less valuable.

      yah, um, well sorta...
      You are distributing some of your cash pile, but it's cash you aren't using. Buying back shares, means you are reducing the float, which means earnings per share goes up, which makes the P/E multiple go down (and Apple's PE multiple is fairly modest to start)..
      These are all good things.
      The dividend isn't much, but it does help to draw in dividend-ased mutual fund managers who, by their fund's charter, have to invest in stocks that pay dividend. Also IRA, and Roth based investors will often automatically reinvest the dividend, essentially doing a "buyback" for you..

      One other thing to note is that, the plan anounced today is still modest. Even if apple only manages to grow 1/3rd the rate analysts predic, their cash pile will still grow, albeit at a much more moderate pace.

    34. Re:Context? by coinreturn · · Score: 3, Informative

      Apple is one of the small handfuls of companies that has never had a stock split...

      Wow, do some research before you post - AAPL has split 2-1 on three separate occasions.

    35. Re:Context? by Bogtha · · Score: 5, Insightful

      when the iPhone4S eventually came, it came late and was a major disappointment

      Er, no. Firstly, it wasn't late. Apple don't announce far-off release dates for the iPhone. People speculated that Apple would release June-July time, but that speculation was wrong. That's not the same thing as "it came late".

      Secondly, it wasn't a disappointment. They are selling them as fast as they can make them. The trouble is that supposed "analysts" were trumpeting the iPhone 5 that could grant wishes and came with a free unicorn. Those analysts had to turn around and call it a disappointment to avoid saving face. It happens for every Apple product launch. They sold 4 million in their first three days on sale. In what world is that a disappointment?

      Similarly, iOS 5 brought nothing new to the table, and contained mostly updates that simply copied long held Android features.

      iOS 5 had Newsstand, which gets Apple a piece of the magazine industry, iCloud, which nets them subscription fees and improves apps across the board, and it can now be used without any computer at all, which appeals to the people who want a phone but don't care about computers. I have an Android phone, and that's not true for any of it (it's supposed to be usable without a computer, but after about six months, an update arrived that could only be installed through Windows).

      Many fanboys will tell you it's different, many will tell you that I'm wrong to suggest Apple product X wasn't lacklustre as I've claimed - that's fine, but I'm merely talking from a point of view of the markets

      The market has spoken and the market adores the iPhone 4S. Sales are fantastic and share price is steadily rising. You don't have to be a fanboy to see that.

      --
      Bogtha Bogtha Bogtha
    36. Re:Context? by fast+turtle · · Score: 2, Informative

      There's an actually simpler reason and it's based upon both the law and Generally Accepted Accounting Principles. The first element is Retained Earnings. The IRS generally allows a maximum of 20 percent retained earnings and it's also codified into the GAAP rules (CPA's follow them). What this means is that about 80 percent of the cash Apple has on hand can be seized as a Tax, which gets the board sued, maybe they end up paying part of that out of their pockets and fired for failing their fidicuary responsibility. How does a company avoid this issue. They either pay a dividend to shareholders (declared is no longer retained earnings) or as buy back their stock, which reduces the cash on hand and as Apple has stated, they'll be doing both.

      What I suspect has happened, is that the IRS basically told Apple the same thing they did MS. Either start paying out a dividend or you will loose 70-80 percent of that money as a special tax and now that Jobs is gone, the RDF is fading, thus Apple has to do something or loose the cash.

      There are a few accepted exceptions to this 80 percent rule and they are as I stated, declared dividends, open negotiations with funds designated (those investments/purchases Apple made) and many others that I don't know of.

      One thing that Apple could be planning is buying back enough stock to delist the company. In other words, they could take it private, which changes the retained earnings rule quite a bit. A good example of this is the Bershire Hathaway Stock. Highly valued but not publically traded nor is the company a public company. Google it.

      --
      Mod me up/Mod me down: I wont frown as I've no crown
    37. Re:Context? by Anonymous Coward · · Score: 2, Insightful

      AAPL Market Cap = $556b revenue: ~110b
      Walmart Market cap = $208b revenue: ~447b
      Exxon market Cap = $410b revenue: ~433b

      The real question to a company the size of apple is where and how do they achieve future growth, and what risks are associated with this growth. Yes the ipad, ipod, iphone, etc.. have been wildly popular and profitable. However, the value of a company is by definition the present value of all future cash flows. This begets the question, "can apple continue to generate $110billion in revenue with near 25% net margins for the next 5, 10 years? Can they continue to grow at greater than 10% / year at this rate, putting them at 200billion in revenue by 2019?" If they can't, or if you think there is risk they won't be able to, then the valuation is high.

      As for the buyback, given the risks and current valuation, would you the shareholder rather receive cash, which you can reinvest as you see fit, or would you prefer management buy more of apple's stock at current values? It is the shareholder's money after all.

      Growth gets much harder to achieve the bigger you get. Also as the products mature, margins will likely compress. Tree's can't grow to the sky, just as companies can't become 100% of global GDP.

    38. Re:Context? by tibit · · Score: 2

      Walmart may have a market cap of 50% yearly revenue because they have razor-thin margins when you compare them with Apple. They have got much less of a cushion should things turn bad, compared to Apple.

      --
      A successful API design takes a mixture of software design and pedagogy.
    39. Re:Context? by mattack2 · · Score: 3, Informative

      A good example of this is the Bershire Hathaway Stock. Highly valued but not publically traded nor is the company a public company. Google it.

      Wait, WHAT?

      BRK-A and BRK-B are two different classes of Berkshire Hathaway shares, traded publicly on the NYSE.

    40. Re:Context? by Uberbah · · Score: 2

      Apple is selling based on the current impression that they are a luxury item. They sold that image heavily in the past, but now it's hard to argue that they are a specialty market tailored to those that, "Think Different." What the parent above mentioned about Apple being out of ideas is accurate. Their products have quickly become derivative instead of driving.

      Word salad - look at Apple's competitors in the smartphone market and they charge the same kinds of prices that Apple does. And remember when the iPad 2 came out and was actually cheaper than the competition.

    41. Re:Context? by steelfood · · Score: 2

      Interesting thing is, this is where the "mythical man-month" concept applies. If they threw all $100B around for future investments, it doesn't mean they'll get anywhere close to 10x the amount of returns as if they only spent $10B.

      So in effect, they really do have more money than they can spend.

      --
      "If a nation expects to be ignorant and free in a state of civilization, it expects what never was and never will be."
    42. Re:Context? by macslut · · Score: 2

      For the informed: maybe the shares are CHEAP compared to what they will be in the future. Really, given the growth rate of Apple, I don't see how the shares could come back down any time soon, unless there's some major end-of-world-like catastrophe.

      "My best estimate is that Apple shares should be priced around $130-$150/share"

      What the hell is your estimate based on? The P/E ratio is already about average for the market if going by TTM (trailing 12 months), which is flawed since Apple's business has been doubling every year. Still, be conservative and go by TTM and Apple is right where it should be.

      Your estimate of $130 a share, even with a conservative TTM approach, gives it a P/E ratio of 3.5! It gives it a market cap of $117 Billion, which is just about what their cash on hand will be at the end of next quarter.

      Forgetting the cash on hand, you're still estimating Apple's market value to be *less* than the projected revenue for the year...not smart for a company with a profit margin that's over 25%.

      "If I had the cash to short Apple stock over the long term, I would do that."

      I wonder why you don't have the cash. /s

      Look, we get it, you're an anti-apple fanboy, but you're better off sticking to the one-button mice comments.

  2. Lawsuits by Nerdfest · · Score: 2, Funny

    "We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure,"

     
    Hmmmm ... strange there's no mention of their legal department. They seem to be investing more there than in research and development.

    1. Re:Lawsuits by rwise2112 · · Score: 3, Funny

      you don't use the term "war chest" unless you're talking about lawsuits, either going on the attack or defense.

      Or actual war. Maybe the iTroopers will march on Google.

      --

      "For every expert, there is an equal and opposite expert"
  3. Probably won't affect cash position by busyqth · · Score: 5, Insightful

    It looks like this will cost Apple about $10 Billion a year, but their cash position has been growing faster than that recently. So, I'm guessing all it will do is slow down the rate of growth of their cash.

    1. Re:Probably won't affect cash position by Space+cowboy · · Score: 3, Informative

      Its actually slightly higher than that - they're forecasting $45B over 3 years, but your point stands.

      Simon

      --
      Physicists get Hadrons!
  4. I seem to remember by squidflakes · · Score: 5, Funny

    Didn't Steve Jobs say something like "Apple will only pay dividends over my dead body."

    Too soon?

    1. Re:I seem to remember by Muramas95 · · Score: 2

      not soon enough

  5. They've got it backwards by Waffle+Iron · · Score: 2

    The fundamental principle behind stocks is to buy low, and sell high. Not the other way around.

    1. Re:They've got it backwards by Sir_Sri · · Score: 4, Interesting

      You're thinking like a poor person. When you're rich, you buy at whatever price, but you buy enough to drive the price up even more, usually with someone else's money first, and then you sell.

      In the case of Apple and their 100 billion dollar cash on hand, they're pretty much right in principle on this though. 100 billion dollars cash on hand isn't giving enough ROI, and people can make better use of that money themselves than Apple can, if apple could use 100 billion dollars for something it wouldn't have it lying around collecting interest on overnight bonds and crap like that.

      The stock buyback is pretty normal, use some of the corporate cash to drive up the paper value of the company, thereby enriching shareholders without them having to pay tax. Paying a dividend of 1.7% of the value of the stock seems like they're trying to ease into this.

    2. Re:They've got it backwards by Anrego · · Score: 2

      The stock market stopped making sense a long time ago.

      It now operates in a seperate reality. The reality is completely ass-backwards, but everyone has agreed to work within it in the hopes that it favors them.

    3. Re:They've got it backwards by KZigurs · · Score: 2

      You are drunk.

      And since I am drunk and I'm noticing this - you probably are really drunk. Have some water, this should help with dehydration tomorrow.

  6. When I was a boy... by blind+biker · · Score: 4, Insightful

    When I was a boy of 11 or 12 years of age, I asked about how publicly traded companies and shares work. I was told that you own piece of a company through the shares, and so you receive a share of the profits, as well.

    Somehow, this basic concept got completely wiped out by most hi-tech companies since then. So much so, in fact, that when Nokia or Apple does this payments, people are a bit puzzled.

    --
    "The agriculture ministry is not in charge of Gundam" - Japanese ministry official.
    1. Re:When I was a boy... by Anonymous Coward · · Score: 2, Informative

      I'd say you got a very basic breakdown of how stocks work when you are a young boy. Dividends aren't always a part of the package, and that was the case way back in the olden days before tech companies too. I'd venture to say that most people gain cash on their stocks by selling them or borrowing against their "worth" in their portfolio. Dividends are nice, but don't typically pay for yachts and East Side apartments.

    2. Re:When I was a boy... by busyqth · · Score: 2

      There is no difference in this regard between big business and small business. If you are the sole owner of a small business, then every year you have a choice of whether to reinvest all of your profits in the business or take some out for your personal use. Either can be a valid choice depending on the circumstances.

    3. Re:When I was a boy... by vlm · · Score: 2

      Somehow, this basic concept got completely wiped out by ...

      ... socially engineered tax laws.

      If a company book value is $10 I wanna decide when to pay taxes on that $10, not have them decide to dole out $1/year of taxable income or whatever. The difference in marginal tax rate can be very high in the US, a substantial amount of lost money. I'd be pissed if I was near retirement age and owned APPL because I'd lose "lots" of money to taxes.

      If we were a little less central govt controlled, and there were no tax implications, I'd STILL argue that if I bought a billionth of APPL then the intelligent thing is for them not to waste time and money shuffling paper to pay a dividend and instead let me cash in my billionth when I want to. To some extent wanting commission-free dividend payout checks is old world thinking, like from the 70s when sales-commissions were triple digit fees... In the modern era commissions are low enough to not matter as much anymore.

      I do own enough electric company stock to nearly pay my electric bill using the dividends... Yes that IS a lot of dough tied up in utility stock, like about a car's worth of stock... Its kind of like buying my own solar array (or, my own nuke, I guess) but there is much less maintenance work involved for me. I think it would be funny if they ever formalized the relationship and merged the dividend office with the payment office allowing me to directly apply my dividends to my bill... but no, I get a hefty quarterly check and pay a e-bill out of my checking account monthly. Maybe I could ask them to deliver my dividend check to the billing office "care of account number blah"? In my infinite spare time I'll look into that.

      --
      "Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
    4. Re:When I was a boy... by Billly+Gates · · Score: 2

      No.

      15 years ago this was the truth. The basic concept was true before the HUGE gain in stock prices. Investors noticed when the DOW went from 3,000 to 15,000 in just 10 years! That growth corrupted them and now expect it.

      With those growth rates of course dividends looked paultry. In reality low interests and borrowed money inflated those prices from actions of the FED and no real wealth was created. Today people are demanding this growth and if they can't get it they buy HFT computers to rip other people off to get it.

      So if you do not pay a dividend but your shares gain 300% in value then who cares if you make money? That is the age and stuff that is taught in finance today and why wages are declining. Share price is king and because there is no dividend your 401k is dependent on constantly rising share prices.

      This system needs to end as many are predicting another stock crash or bond market crash.

      --
      http://saveie6.com/
    5. Re:When I was a boy... by DragonWriter · · Score: 3, Insightful

      No.

      15 years ago this was the truth.

      No, it wasn't true 15 years ago, nor was it ever true.

      The basic concept was true before the HUGE gain in stock prices. Investors noticed when the DOW went from 3,000 to 15,000 in just 10 years! That growth corrupted them and now expect it.

      The "basic concept" that profit-sharing was the sole purpose of stock ownership has never been true as anything other than a gross and misleading oversimplification of a complex topic useful, if anything, as an introduction from which people would learn more -- i.e., a lie-to-children; sharing in net profits -- i.e., profits after reinvestment -- has always been a feature of joint stock companies, but a preference against reinvestment over redistribution has frequently been common throughout the history of joint stock companies, particularly ones where shares were readily tradeable assets, as is the case certainly with publicly traded companies.

      Investors noticed when the DOW went from 3,000 to 15,000 in just 10 years! That growth corrupted them and now expect it.

      Leaving aside tax treatment, for publicly traded stocks with an active market, increases in market value are essentially interchangeable with dividends, since with a an increase in stock market value investors can sell a proportional share of their stocks and extract the increase in value, and with a dividend investors can spend the dividend to acquire new shares to increase the total value of their holdings in the stock in question.

      Investors came to prefer appreciation of stock value to dividends much longer than 15 years ago (I remember stories about this in the 1980s when I was in my teens) because dividends was taxed as normal income whereas income derived from stock value increases was taxed as capital gains (particularly, when the stock is held for more than one year, is taxed as long-term capital gains.)

      As a result, management -- out of fiduciary duty to investors -- over time more and more sought to return value to investors through stock appreciation rather than dividends. So, instead of volatility in dividends based on market performance, you see more constant (and usually zero) dividends, and more volatile stock prices.

      In 2003 tax policy changed to temporarily tax dividends as capital gains, but even though that change has been extended its always been a temporary cut with a programmed end date, and so predictably has had little effect on long-term strategy, though it does reduce the disincentive to one-time dividends.

      With those growth rates of course dividends looked paultry. In reality low interests and borrowed money inflated those prices from actions of the FED and no real wealth was created.

      Stock market bubbles due to factors like the ones you cite (without regard to whether they are accurate for the bubble you are trying to explain) demonstrably occur even when it is more usual to pay out dividends, since all they require is having a market in the stock. Dividends or the lack thereof are a minor factor, since the whole issue of bubbles is that the appreciation of market value is much greater than anything then is justified by assets on hand (including retained profits), so the choice to reinvest profits or distribute them as dividends is immaterial in the formation of market bubbles.

      So if you do not pay a dividend but your shares gain 300% in value then who cares if you make money? That is the age and stuff that is taught in finance today and why wages are declining.

      No, its not. None of that has anything to do with wages. (Sure, the total share that is returned to investors limits the amount available for any other costs, including wages, but whether it is returned in stock value appreciation or dividends is immaterial.)

      Share price is king and because ther

  7. Re:significance? by iONiUM · · Score: 2

    The price of the stock is unrelated, but the dividend in relation to the amount of cash apple has and their earnings is very low. But, that's the idea, it's a "token dividend", just to get the ball rolling. Presumably, they will increase the amount in the years to come, assuming they continue to be successful.

  8. Google, pay attention by rudy_wayne · · Score: 3, Interesting

    Larry Page needs to spend some time learning from Apple. I don't like Apple but I have to give them credit for one thing -- they haven't wasted billions of dollars on stupid pointless crap (driverless cars, etc) and buying a hundred companies a year that they shut down and abandon a year later.

  9. Order of magnitude more by Anonymous Coward · · Score: 5, Insightful

    Not arrogant enough to call myself an expert, but using made up numbers, if you had 100 shares outstanding, and $10B in the bank, this is claiming you have nothing in the pipeline....

    The problem is, Apple has $100B in the bank.

    You just can't spend that kind of money, not without buying solid-gold toilet seats or other absurd assets. It's ridiculous. Apple has no problem funding ongoing R&D just out of what it makes quarter to quarter. No need to dip into the corporate savings account for that.

    Buying back your own stock is basically saying, "Look,we have money to invest. We could invest it in gold, or US treasuries, or orange juice futures, but we think that the best possible investment in the world is Apple stock, so we're going to buy that."

  10. You solved your own riddle by SuperKendall · · Score: 2, Interesting

    you buy back shares when they are CHEAP so you can re-issue shares when the stock price is higher later on

    Yes, pretty obviously someone (or quite a few people) know a lot more about Apple's current share price being cheap or expensive. Since the only one in a real position to know is buying back shares, you end up looking rather foolish...

    --
    "There is more worth loving than we have strength to love." - Brian Jay Stanley
  11. I was hoping... by cmarkn · · Score: 5, Funny

    they'd just take all that cash and buy Microsoft, lop off the deadwood at the top and spin off three or four little companies to build iOS apps.

    --
    People should not fear their government. Governments should fear their people.
  12. Apple is going to be stagnant. by Anonymous Coward · · Score: 2, Insightful

    I also have a degree in Finance and a Masters ( dumbest fucking thing I ever did.)

    Essentially, Apple is saying "our shares are undervalued".

    Or, they don't have a clue what to do with the money because they're out of ideas; which is a bad sign. Granted, distributing the money to stockholders is a hell of a lot better than an acquisition (acquisitions almost always involve paying waaayy too much for the target. ).

    In my opinion (which is not much better than anyone else's), this is a bad sign. It is a sign that Apple is becoming stagnant and the iPad, iPhone, iTouch, and everything else they currently make is it. After the Apple gizmo fad wears off, they'll go into their cash cow phase - you should remember that from your strategy class.

  13. Re:And at current share price by the+eric+conspiracy · · Score: 3, Informative

    Well it's more like a 2% return because it gets issued quarterly.

    10% yields are fairly unusual, and are typically a sign that a company is hurting. They are often the result of a big dive in a company's stock and are likely to be reduced because the thing that caused the company stock to dive is that their profits are diving - and the dividends are paid out of profits. Sometimes you see 10% dividends in highly leveraged situations or from companies that have special tax treatment. Be careful with these as these dividends can be volatile or require some gyrations on your part at tax time.

    If you are a dividend investor the key thing is the long term record of increasing dividends. Apple isn't a blip on the radar compared with some of the better companies in this regard.

  14. Apple is doing great, but now what? by Animats · · Score: 3, Insightful

    First off, there's no place Apple can park that cash that provides a return anything like what their own operations generate. So a dividend is appropriate.

    Second, the big threat to Apple is lower prices. Apple has great margins, but that only lasts if the competition can be fended off. Hence the litigation.

    The computer industry in general had this problem. For a while, it looked like the future of personal computing was $99 netbooks, sold in bubble-packs in the stationery section of drugstores. This had the industry terrified. The mobile industry saved them, by creating a direct connection between the customer's wallet and the cell phone network operator. Apple saved them by offering a premium product at a higher price point. Microsoft saved them by crushing the Linux netbook industry. What we have now are mobile personal computers that cost $3000 over the 3 years of the phone contract.

  15. Re:Prevent who? by bhcompy · · Score: 2

    More like forcing you to put your eggs in one basket. You can invest that 600 in one stock and hope it doesn't lose value or diversify it across 15 stocks and be much more flexible to market fluctuations

  16. GAAP by glodime · · Score: 3, Informative

    Where did you hear about this 20% percent retained earnings rule (20% of what?)? I've never heard of it. I would venture a guess that if that was a real GAAP or FASB or IASB or IRS guideline that most if not all publicly traded companies would run afoul of it. It sounds like you are conflating something related to accounting for subsidiaries with an IRS tax rule.

    FYI:
    Berkshire Hathaway is a publicly traded company. I have no clue why you'd think that it is not. It's stock symbols are BRK.A and BRK.B (class A and B shares, respectively). Here is a link to its SEC 10-K for 2011:
    http://www.berkshirehathaway.com/2011ar/201110-K.pdf

  17. Re:In case anyone was wondering when Tim Cook... by hairyfeet · · Score: 2, Interesting

    And I say give the man credit as its a DAMN SMART move. There are a ton of hedge funds and other portfolios that won't touch a stock no matter how hot if it doesn't pay a dividend and now Apple will be considered a blue chip to those firms. i wouldn't be surprised if you see 20%, hell maybe even 30% uptick on their stock. If I had the cash to spare i know what stock I'd be buying right this minute and it wouldn't be Google or MSFT, it'd be Apple.

    --
    ACs don't waste your time replying, your posts are never seen by me.
  18. Re:In case anyone was wondering when Tim Cook... by ronocdh · · Score: 2, Insightful

    i wouldn't be surprised if you see 20%, hell maybe even 30% uptick on their stock.

    If that wouldn't surprise you, then you don't know what you're talking about. Seems to me you either have some Apple stock and you'd like to see it go up further than you think it will without your blathering, or you genuinely have no idea how stocks mature. The company with the largest market capitalization in the world undergoing positive growth of 20-30% in under six months? Keep dreaming, buddy.