Apple Inc. (NASDAQ: AAPL) shareholders get to vote on nominations for Apple’s board of directors today. We also saw that proxy firm Glass Lewis& Co. advised holders to elect Chief Executive Steve Jobs, William Campbell, Millard Drexler, Andrea Jung and Eric Schmidt to the board of directors. But the proxy firm advised shareholders to withhold votes for Al Gore, Arthur Levinson, and Jerome York.
But what else can happen when boards get together with shareholders? Yesterday there was market talk going around trading desks that some were hoping for a share buyback plan to be announced to drive its shares back up. We would classify that as a rumor, but we’d hope it was an untrue one. Apple does have over $18 Billion in cash (probably closer to $20 Billion now) and equivalents as of last quarter and its market cap is currently north of $107 Billion. While Steve Jobs & Co. could quite easily afford a share buyback, this would be a gesture of focusing solely on the share price rather than on the opportunities in the market. Of course there is an obligation to shareholders and we don’t refute that. At $120-ish, shares are down about 40% from their highs at the end of 2007. But they are also still up almost 50% from their year-lows. To show performance even further, shares are still up more than 15-fold over the last five years.
Apple is still going to grow, even if not at as high of rates than the past. Buybacks are loved by some and hated by others. There are many cases where they are the best solution. But sometimes they are complete wastes of capital and ineffective. Pretend the company announced a $5 Billion stock buyback plan for a moment. That would only absorb one single day’s worth of trading volume. Triple that number and you absorb only 3 days worth of trading volume. That would be nothing short of a waste of what is a paramount growth in capital that can be used for a major event down the road. The company has been reluctant to announce a stock split, yet that would be easier to explain.
Chief Financial Officer Peter Oppenheimer will speak tomorrow, March 5, at approximately 2:00 PM EST at the 2008 Morgan Stanley Technology Conference. Almost $20 Billion in cash is a giant number that will in all probability become even more giant. But that isn’t always a bad thing. A stock split would effectively provide the same sort of shareholder reward, and it would cost them next to nothing. Some would love a buyback. You know where we stand on that issue.
Jon C. Ogg
March 4, 2008