Apple to give out $100 billion to shareholders

Wednesday 24 April 2013 09.30
Apple shares are down 40% from a peak of $705.07 hit in September
Apple shares are down 40% from a peak of $705.07 hit in September

Apple is opening the doors to its bank vault, saying it will distribute $100 billion in cash to its shareholders by the end of 2015.

At the same time, the company said revenue for the current quarter could fall from the year before, which would be the first decline in many years.

Apple chief executive Tim Cook also suggested that the company will not release any new products until the autumn, contrary to expectations that there would be a new iPhone and iPads out this summer.

Apple said last night that it will expand its share buyback programme to $60 billion - the largest buyback authorisation in history. It is also raising its dividend by 15% from $2.65 to $3.05 per share.

Investors have been clamouring for Apple to give them access to its cash hoard, which ended March at an unprecedented $145 billion.

Apple's tight grip on its cash, along with the lack of ground-breaking new products has been blamed for the steep decline in its stock price over the winter.

News of the cash bonanza coincided with the company's release of a poor quarterly outlook for the three-month period that ends in June.

Apple released its fiscal second quarter earnings after the US stock market closed last night. Apple shares are down 40% from a peak of $705.07 hit on September 21, when the iPhone 5 went on sale.

"The decline in Apple's stock price over the last couple of quarters has been very frustrating for all of us ... but we'll continue to do what we do best," CEO Tim Cook said on a conference call with analysts after the release of the results.

But he reinforced that the company's job is not to boost its stock price in the short term.

"The most important objective for Apple will always be creating innovative products," he added.

Apple's results beat the consensus estimate of analysts who follow the company, though it posted its first profit decline in ten years. Net income was $9.5 billion, or $10.09 per share, down 18% from $11.6 billion, or $12.30 per share, in the same period a year ago. Revenue was $43.6 billion, up 11% from last year's $39.2 billion.

Analysts were expecting earnings of $9.97 per share on revenue of $42.3 billion.

For the quarter that just started, Apple said it expects sales of $33.5 billion to $35.5 billion. In the same quarter last year, sales were $35 billion. Wall Street was expecting sales of $38 billion.

iPhone sales begin to taper off

The June quarter is generally a weak one for Apple, since consumers tend to wait for the next iPhone, which the company usually releases in the autumn. But a year-over-year decline is a signal that Apple is failing to capitalise on the continued growth of smartphone sales.

Sales are tapering off in US and other mature markets, and not many consumers in India and China can afford iPhones.

"Our fiscal 2012 results were incredibly strong and that's making comparisons very difficult this year," said Cook.

Apple said it shipped 37.4 million iPhones in the latest quarter, up 7% from a year ago. That confounded expectations that shipments might fall, but it was still a weak number compared to many previous quarters, when shipments doubled year over year.

Apple started paying a dividend last summer and has been buying back a modest number of shares, enough to balance the dilution created by its employee stock option programme but not to make a dent in its cash pile.

The company says it is now expanding the buybacks, which started in October and are set to run till the end of 2015, from $10 billion to $60 billion. It is raising the quarterly dividend starting with the payment due May 16. The company has faced continued pressure from Wall Street over the use of its cash, which earns less than 1% in interest.

Investors reason that if the company has no better use for the money, it should be handing it over to shareholders. The company had said it was considering ways to use the money, and this year engaged in a public debate with a hedge fund manager who wanted it to institute a new class of shares to attract dividend-loving investors.

When a company starts doling out its cash to shareholders, it is usually a sign that its growth is stalling and it is finding it hard to identify good ways to invest in its own business.

But Apple is still growing fast by the standards of large companies, and its cash pile-up is a reflection of the extraordinary success of the iPhone. Investors have grown increasingly frustrated with Apple.

The company has only been releasing updates to its existing line of mobile devices and computers since Cook became chief 20 months ago instead of blazing technological trails as it did with the iPod's 2001 unveiling, the iPhone's 2007 debut and the iPad's introduction in 2010, said Lauren Balter, an analyst for Oracle Investment Research.

At the same time, Samsung Electronics has been gaining market share with larger smartphone screens and other features while Google Inc. is creating a buzz with its own Nexus tablets.

Google is also expanding into "wearable computing" with Internet-connected glasses that are expected to go on sale late this year or early next year.

Apple is rumoured to be working on a "smart" watch and a revolutionary TV set, but it has not confirmed that. Cook last night sounded slightly more open to making an iPhone with a larger screen, saying merely that Apple would not ship a phone with a larger screen as long as that meant tradeoffs in other measures of screen quality, like brightness.