Sunday, March 18, 2012

Siri, Will Apple Announce A Dividend?

     Apple is going to have a big announcement tomorrow morning at 9:00 a.m. New iPad? iOS 6? Apple TV? No, Apple will be talking about their gigantic hoard of on hand cash and will "announce the outcome of the Company’s discussions concerning its cash balance." Apple's wallet doesn't have a couple of twenty dollar bills and a few moths, but close to 100 billion dollars on hand. I'll just let that sink in for a moment with this explanation by Dr. Evil...

A lot of people (mostly those who hold Apples stock) have been calling for Apple to issue a dividend, or cash payment to those who own shares in the stock. However, that being tomorrows outcome seems unlikely for a few reasons.

1. The Check is in the Mail

      Most of Apples cash is held abroad in foreign markets, and has been avoiding the watchful eye of the United States tax man. At last estimate, over 66% of Apple's cash is help abroad. If they were to bring some or all of that cash back home to the U.S.A., it would be hit with a 35% tax once it hit American soil. 

     Lets just put some numbers to that scenario. At last count, Apple has $97 billion in cash reserves. Let's assume that 2/3 of that is abroad and would be brought back. That's $64 billion itching to taste American Apple Pie. However, the IRS will take 35% of that sum upon landing, leaving Apple with around $42 billion that can be effectively brought in to the US. That would leave Apple with about a cash hoard of $72 billion. Nothing to sneeze at. However, Apple doesn't hold all of that in cold hard cash, but some is in short term assets that they might not be able to get the whole return on. In addition, this cash is in foreign currencies, so exchange rates will also eat away at some of the hypothetical repatriation. So lets be conservative and say that Apple could have $67 billion at their use tomorrow morning if they wanted it.

2. The Price is Right

     The average dividend yield for a company on the S&P 500 is around 2% a year. (Dividend yield is the dividend divided by the price of the stock) So lets play the assumption game again and say that Apple goes and declares a 2.5% dividend, which has been suggested. Apple has a current share price of $585.57 and has been climbing, with its price up over 40% this year. In order to get a 2.5% yield, Apple would have to pay each and every shareholder $14.65 for the year. How many shareholders does Apple have you might ask? They have 932,370,000 shareholders as of the last quarter. So at a price of $14.65 times 932,370,000 shareholders, Apple would need to pay out $13,659,220,500 to its shareholders. That would be 40% of Apple's cash holdings in the United States and 20% of Apple's hypothetical cash holdings if everything was in the US.

3.  Hit Me Baby One More Time

         So Apple goes ahead and announces a dividend yield of 2.5%. Whats that going to do to its share price? It will shoot up, and continue to increase, as Apple turns out record breaking quarter after record breaking quarter. If Apple is serious about keeping a yearly dividend, and does not want to lower the dividend yield, they will have to keep increasing the cash dividend they pay out, costing them more and more cash. Lets assume that Apple goes up to $650 and they want to declare a 2.5% dividend again. That's $16.25 a share and a total cost of $15,151,012,500. A company can't just hit it and quit it on a dividend. They have to keep a constant dividend payment in order to keep shareholders happy. Even if Apple is a cash generating juggernaut, they can't keep up an untenable strategy of increasing their dividends year after year.

4. It's Bad Business

     If Apple goes ahead and declares the hypothetical cash dividend of 2.5%, that is over 40% of their US cash holdings. A company needs to have good cash management, and keep enough cash on hand to be able to weather any unforeseen circumstances that may occur. Taking a huge 40% bite of their US cash pile would force Apple to bring some foreign cash back to the US, where it will be taxed at the highest rate in the world. If Apple does not need to bring back any cash (and they do not), why would they if the circumstances are not in their favor?  Other companies can afford to declare dividends because they are much smaller and a 2% yield is a much lower cost. However, larger companies like Berkshire Hathaway, can never declare dividends because of its prohibitive cost to the company. Furthermore, Peter Oppenheimer has been the CFO of Apple since 1997, a year after Apple last declared its dividend. Why would he decide to have such a change of heart now, as opposed to in other years with a equally large cash pile?

    I fully believe that Apple will announce that it has made an acquisition or that it will continue to use its cash for investing in the company or even share buybacks, increasing the share price and earnings per share. Only one way to find out.... Tune in tomorrow morning bright and early.  

Wednesday, March 14, 2012

Nose, Meet Face. Spited Much?

     With news of a potential sale of their ad platform, Yahoo is trying the  "throw anything at the wall and lets see if it gets us back on the right track"strategy. According to Kara Swisher, Yahoo hopes "to turn a cost center into a revenue source" and outsource the entire platform to a third party. 

     In a word: NO. Don't do it. Does Scott Thompson know how Yahoo makes its revenue? They have no magic online product that they can charge for, nor do they sell any tangible good. They are solely "a premier digital media company", or in short a company built on advertising. Why would you then outsource the one thing that you do to a third party. That would be like Ford outsourcing the full production of their cars to an auto shop. It doesn't make any sense on paper, nor does it make any sense in implementation. This just shows Yahoo is reaching a desperation point and is willing to rob Peter to pay Paul. Yahoo is willing to do anything in order to eke out a few more months of survival including cutting off its nose in order to spite its face, even if that means using some (dubious) patents to sucker punch other companies when they can't respond. 

    I hardly think that this is the last that will be heard from Yahoo. They are a desperate company who is just realizing that the music has stopped and they are without a seat in the game. I fully expect that Yahoo will use its thousands of patents to make more foolish moves, further ostracizing itself from the tech community. It wouldn't be surprising if Pandora slowly found Yahoo's targeting bulls-eye on them next for Yahoo's patents that relate to music, like this, and this.

Saturday, March 3, 2012

LTE and Siri and No Buttons Oh My

With the impending Apple announcement on March 7th, I wanted to run down some of the rumors that were attached to its release and what I see as occurring at the press conference.

What's Likely

1) Retina Display: The new display bump makes sense, following both Apple's natural progression of the displays on their devices as well as the invite's wording about something to see. There has also been reports of website analytic getting hits from iPads running what appears to be iOS 6 and a screen resolution of 2048x1536

2) The Same Price: It would be a deviation from past Apple pricing to have a price increase on the new iteration of a piece of hardware. That combined with the fact that there aren't that many new improvements to differentiate the iPad 2 from the new iPad, Apple will probably drop the price of the iPad 2 down and keep the prices of the new iPad at the prices the iPad 2 is currently at. Furthermore, the reduction of the iPad 2 price point would help make the price more palatable to schools, helping further the iBooks adoption in schools. 

3) Siri: It is a perceived differentiatior between the iPhone and Android phones, and the extension of the personal assistant to the new iPad would help keep the iPad on top of the tablet hierarchy, and help justify it over the Kindle Fire and its much lower price. Including Siri in the new iPad would make it a necessity in enterprise functions as it would replace the basic usages of a secretary by automating tasks. 

4) LTE: One of the reasons that Apple has avoided using LTE and 4G as their data processing is that it was a battery hog. There has been new advances in LTE battery life with the very slim Motorola Droid RAZR Maxx, getting over 8 hours of usage time. According to the Wall Street Journal, both AT&T and Verizon will sell the new iPad that can run on their 4G LTE network. That makes sense as neither Sprint nor T-Mobile offer 4G LTE at the moment and are both transitioning off of their WiMax and HSPA+ to LTE in the next few years. If Apple was going to release a 4G tablet, why would they release it for two networks that were going to be obsolete in the next few years anyway? By releasing it for only LTE, they stat true to their pattern of keeping the choices limited, especially with something as confusing as 4G.

What's Not Likely

1) No Home Button: There are gesture touches for the iPad 2, but the Home Button is a hallmark of the iOS devices, much like the clickwheel was for the iPod. There are two possible reasons for why the button is not appearing in the invitation. One is that the iPad that is in the picture is orientated in landscape instead of portrait where the Home Button resides. The other, and more reasonable answer is that the button was photoshopped out of the picture. If you look at the finger, there is a bluish tint under the finger, showing that there was something that was emitting light and is no longer there. Also, the Home Button just does so much already, that removing it would cause new mapping for major functions of the iPad, causing fragmentation between generations of tablets and setting a differential between the iPhone and iPad.

2) The iPad Mini: There is no threat from the Kindle Fire or any of the other smaller tablets. Steve Jobs was dead set against 7 inch tablets and Apple wouldn't fragment their tablet offering into different sizes like so many Android tablets.  

The Final Wildcard

From the details that have been leaked, there doesn't seem to be enough to conceivable call the new iPad release the iPad 3. Instead, I believe it will be called the iPad HD, to show its new HD display and enhanced visuals. However, to put the iPad over the top, I expect that there will be a special guest from Microsoft revealing the new Office apps on the iPad. The Office  suite has been seen in the wild, and was teased by representatives from Microsoft as coming soon, and wait and see. That would make the new iPad a pure enterprise dreams with both Siri and Office helping create a super tablet that could help untether workers from their desks. 

What I'm Trying to Do Here

I'm taking up blogging because I'll read the same piece of news five times over with no unique or original analysis or commentary. Here I hope to take the issues of the day and add commentary and what I think will occur, with my commentary. Also, I feel like my life sometimes looks like a Venn diagram, with all different circles connecting. That goes for what I'm blogging about as well. My interests are: 
  • Consumer Technology
  • Sports
  • Business
  • Politics
As a heads up, I have no conflicts of interest. I don't own any stock in any company, have any investments in any start up companies, or know anyone in the tech scene, sports sphere, business world, or political realm (influential or otherwise). And if I ever had a conflict of interest, it would be fully disclosed on every article that I write, potential conflict of interest or not. 

In conclusion, welcome aboard and hang on for the ride.