Apple, that ultra-secretive, profit maximising, cash hoarding, phone making, tax
dodging efficient maker of phones and stuff is supposed to be the sensible one. It sells actual things for a profit and is not known for pouring money down speculative drains.
But, as the FT’s Matt Garrahan and Tim Bradshaw revealed, it wants Beats Electronics for $3.2bn. Beats makes headphones, like Apple does, and, er, even longtime Apple analyst Gene Munster is scratching his head.
We are struggling to see the rationale behind this move. Beats would of course bring a world class brand in music to Apple, but Apple already has a world class brand and has never acquired a brand for a brand’s sake (i.e., there are no non-Apple sub-brands under the company umbrella). Separately, we are not aware of any intellectual property within Beats that would drive the acquisition justification beyond the brand.
Before going any further read Matt Levine. He nailed a lot of this already, including the ever worthwhile point that the Dow is ridiculous:
Apple’s stock is trading at around $565 today. Apple thinks that number is too high, and so is going to cut it by six-sevenths, to some number around $80, by giving everyone six extra shares for each share they currently hold. This is not the sort of story where I explain to you that changing the nominal price of a stock doesn’t change the economic value of the company; I hope we are all grown-ups here.
So, if the split doesn’t have any economic impact, why bother?
Indeed. And with that in mind there are a few things worth adding Read more
A couple of years ago we had the privilege of attending a closed door session with a well known (former) spook/security type. We shan’t mention exactly who it was, but suffice to say the person in question seemed to know more about what’s what in the world of global security than anyone else doing the public speaking rounds these days.
It was a so-called “access event”, the sort where wealth managers pay organisers to connect them with those who know much more about what’s going on than they do.
The spook in question made clear that he could only comment in a private capacity and in very general terms, but he was nevertheless open to questions. Read more
Matt Yglesias at Slate has been on a quixotic campaign to stop the total devaluation of disruption as a term. Thank Steve Jobs for that magic cloak of respectability.
Still, in the perfectly rational world of tech acquisitions, the term has power. Matt quotes arch-magician biographer Walter Isaacson:
Isaacson also pointed out that Nest co-founder and CEO Tony Fadell will be joining Google as part of this deal. “Fadell was one of the team that created the iPod. He was very deep into the Apple culture … when Apple was so innovative.”
Matt makes the case for execution over true innovation. We think though that the tech world’s focus on disruptive innovation may have more to do with fear than hope. Parts of tech are wildly profitable, something that leads to what Andrew Smithers would call a bout of stockbroker economics when it comes to assessing the long term prospects of tech companies. Read more
Doesn’t seem very value-creating for “Your Company” to put their corporate treasury outside the castle where the filthy peasants can get it, or indeed to devote capex to a castle when they have access to advanced technology like corporate jets. No wonder Carl Icahn is on their case. Read more
And so to the Irish government’s international tax strategy, fresh out on Tuesday and making Ireland “part of the solution to this global tax challenge, not part of the problem” according to Michael Noonan.
Ireland has incidentally guided its 12.5 per cent corporation tax rate through its bailout. It even outlived Sarkozy’s presidency. Read more
Or simply giving money away?
There was much hoopla late on Wednesday as Verizon got the world’s largest corporate bond sale away — some $49bn of paper which will help to buy the rump of Verizon Wireless back from Vodafone.
Here’s a little table from Marc Ostwald of Monument Securities that hints at the excessive premium offered by Verizon, along with the instant profits on offer to investors here: Read more
Apple CEO Tim Cook is up soon in front of a US Senate committee. First though, Professor Stephen E. Shay of Harvard, who knows both his tax and his bow-ties:
Click through the pic for the C-Span stream.
Alternatively, join our colleagues over at the FT’s Tech blog, where the action is being discussed in detail. Read more
Compare (Apple’s testimony to the Senate permanent subcommittee on investigations, on Monday):
Apple pays an extraordinary amount in US taxes. Apple is likely the largest corporate income tax payer in the US, having paid nearly $6 billion in taxes to the US Treasury in FY2012. These payments account for $1 in every $40 in corporate income tax the US Treasury collected last year. The Company’s FY2012 total US federal cash effective tax rate was approximately 30.5%. The Company expects to pay over $7 billion in taxes to the US Treasury in its current fiscal year. In accordance with US law, Apple pays US corporate income taxes on the profits earned from its sales in the US and on the investment income of its Controlled Foreign Corporations (“CFCs”), including the investment earnings of its Irish subsidiary, Apple Operations International (“AOI”)… Read more
Now that we have Chinese socialites engaging in public cat fights over who is richer, posting snapshots of their bank accounts “Rich Kids of Instagram style“, one has to wonder if it may be worth revisiting John Hempton’s prediction last year that the Chinese authorities will finally crack down on this sort of over-the-top gratuitous wealth display, and when that happens the luxury brands — among them Swiss watches — will begin to suffer.
(*We should note the “I’m really richer than you” meme possibly applies to Prince Alwaleed bin Talal as well). Read more
Krugman’s had a go, Cowen’s had a response and now Roche has weighed in.
So why are corporates hoarding cash, and is this good or bad for the economy? Read more
The WSJ talks of “iPhone-like hype” around the next Samsung smartphone model. And Bloomberg notes that in China, iPhones are way behind. It must be that time again!
Yep, Apple reports its first-quarter earnings at 5pm EDT, so feast your eyes on this five-year chart in the meantime : Read more
Citi declared a few weeks ago it had three equity analysts focused solely on Apple, which generated a bit of intrigue and also some ridicule (some traders thought it was “just a marketing ploy” by Citi, according to CNBC). Those analysts came out with a ‘buy’ recommendation, though with a target price of $675, below consensus.
But now in the depths of December, Citi’s Glen Yeung, Walter Pritchard and Jim Suva have cut the rating to ‘neutral’ and the target price to $575. Investors in Hon Hai Precision (aka Apple’s biggest supplier, Foxconn) did not like it one bit:
He might also be able to explain why Apple shares continued to struggle at the US open on Thursday. (Market cap below $500bn at pixel time, huge opening volume) Read more
On Monday, the UK’s High Court ruled against Apple in its lawsuit against Samsung, which Apple accused of copying its designs with the latest Galaxy tablet.
But part of the rationale given for the ruling by Judge Colin Birss was… unusual: Read more
But Mr. Smith said the company has used the same technology to resurrect several late executives.
“We’ve brought past CEOs and things that like that back to life,” Mr. Smith said, without getting more specific, citing non-disclosure agreements. Read more
The WSJ had it first, we think:
The U.S. filed an antitrust lawsuit Wednesday against Apple Inc and five of the nation’s largest publishers, alleging they conspired to limit competition for the pricing of e-books. Read more
Alternative title: BATS in the belfry…
Or: When one stale share price quote gets out and triggers a circuit-breaker in the world’s biggest stock. Read more
We know, you’re tired of hearing about Apple’s $97bn wad of cash and whether the company will ever reward its
thankless shareholders by instituting a dividend or buying back shares.
But Moody’s has just finished its update of US non-financial corporate cash piles through the end of last year, and truthfully we were surprised by the extent to which Apple is behind the bigger trend from the last couple of years (emphasis ours): Read more
Apple has made a bid to consolidate its huge lead in the fast-growing tablet market by launching a new iPad with improved screen technology and more powerful networking capabilities, the FT reports. Tim Cook, Apple chief executive, unveiled the device at a San Francisco event taken straight from the playbook of Steve Jobs, the company’s late founder. The new iPad is Apple’s first device launched since Jobs died last October. Its $499 starting price is the same as its predecessor and Apple will start shipments on March 16. The new iPad uses the same high-definition display as the most recent iPhones and is the first tablet with the capacity to connect to so-called 4G wireless networks, based on next-generation LTE technology. LTE is a wireless broadband technology which is specifically designed to support mobile Internet access via cell phones and handheld devices. Seperately, the WSJ also reports that the Justice Department has warned Apple and five of the biggest US publishers that it plans to sue them for allegedly colluding to raise the price of electronic books, according to people familiar with the matter.
*COOK IN ‘ACTIVE DISCUSSIONS’ ABOUT WHAT TO DO WITH APPLE CASH
Caption cash competition! Read more
The FT reports that Apple levelled a new legal threat on Monday against the struggling electronics company that has claimed it owns the iPad name in China, as a court in southern China ordered a large retailer to stop sales of the gadget. The festering dispute, which has cast a cloud over Apple’s sales in one of its biggest potential markets, is expected to come to a head in the next two weeks, with a court in Guangdong due to hear the US company’s appeal against an earlier ruling that found against it. Reuters reports that Apple’s troubles in the country will give tablet rivals such as Lenovo and Samsung a chance to gain market share in the country.
A Chinese court has ordered a retail chain to stop selling Apple’s iPad in the city of Guangdong, ruling that the rights of an electronics company in a trademark dispute have been infringed, the FT reports. While limited to one city and subject to appeal, Proview has struck a victory against Apple in its legal battle, which is under way in other Chinese cities where retailers sell the iPad. Apple enjoys a 76 per cent share of China’s tablet market, but the Proview affair could embolden its rivals Lenovo and Samsung, Reuters says.
Verizon and AT&T will sell Apple’s latest tablet on their next-generation 4G wireless networks, after Apple unveils the third version of its iPad tablet in the first week of March, reports the WSJ. Suppliers in Asia are also helping Apple test a tablet with a smaller screen than the current iPad. The move would challenge Samsung’s and Amazon’s smaller tablets although Apple could decide not to proceed with the product, the WSJ adds. The rise in Apple stock beyond $500 on Monday meanwhile shows how important the company’s earnings have become, the FT reports. Were Apple’s results stripped out, Barclays Capital estimates earnings growth at S&P 500 companies that have reported fourth-quarter results would be 2.9 per cent rather than 7 per cent.
In a further twist in the global legal battle waged by technology giants around the use of patents, Samsung Electronics is to be investigated by the European Union to assess whether it breached antitrust rules by refusing to provide rivals access to its technology at reasonable prices. Brussels will be looking into whether the South Korean technology giant, the world’s biggest smartphone manufacturer but also a key supplier to rivals such as Apple, had distorted the market by withholding “standard essential patent rights”, reports the FT. The European Commission, acting as the EU’s antitrust enforcer, said its investigation stems from Samsung’s lawsuits against competing groups, notably Apple, launched in several EU member states in 2011.
Apple has finally named a successor to Ron Johnson as head of its retail store operation, choosing John Browett, chief executive of the British electronics retailer Dixons, the FT reports. Mr Browett will join in April as senior vice-president of retail, reporting to Tim Cook, Apple’s chief executive. Mr Johnson was named last June as the new chief executive of JC Penney, the US department store chain. His successor has been chief executive of Dixons since December 2007 and will take responsibility for Apple’s retail strategy and the expansion of its retail stores worldwide. “Our retail stores are all about customer service, and John shares that commitment like no one else we’ve met,” Mr Cook said in a statement. According to the Wall Street Journal, the company considered a range of executives from the US and Europe, including Steve Cano, an Apple retail executive who was one of Mr. Johnson’s lieutenants.
It’s been a gruesome week in the mobile phone market. The almost embarrassing dominance of Apple (ideas for spending $90bn of spare cash, anyone?) provided a cruel contrast to the desperate plight of the opposition. The maker of Blackberrys ditched its founders. Nokia, the one-time rubber-boot manufacturer, tried to stay positive, boasting that it had sold a million Windows-based Lumia phones in the last three months. During that time Apple shipped 37m iPhones. It has sold 315m of them worldwide.
The eclipse of Nokia is one of the wonders of the age, providing fodder for business school studies for decades to come. At the turn of the century, its position in the burgeoning mobile phone market seemed unassailable. Its combination of market dominance and mouth-watering margins meant that it could outspend and out-develop any competitor who came up with a better product. It sold its billionth phone in 2005, and in late 2007, deemed the world’s fifth most valuable brand, the business was valued at €100bn. Read more