Apple is doling out more of its cash to shareholders and preparing to split its stock for the first time in nine years in an attempt to win back investors fretting about the iPhone maker's slowing sales growth and pace of innovation.
The moves announced as part of Apple’s second-quarter earnings report are aimed at boosting the company’s stock price, which has been hovering about 25 per cent below the peak it reached in September 2012.
The bellwether Standard & Poor’s 500 has climbed by 28 per cent during the same period.
Apple last night reported sales of 43.7 million iPhones for the three months to the end of March, ahead of the 38 million that Wall Street analysts had predicted.
That drove a 4.6 per cent rise in revenue to $45.6 billion, beating Wall Street’s projections for about $43.5 billion.
Apple said it had earmarked an additional $30 billion for buying back its stock through next year, bringing the total to $90 billion during that time-frame. The Cupertino, California, company also is raising its quarterly dividend 8 per cent to $3.29 per share, up from $3.05 per share.
The moves come amid worries investors have about the future of Apple since Steve Jobs, its co-founder and chief visionary, died in October 2011. Those worries have been compounded by the fierce competition that Apple faces in mobile devices, particularly from Samsung, which has been widening its lead in the smartphone market.
Although many analysts had been expecting Apple to distribute more money to shareholders, the stock split came as a surprise. After the seven-for-one split is completed on June 9th, the trading price of Apple’s shares will fall dramatically. Had the split occurred at yesterday’s closing price of $524.75 dollar shares, the stock would probably begin trading at around $75. At that level, more people should be able to afford to buy shares — a factor that could, in theory, fuel more demand for Apple’s stock and eventually lift the price.
The company’s escalating investment in its own stock also could increase the price by reducing the number of outstanding shares. That reduction increases earning per share, a key yardstick on Wall Street to appraise a company’s value.
Apple’s market value currently stands at about $470 billion, more than any other publicly held company.
Since Apple’s last split in February 2005, the stock has increased nearly 12-fold.
But chief executive Tim Cook told analysts that Apple's stock price "does not reflect the full value of the company".
Apple's stock soared $39.78 dollars, or 7.6 per cent, to $564.53 in extended trading after the news came out. Activist investor Carl Icahn, who had spent months pressuring Apple to buy back more stock, was among those applauding the company's moves.
In a Twitter post he said he was “extremely pleased” and reiterated his belief that Apple’s stock remained “meaningfully undervalued”.
The results for the first three months of the year illustrated how Apple can afford to spend so much money on its own stock while also payi more than $11 billion in dividends annually. The company ended the quarter with nearly $151 billion in cash, including $132 billion it is keeping overseas to lower its US tax bill.
The money being held outside the US is not available to buy back stock or pay shareholder dividends.
Apple’s earnings rose 7 per cent to $10.2 billion, or 11.62 per share, an amount that exceeds what most technology companies make in an entire year.
Revenue climbed 5 per cent to $45.6 billion. It represented the highest revenue that Apple has generated in any quarter occurring outside the Christmas shopping season. Nonetheless, Apple’s revenue growth has been stuck between one and six per cent for the past year.
By contrast, the quarterly revenue of rival Google has been rising at 12 per cent to 19 per cent during the same stretch. The quarter was highlighted by a 17 per cent increase in iPhone sales from the same time last year to 43.7 million units, boosted by strong demand in China, the US, western Europe and Japan. But iPad sales fell 16 per cent from last year to about 16.4 million tablets.
Apple traced the decline to its inability to meet the demand for the iPad Mini during the holiday season of 2012.
That prompted Apple to ramp up production in last year’s January-March quarter, boosting sales higher than they otherwise would have been. The company said it managed iPad demand better during the 2013 holidays.
Even as Apple faces more competition from Samsung, other rivals have been releasing their own sleek and often cheaper devices. Most of those devices use Google’s free Android system, which Mr Jobs believed had ripped off Apple’s ideas. Mr Cook, Jobs’ hand-picked successor, has repeatedly hinted that the company is putting the finishing touches on its first major breakthrough since the iPad came out four years ago.
Reuters
