An open letter to Apple (AAPL) CEO Tim Cook
I think you have gathered over the last four or five months that the honeymoon phase of your tenure as CEO is officially over. Your stock just completed its worst monthly performance since 2008 and is down some 35% since its peak in mid-September. First of all, you have my empathy. It is never easy to succeed a legend, especially one as lauded as Steve Jobs. Very few that do are successful in developing a legacy of their own. No one remembers the poor saps that came after Vince Lombardi, Alfred Sloan or Napoleon. However, the coming months will greatly determine the trajectory of your tenure as Apple CEO.
Steve Jobs was a unique combination of world class visionary and obsessive, relentless & competitive S.O.B. Few individuals will ever have his vision, so I would not focus on that side of his success. Focus instead of channeling his competitiveness, obsession with detail and his relentless drive to annihilate the competition. If you can achieve this, your tenure as Apple CEO will be a fruitful one. Here are the three places I would start.
#1 Crush the shorts and negative market pundits
Short sellers and negative pundits are like cancer cells. They start as a small clump, but if left unchecked, they can multiply and destroy the organism they attack. They can cause massive disruptions to your customer base and employee morale. At $700 a share, Apple was an innovative juggernaut that could do no wrong. After a 35% decline in the stock, these parasites are questioning and criticizing every move the company makes. CNBC, Bloomberg and the NY Times can hardly go a day without a story on how Apple is losing its "cool" factor or how the company lost its "mojo". Do you think this does not affect customers' perspectives on your company or impact their buying decisions? Of course it does, so this vicious cycle must be stopped now.
Listen to David Einhorn and employ the massive $140B worth of cash and marketable securities on your balance sheet. Issue debt or preferred shares to get around the tax consequences of repatriating cash from overseas (or at least until congress issues its next tax amnesty act). Here are several things I would do immediately to attract value and retail investors.
- Raise your dividend by at least 50%. This would raise your yield at current prices to 3.5% which should start to attract income investors. This would cost roughly $5B annually. Pocket Change! Personally I would double the dividend.
- Split the stock 5 or 10 to 1. This costs you nothing and will attract the retail investor who wants to buy 100 or 200 shares but cannot do so at current prices.
- Announce that the company plans to buy back 10% of the stock's float over the next two years. State that the policy will be to buy shares anytime the PE ratio breaks below 10. Cost at current stock price, around $45B. Easily affordable and I doubt you will have to employ the full authorization as if you implement these outlined steps, Apple will not be below 10x earnings for long.
#2 Accelerate growth in China
Not since Nixon went to China in 1972 has someone needed the Middle Kingdom for its prospects more than Apple does now. It is the key to the company achieving a double digit long term growth rate for revenues and earnings. Yes, your products are offered by the #2 and #3 telecom carriers but you cannot win when you are not one of the top five smart phones in China. This means you need to get China Mobile (CHL) and their 600mm subscribers on board. Do what it takes to make this happen. Give them a percentage of app store sales and/or grant them exclusive distribution rights in Asia for a larger iPhone (which you should develop anyway). Be creative. If Apple only gets 10% of China Mobile's subscribers, that is 60mm new iPhones. You already have Al Gore on the board, so sign President Clinton to a $10mm retainer with additional stock options if he can help close the deal. He will love the limelight and Bubba is the consummate deal maker (something in short supply in Washington these days).
#3 Open a new front against Google
Right now Google (GOOG) is fighting an asymmetrical war against your company. They attack you in the smart phone space while their core business lines (search, maps, etc…) remain safely out of reach of any response. Change that. You had the right idea (but awfully poor execution) with Apple Maps. Fix that. Buy better technology and/or employ more resources to make this a viable alternative. In addition, expand Siri's voice search capabilities. I would consider licensing or even give away these capabilities to other manufacturers. Whatever it takes to offer some competition to Google in the search arena and make it a more symmetrical war.
Okay, that is my two cents. I hear you have a fantastic operations mind, but it is going to take more than that to right your company's ship and go down as a successful leader of Apple. So channel your inner George Patton and strap on your pearl handled revolvers. Go! March! Attack! Conquer!
A loyal but frustrated Apple shareholder.
Disclosure: I am long AAPL.