Apple has some money burning a hole in its pocket
Getting real about Apple’s $100 billion stock buyback.
Updated*
So I was hearing some where that Apple has a lot of money just burning a hole in it’s pocket. Seems there’s an arson named Carl Icahn trying to really ignite it by using twitter.
Apple has implemented a plan to spend $100 billion of it’s current estimate of $148.6 billion pocket money by 2015 to buyback it’s stock. Mr. Icahn has tweeting his joy. Others say Apple needs to grow to grow it’s stock price. Now wouldn’t that be the New Deal thing.
Apple has 80,300 full time equivalent employees of which 42,800 are “outside the retail division”. Yup, you guessed…what if Apple instead of buying their stock back distributed that $100 billion to its employees? Try $1,245,300.01 to each of them by 2015. That’s 80 thousand new millionaires. Now that’s some job creating.
But, according to Apple its reach is as great as 600,000 jobs. They have “created or supported” this number of jobs involving all 50 states. What if Apple took that $100 billion and distributed it to all of these workers? $166,666.67 to each position. What do you think that would do for Apple’s stock?
Carl has not been tweeting for such a fire. He currently owns 4.7 million shares of Apple. At the close of February 7, 2014 Apple’s stock was $519.68. It’s high was $700.20 on September 17, 2012 in after hours trading.
Carl’s fire is currently at $2,442,496,000. That’s $30,417.14 per Apple employee. But face it, Carl is looking for a much bigger fire. He saw $700.20 once and now owns 4.7 million shares. The potential looks like $3,290,940,000 of blazing heat. $40,983.06 per Apple employee. Carl get’s $848,444,000 more fire. A 35% increase if Apple were to succeed with it’s strategy.
Kind of a strange world we’re in here. A company can increase it’s worth without even lifting a finger (as in working) by using it’s own money to buy its self into greater wealth. How long can this work?
Of course, the only reason Apple has this money is because of those 80,300 employees or 600,000 employees tied to Apple. They sold their labor to Apple directly or indirectly which created the wealth. Some I’m certain even bought what they labored on further adding to Apple’s wealth. Funny kind of, that Apple pay’s it’s workers and then they return some of that money to Apple buy purchasing what they labored on.
And I ask you, what drove that $700.20/share price in September of 2012? Was it that Apple was buying it’s stock or was it that Apple was selling it’s products?
Hard to say, Apple announced the buyback in March of 2012. If the stocked peaked because people were getting in too capitalize on the buyback, then what does that say for our money making system? Is this sustainable? What kind of “market” is this anyway? Did the stock price rise because people were actually doing some kind of value analysis beyond the research of Apple is buying it’s stock (and giving a dividend*)? Can an economy grow this way such that it keeps up with the Jones, as in an ever increasing population of Jones?
You know, if Carl sold his stock on February 7th, at $399 each he could purchase 6,121,543 Iphones 5S. What are the chances of that happening verse 600,000 people having an additional $166,666.67 burning a hole in their pocket?
*UPDATE: To be complete, Mr Icahn is collecting $14,335,000 in dividend payments per quarter. $57,340,000 per year.
While it might be the right thing to do economically, a share buy-back is an admission by management that they are out of many new ideas. Therefore, significant C-suite cull and across-the-board paycuts should always accompany buybacks. I don’t need to pay people tens of millions per year to milk a cash cow. I can hire random MBA monkeys to do that.
“Of course, the only reason Apple has this money is because of those 80,300 employees or 600,000 employees tied to Apple.”
“only”
Well, no those employees need a place to work and various assets and etc. much of which has been provided by investors.
” …the only reason Apple has this money is because of those 80,300 employees or 600,000 employees tied to Apple.”
Those employees have jobs, because of the success and strength of Apple. The money should go to strengthen Apple itself rather than strengthen other firms and the economy by giving Apple employees a $100 billion bonus.
Government is responsible for creating economic conditions for firms to succeed, particularly since it created conditions making it harder for them to succeed.
The U.S. had up to $800 billion a year trade deficits, where U.S. consumers bought foreign goods and foreigners bought U.S. Treasury bonds. Why didn’t the federal government give the money back to U.S. consumers, in the form of tax cuts, rather than spend more than all of it.
Also, I may add, there were misconceptions by a couple of people in Angry Bear about how real GDP is measured, which I may clear up.
Generally, in the Keynesian consumption function (or identity), Y = C + I + G + NX; trade deficits, or negative net exports (NX), subtract from GDP growth, because consumption (C) is overstated.
For example, in a $10 trillion economy, a 5% one year increase in GDP expands the economy by $500 billion. Also, if imports are greater than exports, e.g. $1 trillion of imports and $600 billion of exports, then net imports are $400 billion in one year, which adds to our trading partners GDPs and subtracts from U.S. GDP. However, the total added to the U.S. economy is $900 billion ($500 billion from GDP growth in one year and $400 billion from net imports in one year), because the U.S. is consuming more than producing in the global economy.
The U.S. is able to maintain trade deficits in the long-run, mostly, because foreigners lose through changes or differences in inflation, interest rates, and currency exchange rates. For example, over the past few decades, the Japanese yen appreciated from 360 to 100 per dollar, which means Japan received fewer and fewer yen per dollar.
Also, to a lesser extent, many of those foreigners moved to the U.S., and foreign firms began producing in the U.S., because it may be better, for them, to use those dollars than exchange them for their currencies. Moreover, those foreigners can raise their standards of living by selling their assets, exchanging their currencies for dollars, and moving to the U.S., or attending a U.S. college, for example. Furthermore, tourism (by foreigners in the U.S.) adds to U.S. exports.
I — of course; with my Teamsters Union economics — see the million dollars an employee as something organized labor could have (should have!; hey, let’s strike) SQUEEZED out of Apple — if only labor in the US were properly organized (preferably, centralized bargaining)..
It’s the market — as our Repub friends like to shout — not looking for humanitarian sympathy — just maximizing returns.
I used to work (1970) in Gimbles furniture warehouse in LIC — under Teamsters 804, Ron Carey locale president (by my late reading, the guy who might have made my time there heaven). Just a few years ago I read their defined pension was raised from $3300 a month to $3600. Hey; where do they think they are: Germany? These guys are just warehouse workers and truck drivers.
Militant warehouse workers and truck drivers, that is. I remember a strike meeting in 1969 — Ron is at the podium calling for a strike; saying “I’m not saying there’s a dollar there” (management was offering an $17 raise; Ron was calling for $18). I had a feeling the whole act was with a wink and a nod from management — Ron just wanted these militant guys to get strike out of their system. Sure enough, next day there was a dollar there. LOUD cheers from the membership.
With the tactical strength labor acquires under legally mandated, centralized bargaining there is no need for testosterone fueled membership. There is also less pressure on management to keep labor cost down (too often below national productivity growth) to hang in there against the competition — the competition has to pay the same raises.
A lot of the lost labor pay due to losing factory jobs overseas may be ascribed to losing heavy duty workers (read rambunctious males — and females) who populate heavier work jobs. Again, centralized bargaining can increase labor bargaining power while simultaneously reducing management incentive to resist.
I guess I should add that Apple management could have — would certainly have preferred to have — kept that million dollars an employee away from labor by charging much lower prices to consumers. So collective bargaining has an anti-monopoly pricing effect as well.
Denis, hopefully, Apple won’t end up like GM.
Raising the national minimum wage, e.g. to $15 an hour, which creates a level playing field, would raise real wages for every worker earning between $7.25 and $15 an hour, and raise real wages, somewhat, for workers, perhaps, up to $25 an hour.
I’ve explained before how real wages will rise more for low-wage workers than fall for high-wage workers.
Apples first obligation is to its shareholders, not employees. So, the shareholders get the $100 billion.
I find it interesting that no one has questioned where all that extra cash has come from. Yes, of course we all know that it came out of profits, but I’m wondering to what extent those very significant profit margins have been the result of Apple’s East Asian production philosophy. Build it cheaper and you will prosper. But at who’s expense. What is the differential value of the Chinese production of Apple products relative production in the U.S.? Inquiring minds would like to know, does Apple have a hoard of cash based on the exploitation of its manufacturing force? How much of that differential in labor costs be offset by the ability to label their products,
Made in U.S.A.?
Business has positioned itself, legally and in the public imagination, as the only legitimate source of good things like food, clothing and shelter. The truth is the opposite — people are the source of business, on both sides of the till.
Business leaders can look powerful the way surfers look masterful as they ride the great waves. And they can maneuver from one business/wave to another as succeeding waves move or die away. But they are nothing without the waves.
Surfing the ocean is a harmless sport. Surfing and manipulating human populations to suit one small group’s whim is not.
Noni
PeakTrader,
It is freaky how little wages have to fall — if at all — for higher wage workers. A $15 minimum wage will send all of 3.5% of GDP in the direction of the bottom 45% (I’m making $15 the 45 percentile wage — a close guess).
… (maybe it should be 5% of overall income — this is confusing to me — income is 2/3 of GDP but a raise that raises prices 3.5% should still only cost higher incomes 3.5% of their incomes — anybody want to make it simple for stupid?) …
The 50-90 percentile have kept up from zero to full pace with overall economic growth — proportionately — since 1973 (the year everybody stopped keeping up). How much would have to be shifted their way to catch them up to full share? And how?
Some of the numbers I look at are mind boggling. Bottom 20 percentile income take only 2% of overall income — while top 1 percentile take blew sky high from 10% to 23% between 1979 and 2006.
Who should give up what — and how? ???
Interestingly, since 2007, top 1 percentile have gotten about all the growth — so the next 9 percentile may now have heavy incentive to get seriously up to speed on income inequality and effectively involved.
The only way overall to reform our labor market is to re-unionize (which concomitantly would reform our political forum by placing as much combined money and lobbying power as ownership and almost ALL the votes at the service of most people) — and the only way I have seen under the sun (to borrow from the ancient Psalms) is legally mandated, centralized bargaining. (No scabs under centralized bargaining — cannot legally work except under contract). This system has not made Germany (where it started) a forgotten economy. 🙂
How to get back hundreds of millions going to ball players, CEOs and even talk show celebrates? Not by raising Wal-Mart’s prices 3.5% (half of Wal-Mart labor costs if cost increase 50%). I knew from living in ancient times about the confiscatory income and estate tax rates, pre JFK. I didn’t realize until I read the book “The Rich Don’t Always Win” by Sam Pizzigati that after WWII the tax system was effectively skimming the fat off overpaid and the over inherited so that we had a really nice, yet effective economy.
This came about accidentally when the big war allowed those who favored this to get the upper hand. There wasn’t much of a culture to defend it after the way it if any heavy opposition showed up — but if that hadn’t showed up it might have all coasted right through to today, seemingly.
Very ironically, the one group who kept growing their fortunes — and the one group who brought the plutocracy (I’ve learned a new word) back were the Texas oil guys who were the beneficiaries of multiple tax giveaways. Ironically, because the same saint who shepherded all the progressive legislation through the Congress after JFK’s death was the same devil who made sure the oilmen would never lost their giveaways when he depended on their political support in Texas. Probably would have kept them without LBJ, but ironic.
Now we have to rebuild the 50s and 60s again (similar democracy happened temporarily for similar reasons after WWI) consciously.
Easier than you might think.
Just cut the Gordian knot (Obama),
Nothing but political capital to be gained by any Democratic politician (or president) who pushes for the obviously needed remedies — double minimum wage and institute centralized bargaining (instituted by postwar industrialists after WWII, not the left — now in use from French Canada to Indonesia). Supermarket workers and airline workers would kill for centralized bargaining. No question of selling ice cubes to Eskimos at all. Just do it (Obama)!
ADDENDUM FOR ABOVE
Dean Baker (in 18th reply on his blog post — the only reason I know the most vital “Great Wage Depression” stat) reproduced what he called “a slightly altered table” from Gordon’s paper, showing income shares in 1972 and 2001″ — my percentage changes on the right.
% _________1972_____2001
0-20 ______ 2.6%, ___ 2.0%____ – 0.6
20-50 ____ 16.0%, ___ 11.7%____– 4.3
50-80 ____ 33.7%, ___ 27.2%____– 6.5
80-90 ____ 17.0%, ___ 16.1%____– 0.9
**********************************
90-95____ 10.8%, ___ 11.3%____+ 0.5%
95-99.0___12.2%, ___ 14.8%____+ 2.6%
99.0-99.9__ 5.7%, ____ 9.6%____+ 3.9%
99.9 -100__ 1.9%, ____ 7.3%____+ 5.4%
(see p. 84 of Gordon for similar breakdown of wage income)
I should have added above-above that wage SHARE has to drop for higher wage workers — but since per capita income grow one or two percent every year they don’t have to lose anything ABSOLUTELY if everybody begins to their fair share again as we all did up to 1974.
Same fair share labor market would automatically solve Social Security retirement funding (why shouldn’t FICA tax go up 2% over 20 years when everybody’s incomes should be growing ten times that. Same fair share would mean half of Chicago’s minority age males would not enter the street gang labor market — the Crips and the Bloods couldn’t whip a decent paying Ronald McDonald. Etc., etc.
Maybe that is what America’s labor market reform movement should be named: “ETC., ETC.
Jerry Critter,
OTH, the employees responsibility is to the employees — and maybe if they were properly unionized (see centralized bargaining) they might have SQUEEZED much or most of that $100 billion for themselves — if Apple wanted to stay in business — all depending on how chances worked out in “the market.”
Jack, I guess, you never heard of the Law of Comparative Advantage, e.g. if two countries specialize and trade, both countries benefit.
Of course, one country can benefit more than another, e.g. China raising its income from $4,000 to $5,000 (i.e. $1,000) or 25%, while the U.S. raises its income from $50,000 to $55,000 (i.e. $5,000) or 10%.
Denis says” “Bottom 20 percentile income take only 2% of overall income — while top 1 percentile take blew sky high from 10% to 23% between 1979 and 2006.”
That’s incorrect. Also, the top 20% account for (only) 40% of consumption (so, the other 80% account for 60% of consumption).
The “rich” produce more than they consume over their lifetimes, while the “poor” consume more than they produce over their lifetimes.
Would you rather have a bigger pie to share with more income inequality or a smaller pie to share with less income inequality?
Workers should be paid based on productivity, and real wages for low income workers have lagged productivity.
U.S. per capita income = GDP = output is over $10,000 a year more than the E.U., although there’s more income inequality in the U.S..
http://en.wikipedia.org/wiki/Comparison_between_U.S._states_and_countries_by_GDP_(nominal)_per_capita
Of course, the mix of output is also important.
For example, there’s more government expenditures in the E.U. and less private expenditures, or government accounts for a large share of GDP.
Also, some countries are export-led economies, which add to their GDPs, while the U.S. is a consumer-driven economy, that subtracts from its GDP.
Moreover, there are differences in the cost of living, e.g. through regulation, taxes, fees, fines, fares, tolls, etc..
PT — “Workers should be paid based on productivity, and real wages for low income workers have lagged productivity.”
So should management. They have exceeded productivity.
Denis Drew – “OTH, the employees responsibility is to the employees — and maybe if they were properly unionized (see centralized bargaining)…”
Absolutely! That is why business is bent on destroying unions. Individuals are powerless relative to groups of individuals.
Jerry, I agree, many underpaid workers became more underpaid and many overpaid workers became more overpaid.
However, it should be noted, union workers were grossly overpaid and non-union workers were grossly underpaid.
That disparity narrowed, since unions peaked in the 1970s, i.e. lower real wages for union workers and higher real wages for many non-union workers.
Also, many government workers are overpaid and many non-government workers are underpaid.
However, in the fast food industry, for example, since the late 1960s, workers became more underpaid, i.e. labor productivity increased about 25%, while real wages declined over 25%.
P.T., your Law of Comparative Advantage, not actually a law, but more of a descriptive concept from the field of comparative economics, is an after the fact description of exploitation in action in its application to the out sourcing of manufacturing from one economy to another. Such laws, as some like to call them as though there were no alternative process available, is more benignly used in describing the production and exportation of natural resources between economies. When applied to labor as it is made available in one of the most regressive totalitarian states it takes on the stink of exploitation. No, the new generation of Chinese Communist rulers do not enslave and sell their populations to foreign plantation owners. They are kept firmly under the thumb at home where the benefit of their exploitation can be continuously reaped by those who run the fascist state that our business leaders are so pleased to do business with.
PeakTrader,
You’ve misread — which is easy to understand given the crazy disparity of the incomes involved — the top 1% (not top 20%) takes 23% of overall income. Look at the (linked) chart above.
Workers get paid more mostly when their economy — not them — gets more productive. In the old days productivity grew when roads were built, and gas stations set up and the whole world moved by gasoline instead of horse power. Restaurant workers got paid more. Of very late economies are more productive because of the maturing of computer technology and the internet, etc. (I remember reading in Business Week in 1990 that firms had invested a trillion dollars in today’s money in computers for no increase in productivity — yet. Maturing technologies make us more productive.)
Fast food workers get paid more in the US than in Cambodia because of the gasoline engine and computers and every maturing technology in between, not because they are any more productive than fast food workers in Cambodia.
US per capita income is higher because we work more people (more family members), longer hours, for more years. A few years back I read that Americans on the average worked 50% more hours than Germans. You know, from low efficiency Germany where they make products no one wants to buy.
“Grossly overpaid”? Unless workers are in a monopoly type situation to squeeze it is impossible for workers to be grossly overpaid — any more than it is impossible barring monopoly type situation for ownership to be grossly overpaid. As long customers (not ownership) are willing to pay labor’s price that’s all there is to it. It’s “the market.”
Comparative Advantage: China manufactures goods to sell in America. America does asset stripping.
P.T., “However, it should be noted, union workers were grossly overpaid and….”
An interesting statement of opinion. I wonder how you come to that determination. On what facts is such an opinion based? Or, are you only referring to the union of corporate chief executives?
Let’s see, median household income in the US is around the $50,000 neighborhood. And that’s for at least two working people in the household. Individual median income is closer to $30,000 annually. Too bad all those union workers can’t be paid that much, or should I say that little. Unionized teachers in NYC with 60 graduate credits (B.A. + M.A. + additional graduate credits) and 20 years of service barely break $100,000 and to do so have to work the summer to reach that level. Wow!!!
A favorite of mine, from a few years ago, is this Apple stockholder arguing for a payout to the stockholders rather than an investment in producing the iPad, because who’d want something that’s just a bigger iPhone? http://www.marketwatch.com/story/story/print?guid=349563E0-E6F5-4C3E-8379-87F40210432E
h/t Josh Mason: http://slackwire.blogspot.com/2011/10/disgorge-cash.html
Jack, since you don’t believe in the Law of Comparative Advantage (which is supported mathematically and empirically), why should you believe in other laws, like Supply & Demand.
However, I agree, government intervention can exploit workers through the Law of Comparative Advantage.
And, yes, union workers were grossly overpaid, while non-union workers were grossly underpaid when union power peaked in the 1970s, because it’s all relative.
Denis, the top 1% is in the top 20%,.
And, yes, I agree, U.S. living standards are even higher than reflected in $10,000 a year more in per capita real GDP than the E.U., because Americans work harder.
Why not half to labor & half to the investors?
Mike,
It all depends on who can muscle (hustle) who and for how much. 🙁
It’s “the market.”
No Peaky, my friend. The so-called Law that you refer to is not supported nor confirmed by any calculations of fact. It is merely a conceptualization of the phenomenon of advantage. One group using what ever means at its disposal to take advantage of another group. In the case of corporations like Apple, the Chinese government, communist in name only, but certainly totalitarian, is more than satisfied to allow their citizens to supply labor at sub-standard rates and reap whatever financial benefits can accrue to their home grown One Percenters.
And to simply repeat your absurd claim that union workers are, and have been, over paid is not to provide any substantive factual support for that opinion. One could suggest that union workers have obtained levels of pay that the market would bear after negotiation with management. That’s how its supposed to work, isn’t it?
Jacky, suppose you’re better than someone else at both doing something difficult, e.g. improving an iPhone, and doing something easy, like putting iPhone parts together.
So, you specialize in improving iPhones, and another specializes in putting iPhone parts together, and then trade.
Of course, the value of improving an iPhone is greater than the value of putting iPhone parts together.
And, I stated above, workers should be paid based on their productivity.
Workers, who can put iPhone parts together twice as fast should get paid twice as much, and when workers create 10 times more value, they should get paid 10 times as much.
Also, I may add, it’s relatively cheaper to offshore many low-skilled jobs, e.g. to China, although the U.S. is much more productive, and then import those goods at lower prices and higher profits.
“Workers, who can put iPhone parts together twice as fast should get paid twice as much, and when workers create 10 times more value, they should get paid 10 times as much.”
There is no evidence that labor is more productive in any other part of the world than it is in the U.S. In fact the opposite is likely true. And in what fantasy is such out sourced labor paid more than would be their U.S. counter parts? You’re pulling those statements out of a blank sky with not even the cover of face validity, never mind the absence of any actual validity supported by factual data.
What Jerry Critter said. The Apple board has a fiduciary responsibility to its owners.
Imagine 100% of Apple’s shares were held by one person. That person could choose to do whatever s/he wanted with the cash on the balance sheet, but essentially that cash belongs to that person as a result of his/her ownership of the single share of Apple.
Instead Apple’s shares are diffusely held, but the collective owners of Apple own the cash as well, just as if there was a single owner.
“Instead Apple’s shares are diffusely held, but the collective owners of Apple own the cash as well, just as if there was a single owner.” M. jed
That’s about as simplistic a description of a publicly traded corporation as can be made. You left out the other two legs of that three legged stool, and I’m not even counting the government which makes it possible for the fiction we call a corporation to exist. First, there is the management which makes all the decisions for the share holders of the corporation. And there you have two layers of decision making. There are the board of directors, few of which have any significant holding in the company. Even they are a diffuse group being chosen by the nomination process by others who hold some fraction of a security interest in the corporation. And there’s the actual management team, CEO and all below that. They all have a stake in that cash because they collectively to varying degrees decide how it is to be used.
The second leg up are the employees who labor daily to produce the product that creates the hoard of cash, if they’ve done their jobs well enough. Their two cents about the $100 billion is to be utilized is indirect, but still their satisfaction is an important consideration for the continuing profitability of the corporation.
So in effect the share holders may own the cash, but only in an indirect manner. And they’ll see their share only after the managers get done taking their ransom for their days’ work.