Breakingviews - $50 billion buyback hike one sign of Apple middle age

NEW YORK Wed Apr 24, 2013 9:47am IST

Customers and sales persons are seen at an Apple maintenance service store at a mobile phone market in Shanghai, January 24, 2013. REUTERS/Aly Song/Files

Customers and sales persons are seen at an Apple maintenance service store at a mobile phone market in Shanghai, January 24, 2013.

Credit: Reuters/Aly Song/Files

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NEW YORK (Reuters Breakingviews) - Apple's (AAPL.O) $50 billion increase in its share buyback program is a sign it is hitting middle age. The company is slowing down a bit. But the $380 billion Apple still has plenty of spring in its step. And its absurd level of financial comfort means it can give much more back to investors.

Apple's 11 percent revenue growth in the quarter to March from a year earlier was well short of its previous breakneck pace. And the company's gross margin slipped to 37.5 percent and may fall further - enviable for most companies, but not up to Apple's innovative best. The company blamed factors ranging from increased sales of lower-margin iPads to changes in service policies in China.

Perhaps more telling is that the average selling price of an iPhone dropped by $20. Apple's ability to inspire fans to pay luxurious prices for its latest goods has weakened - or perhaps with such huge scale it now has to tap less affluent customers.

But Apple isn't yet 40 and it's too early to talk of decline, let alone decrepitude. Rivals such as Samsung (005930.KS) are capturing a larger chunk of the expanding global market. But Apple's sales of smartphones are still rising, and tablets are booming with 65 percent more iPads sold in the recent quarter than a year earlier. Moreover, Chief Executive Tim Cook promises new products in the fall. Apple might even beat the odds by introducing another device that creates a whole category.

A degree of aging also means financial security and a plan for the firm's cash pile, which has reached an astonishing $145 billion. That's far more than Apple needs, especially since to date at least it has wisely refrained from big acquisitions. The company is more than doubling the amount destined for shareholders' pockets to $100 billion by the end of 2015.

That will make Apple the largest dividend payer in the world, according to the compilers of the S&P 500 Index. And the company has upped its planned share repurchases to $60 billion from $10 billion - a sensible move while the stock looks undervalued on several metrics. David Einhorn, the vocal hedge fund manager, might prefer payouts structured his way. But other shareholders could justifiably conclude Apple is transitioning to maturity, not a mid-life crisis.

CONTEXT NEWS

- Apple on April 23 reported revenue of $43.6 billion for the quarter ending March 30, an increase of 11 percent from the same period last year. Net income decreased 18 percent to $9.5 billion.

- The company sold 37.4 million iPhones in the quarter, 19.5 million iPads and 4 million iMacs.

- Apple also more than doubled to $100 billion the amount of capital it plans to return to shareholders by the end of 2015. As part of this plan, the company increased its quarterly dividend by 15 percent to $3.05 per share and its share buyback authorization from $10 billion to $60 billion.

- Apple will borrow in conjunction with the program. The company has $145 billion of cash and investments on its balance sheet, but a majority is overseas. Repatriating it would trigger a tax liability.

- Company statement: link.reuters.com/xyz57t

RELATED COLUMNS

- For previous columns by the author, Reuters customers can click on (Editing by Richard Beales and Martin Langfield)

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