Bits Blog: AT&T Responds to Shareholders’ Concerns on User Data

Apple to Dole Out $100 Billion to Shareholders

Apple CEO Tim Cook also suggested that the company won't release any new products until the fall, contrary to expectations that there would be a new iPhone and iPads out this summer.

Apple Inc. on Tuesday said it will expand its share buyback program to $60 billion — the largest buyback authorization in history. It is also raising its dividend by 15 percent from $2.65 to $3.05 per share. That equates to a dividend yield of 3 percent at current stock prices. The average yield for the 20 largest dividend-paying companies in the U.S. is 3.1 percent, according to Standard & Poor's.

Investors have been clamoring for Apple to give them access to its cash hoard, which ended March at an unprecedented $145 billion. Apple's tight grip on its cash, along with the lack of ground-breaking new products has been blamed for the steep decline in its stock price over the winter.

News of the cash bonanza coincided with the company's release of a poor quarterly outlook for the three-month period that ends in June.

Apple released its fiscal second quarter earnings after the stock market closed Tuesday. The company's stock initially rose 5 percent to $425 in extended trading, then retreated $2.63, or 0.7 percent, to $403.50 as the CEO talked about new products arriving in the fall.

The shares are still down 40 percent from a peak of $705.07 hit on Sept. 21, when the iPhone 5 went on sale.

"The decline in Apple's stock price over the last couple of quarters has been very frustrating for all of us ... but we'll continue to do what we do best," CEO Tim Cook said on a conference call with analysts after the release of the results. But he reinforced that the company's job is not to boost its stock price in the short term.

"The most important objective for Apple will always be creating innovative products," he added.

Apple's results beat the consensus estimate of analysts who follow the company, though it posted its first profit decline in ten years.

Net income was $9.5 billion, or $10.09 per share, down 18 percent from $11.6 billion, or $12.30 per share, in the same period a year ago.

Revenue was $43.6 billion, up 11 percent from last year's $39.2 billion.

Analysts were expecting earnings of $9.97 per share on revenue of $42.3 billion, according to FactSet.

For the quarter that just started, Apple said it expects sales of $33.5 billion to $35.5 billion. In the same quarter last year, sales were $35 billion. Wall Street was expecting sales of $38 billion.

The June quarter is generally a weak one for Apple, since consumers tend to wait for the next iPhone, which the company usually releases in the fall. But a year-over-year decline is a signal that Apple is failing to capitalize on the continued growth of smartphone sales. Sales are tapering off in U.S. and other mature markets, and not many consumers in India and China can afford iPhones.

"Our fiscal 2012 results were incredibly strong and that's making comparisons very difficult this year," said Cook.

Apple shipped 37.4 million iPhones in the latest quarter, up 7 percent from a year ago. That confounded expectations that shipments might fall, but it was still a weak number compared to many previous quarters, when shipments doubled year over year. The average wholesale price of an iPhone also fell to $613 as Apple cut the price of its oldest model, the iPhone 4, to appeal to buyers in developing countries.

Apple started paying a dividend last summer and has been buying back a modest number of shares, enough to balance the dilution created by its employee stock option program but not to make a dent in its cash pile. The company says it's now expanding the buybacks, which started in October and are set to run till the end of 2015, from $10 billion to $60 billion. It's raising the quarterly dividend starting with the payment due May 16.

MetroPCS Shareholders Approve Merger With T-Mobile USA

The deal, first announced in early October 2012, had looked set for defeat until earlier this month, when Deutsche Telekom gave in to pressure to reduce the combined company's debt.

Activist shareholder P. Schoenfeld Asset Management had led a proxy battle against the original deal, while the biggest MetroPCS shareholder, Paulson & Co, had also threatened to vote against it. Both investors have said they were pleased with the improved terms.

But some shareholders said they were happy to see MetroPCS combine with a larger player, regardless of the details.

"It was significant that they sweetened the offer, but I would have voted in favor of the previous terms," said Robert Capps, a Dallas-area shareholder and telecom executive.

Of the MetroPCS shares that were voted, the company said about 93 percent were cast in favor of the main proposal related to the deal.

MetroPCS shares were down 5 cents at $11.64 in afternoon trading.

Shareholders will receive $4.06 per share in cash plus stock equivalent to 26 percent of the combined company in the reverse merger and Deutsche Telekom will own the rest.

Deutsche Telekom said the combined company will be called T-Mobile US and trade on the New York Stock Exchange under the symbol "TMUS." The deal is expected to close at the end of this month.

BETTER POSITION AGAINST RIVALS

MetroPCS, a provider to cost-conscious consumers who pay for calls in advance, and T-Mobile USA are looking to combine their spectrum assets to compete better with bigger rivals.

By tying up with MetroPCS, Deutsche Telekom hopes to provide T-Mobile USA with the spectrum to build a network capable of handling the vast data volumes that U.S. consumers and businesses use on smartphones and tablets.

Some Deutsche Telekom shareholders, however, worry that even a successful merger might not be enough for T-Mobile USA to catch up with rivals.

T-Mobile USA lost 515,000 contract customers in the fourth quarter of 2012, although it recently announced smaller losses of 199,000 contract customers in the first quarter.

The company recently overhauled its price structure to eliminate most phone subsidies and started selling Apple's iPhone for the first time. But its network quality lags Verizon Communications Inc and AT&T Inc, which have invested massively in fourth-generation mobile technology in recent years.

The United States is key to the investment case for Deutsche Telekom. It earned 26 percent of group revenue there last year and 20 percent of its operating profit.

The German group has long searched for a way to help T-Mobile USA gain critical mass to compete. In 2011, antitrust regulators blocked a $39 billion deal bid for AT&T to buy T-Mobile USA.

The merger also paves the way for what some investors and bankers think Deutsche Telekom really wants - to ultimately reduce its exposure to a highly competitive market.

For now, Deutsche Telekom has committed to holding its shares in the new combined entity for 18 months.

(Additional reporting by Sinead Carew in New York, Harro ten Wolde in Frankfurt and Leila Abboud in Paris; Editing by Gerald E. McCormick, Bernadette Baum and Andre Grenon)

As Profit Slips, Apple Looks to Reward Shareholders

On Tuesday, the technology giant announced that it planned to more than double its program to return cash to shareholders through stock buybacks and a higher dividend, spending $100 billion on the effort through the end of 2015. Its share repurchases alone will increase to $60 billion from the $10 billion it committed previously, the largest such plan in history, the company said.

The move to renew investors’ love affair with Apple’s stock came as the company announced its first profit decline in a decade. Apple said its net income fell 18 percent in its fiscal second quarter, as one of the most successful technology franchises in recent years, the iPhone, showed signs of slowing and other, less profitable products began to make up more of its sales.

The rarity of Apple’s profit decline, which was expected, underscores how one of the most remarkable winning streaks in business has come to an end, at least for now. Investors have battered the company’s stock for months, sending its shares down from their peak of more than $700 last year as warning signs began to emerge about its growth prospects.

In regular trading on Tuesday, Apple shares rose nearly 2 percent to close at $406.13, but they fell slightly in after-hours trading as investors digested the quarterly earnings news and Apple’s plan to return cash to shareholders. One thing that spooked investors is that Apple told them to expect little to no sales growth in this quarter.

“People are concerned they can’t return to growth,” said Walter Piecyk, an analyst at BTIG Research, an institutional brokerage firm.

One of the biggest questions facing Apple is whether it can innovate its way out of its funk by delivering a breakthrough new product, perhaps in a category like television, that rekindles growth and investors’ passion.

Timothy D. Cook, the company’s chief executive, said in a conference call with analysts that the decline in the stock price has been “very frustrating to all of us,” but that Apple remains strong. “Our teams are hard at work on some amazing new hardware, software and services that we can’t wait to introduce this fall and throughout 2014,” Mr. Cook said.

Mr. Cook even dropped a hint about “exciting new product categories” that Apple could enter, suggesting the company is preparing a move into a new market.

For its fiscal second quarter, which ended March 30, the company said that its net income dropped 18 percent to $9.55 billion, or $10.09 a share, from $11.62 billion, or $12.30 a share, during the same period a year earlier.

Revenue rose 11 percent to $43.6 billion from $39.19 billion a year before.

Wall Street analysts expected the company to report earnings of $10.07 a share and revenue of $42.59 billion, according to the average of estimates compiled by Thomson Reuters.

Months ago, Apple sought to brace investors by warning that profit could decline about 20 percent in the quarter. At that time, Apple forecast revenue of $41 billion to $43 billion.

Sales of iPhones, the company’s biggest business, grew only 3 percent to $22.96 billion in the second quarter.

The company has warned that new products like the iPad Mini have lower profit margins than older items like its full-size iPad sibling. It is also selling more of its older model smartphones, like the iPhone 4, which have lower margins. That has stirred up worries that Apple’s efforts to cater to more budget-conscious consumers with low-price products could steadily erode its considerable profits.

Apple is widely thought to be preparing a new low-cost version of the iPhone to compete more aggressively with smartphones based on Google’s Android operating system. A cheaper device could hold special appeal in huge markets like India and China where average incomes are far lower than in the West.

Pushing into inexpensive phones could hurt Apple’s admired profit margins, though. Last year, the company garnered almost 70 percent of the profit in the mobile handset business, according to estimates by Canaccord Genuity.

Apple’s gross profit margins, one of the most closely watched measures of how profitable it is, are already declining, falling to 37.5 percent in the second quarter from 47.4 percent a year ago. This is the fourth consecutive quarter of declining gross margins at Apple, the longest stretch of such declines since 1993, according to Bill Moore, director of corporate development for Bloodhound Investment Research, a provider of online investment management tools.

Apple warned that its gross margins would probably continue to fall in the fiscal third quarter, dropping to between 36 and 37 percent.

“Investors would love some sense of when gross margins will stabilize, and unfortunately Apple didn’t give us that,” said Rob Cihra, an analyst at Evercore Partners.

As Apple’s holdings of cash and cash equivalents have swelled — the figure is now over $140 billion — investors have clamored loudly for the company to step up its efforts to buy back shares or issue a bigger dividend.

The company said on Tuesday that its board had approved a 15 percent increase in its quarterly dividend. It declared a dividend of $3.05 a common share, which will be paid to shareholders on May 16.

Apple said it planned to borrow cash as part of its plan to return cash to shareholders. Even though Apple has far more capital than it needs in its coffers, much of it is held overseas and would be subject to taxes if the company were to bring it back to the United States. Apple can also help increase its earnings per share by lowering its outstanding share count through stock purchases.

“We believe so strongly that repurchasing our shares represents an attractive use of our capital that we have dedicated the vast majority of the increase in our capital return program to share repurchases,” Mr. Cook said in a statement.

This article has been revised to reflect the following correction:

Correction: April 25, 2013

Because of an editing error, an article on Wednesday about Apple’s second-quarter earnings misstated the company’s projections for its gross profit margins in the third quarter. It expects its margins to drop to between 36 and 37 percent, not to fall by that percentage amount.

Fair Game: Dell Shareholders Look Hard at Takeover Effort

That’s what more and more Dell shareholders appear to believe about the $13.65 per-share price proposed on Feb. 5 by Mr. Dell and Silver Lake Partners, a technology investment firm. Initial objectors to the buyout have been joined by additional shareholders concerned about getting a fair shake.

The issue of fairness is a hazard of management-led buyouts, of course. Are insiders, who have an enormous information advantage owing to their deep knowledge of a company’s operations, trying to get control of an enterprise when its shares are perhaps temporarily depressed? Over the last year, Dell’s stock has lost 19 percent of its value.

Some investors wonder if Mr. Dell, who owns 14 percent of the shares outstanding, might have a hot new product on the drawing board that has the potential to make the company a highflier again.

Neither management nor Mr. Dell is saying much of anything about the company’s prospects. Last Tuesday, when Dell announced mixed earnings for the year, the company declined to make any projections for coming quarters on the conference call with investors and analysts. Its chief financial officer cited the pending deal as the reason no outlook was given.

As is the case with all insider deals, there’s great potential for outside shareholders to be treated unfairly. Making the deal even more problematic, Dell’s shareholders have little data upon which to assess its price. Dell’s regulatory filings say that the $13.65 per-share price is the result of extensive “bids and arms-length negotiations” between Silver Lake and the special committee of Dell’s board beginning in late October 2012.

Still, there’s no mention of how the $13.65 per-share offer stacks up against the company’s long-term enterprise value, an assessment of future earnings potential that is a typical measure in a takeover. Instead, the offer by Mr. Dell and Silver Lake seems based on the company’s recent stock price. Their $24.4 billion deal represents a 37 percent premium to the stock’s average price over the previous three months, they say.

Meanwhile, Southeastern Asset Management, one of Dell’s largest outside shareholders, estimates that the company is worth $23.72 a share, almost 75 percent more than the buyers are offering. Southeastern has come to that conclusion using publicly available information, however, because that’s all it has access to.

Naturally, both of these parties have a vested interest in getting their price in the deal. Mr. Dell and his group want to pay as little as possible, while long-suffering outside owners hope for more.

Trying to remedy this unsatisfying situation, an uninvolved investor organization has made an excellent suggestion: an independent, peer-reviewed analysis of Dell’s enterprise value should be done on behalf of its outside shareholders. Based on the same information Dell’s management has, such an assessment would assure investors that they are being bought out at a fair value.

This idea comes from the Shareholder Forum, a nonpartisan, independent creator of programs devised to provide the kind of information investors need to make astute decisions. The Forum, overseen by Gary Lutin, a former investment banker at Lutin & Company, suggests hiring a qualified expert to analyze the company’s operations. This would be similar to the so-called fairness opinions provided to shareholders in takeovers by outsiders. The analysis would be subject to confidentiality when necessary and would be reviewed by recognized analysts, academics and other investment professionals.

On Feb. 14, Mr. Lutin sent a letter to Mr. Dell and Alex Mandl, chairman of the special committee of Dell’s board charged with ensuring the deal’s fairness to all shareholders. In the letter, Mr. Lutin asked that the company support the independent analysis and provide assistance in its preparation.

Mr. Lutin said he had assumed that the board committee and Mr. Dell would want to support this project. “Shareholders have a very well-established right to any information relevant to their investment decisions under Delaware law,” Mr. Lutin said last week. “They also have the right to expect management to be responsible for addressing those interests.”

But last week, Mr. Lutin said that lawyers representing Mr. Mandl and his committee told him they would not be supporting the independent analysis.