David Einhorn isn’t the only Applel investor who thinks Apple is doing it wrong. As its stock activity has shown over the past several months, shareholders are worried Apple is losing its way, isn’t innovating enough to compete with challengers like Samsung and isn’t being thoughtful enough about its huge cash pile. And now after plenty of complaining about this, there are signs Apple’s most vocal investors might actually get their way.
One of the top Wall Street analysts covering Apple, Morgan Stanley’s Katy Huberty, had a meeting with Apple CFO Peter Oppenheimer on Thursday. And as communicated in a note to her clients afterward, she got the impression Apple is going to make an iPhone that could better appeal to the lower end of the mobile market, and double the existing dividend it’s already offering in an attempt to return some of its $137 billion in cash to shareholders.
That’s why she expects Apple to expand the iPhone lineup, and also to introduce new services that can “unlock significant value” and drive device sales.
She noted that demand for the iPhone 4, Apple’s current low-end handset offering, was surprisingly strong during the December quarter. With a gross margin of 40 percent and a one-third cannibalization rate, she believes a so-called “iPhone mini” would drive incremental revenue and gross profit.
Cook said at an investor conference last week that Apple doesn’t try to hit a particular price point with its products. Referencing the practice of discounting older models, he said the company is ”making moves to or have made moves to make things more affordable” when it comes to the iPhone. It’s not really a confirmation they’re working on a lower-cost iPhone, but it’s not a denial either. And there’s no indication of when such a device could arrive.
On giving investors more money via a larger dividend (via Fortune):
“Our analysis,” [Huberty] writes, “suggests Apple can match the S&P IT sector’s average FCF [free cash flow] payout of 68% if it returns $28B in FY13, implying a 6% total yield. High mix of international cash limited flexibility in the past but raising low-interest debt can help address this issue, in our view.”
Currently Apple offers a 2.3 percent dividend, or $2.65 per share, per quarter. But it’s clearly going to have to do something to fend off the attack from Einhorn — and his unconventional proposal for a class of stock that pays a permanent dividend — and other vocal campaigns for some of that cash. Cook has promised Apple is in “very active discussions” over what to do with its cash. Its annual shareholder meeting is coming up next week, and it seems not unlikely at all that an increase in the dividend would mollify most investors and perhaps give the stock a needed bump upward.