CNBC.com

My Open Letter to Apple

AAPL loading...

Quote  |  Chart  |  News  |  Profile

[AAPL  Loading...      ()   ] :

When it comes to Apple and the company's sagging stock price--and increasingly frustrated shareholders--it seems to me a solution is getting clearer by the day.

Stock buyback.

Forgive me here for channeling Ronald Reagan and his, "Mr. Gorbachev, tear down this wall," but here it goes:

Mr. Jobs, buy back this stock.

A day ahead of the company's Tuesday shareholder meeting at Apple headquarters in Cupertino, California, Jobs and company have the unique opportunity to ignite once again the excitement among the Mac faithful. And faith is really what this is all about. Faith in its products; faith in its past; faith in its future. Mr. Jobs! Buy back this stock.

I have math and Apple's future on my side here. Apple's got about 906 million shares outstanding and a staggering $18.5 billion in cash on the balance sheet. Generating about $1 billion in cash a quarter. And no debt.

With a stock trading at about $125 a share, Apple could afford to reduce its outstanding shares by as much as 10 percent and still have an enormous cash position left over. Further, if it stretches the buyback over the next year or so, it would be replenishing chunks of the cash it's spending on stock every quarter. Not only would the announcement become a clarion call to investors that Apple was "investing" in its future, it would shrink the float and increase earnings per share. Which would drive the stock higher, and increase its market cap. A win, win, win.

Apple has been reluctant to part with cash under any circumstances. Its standard line has been it needs a healthy balance sheet for strategic acquisitions and other investments in its future. Come now, really. I'm not talking about eliminating ALL its cash. Just $10 billion or so. Leaving plenty left over for strategic acquisitions.

But seriously, when was the last time Apple embarked on any meaningful acquisition? Hmmm? It's not as if Apple is Microsoft, which has been a regular acquirer for years. Sure, Microsoft has an enormous cash position; spends it; replenishes it; spends some more; and buys stock back along the way. All things to all investors.

No reason why Apple can't prop up shares by returning some value to investors. It's an argument you could have made at any time during Apple's iPod renaissance, as cash began flowing into the company's coffers. But its particularly salient now with Apple shares down 45 percent these past few months for no perceivable reason other than a broad market downdraft. And if you believe analysts who continue to slap $200--or higher--targets on this stock, Apple stands to be the big winner a year from now. Or sooner.

Sure, Apple knows better than most how quickly fortunes can turn. I point you back to the waning John Sculley years; the Gil Amelio year; that moment when Jobs had to take that $100 million gift from Microsoft just to stay in business; the near-death era when so many of us around here wondered whether Apple had permanently lost its way, or had any future at all.

But all of that was before iPod, the halo effect, the Mac surge, iPhone, Apple retail stores, and Apple's perch in the digital entertainment catbird's seat. And all this cash.

Mr. Jobs. Buy back this stock. Innovation isn't restricted to the product pipeline. Bring it to the board room. You can afford it.

Sincerely,

Jim Goldman

Questions?  Comments?