In the fall of 2008 Microsoft Corp. announced it would buy $40 billion worth of its own stock, an unprecedented sum for the software giant – or any other company for that matter at the time.
Investors like share “buybacks” because they help lift a company’s stock price. It suggests the company is making so much money, it can afford to send back a special reward to its investors.
But the move also suggests something else: decline.
That’s not to say buybacks are a sure sign that a company’s best days are behind it but fast forward a few years and you’ll notice, once-dominant Microsoft is in the middle of the pack amongst tech giants, fighting to maintain modest share in the market that matters most – mobile.
The reigning champion is of course Apple Inc. The company reported huge revenue and profits this week of $43.6 billion and $9.6 billion for the three months of January, February and March.
The iPhone maker also announced a $55 billion share buyback program that will take place over the next three years.
As tech blog Mashable’s op-ed said, “Apple is a company that — at least for the moment — is managing its decline rather than continuing its torrid growth of the past few years.”
“If Apple doesn’t come up with another new product category like the iPhone or the iPad, though, it’s hard to see how that will change.”
Investors too are turning sour on Apple’s ability to reverse course.
The company’s stock price — $400 a share – has fallen more than 40 per cent from its peak of around $700 last fall.
Shares are down Wednesday as analysts who advise investors what companies to park their money in cut their outlooks on the Cupertino, California-based firm.
“We think the March quarter results were consistent with our longer-term concerns about Apple,” BMO Capital Markets analysts said.
Apple’s transformative iPhone – the catalyst for so much of the company’s unparalleled success in recent years – has showed recent signs that its hold over consumers is slipping. Apple’s share of the smartphone market is 20 per cent globally, compared with 70 per cent among phone makers using Google’s Android.
The firm’s iPad continues to dominate the tablet market, much the way the iPhone did a few years ago. But, “If the fate of the iPhone is any guide, then the iPad’s lead should also winnow away over time,” Mashable’s Todd Wasserman said.
The influential tech blog suggested a rumoured wrist watch that works seamlessly with your other i-devices won’t be the new category killer the iPad was (though doubts existed about the success of Apple’s tablet computer when it launched in 2010).
Tech geeks are drooling more over Google Glass, a glasses-like wireless headset with a head-mounted display.
Wasserman said the new product will make Apple’s watch “superfluous and comparatively timid.” Ouch.
“The advanced buzz for Glass rivals that of the iPad in 2010 and it appears to have a similar shot at establishing a new consumer segment,” he said.
Investors too have placed their bet, it appears. Google’s stock price is up 20 per cent in the last six months.
Google has no plans to begin buying back its own stock.
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