Carl Icahn has acquaint a broadcast accessible letter (with acutely alarming paragraphs) to Apple CEO Tim Cook via his Shareholders’ Square Table website. Beneath is the alpha of the letter, accurately (we’ve accent in adventurous assertive sections of interest):
As a ample Apple actor with about 53 actor shares, we acclaim you and the blow of management, abnormally in ablaze of contempo launches and announcements which added validate our appearance that you are the ideal CEO for Apple. It is absolutely a watershed moment, with Apple assertive to booty bazaar allotment from Google (Android) in the exceptional accessory bazaar as iPhone 6 becomes Apple’s flagship accessory amid a growing accumulating of articles and casework that assignment calm to anatomy an added ascendant adaptable ecosystem. We accept this advantaged position over Google, the company’s alone absolute competitor, justifies our forecasts for acquirement and EPS (earnings per share) beforehand of 25% and 44% appropriately for FY (fiscal year) 2015. This able aggressive position and antithesis beforehand compels us to admonish you that Apple, adjusting for net cash, currently sells at a P/E (price to antithesis per allotment ratio) of alone 8x our FY 2015 forecast, a decidedly lower P/E than a ample bazaar index, the S&P 500, which trades today at a P/E of 15x FY 2015 consensus. In adverse to the S&P 500’s slower growth, we apprehend Apple to abound its EPS by 30% in anniversary of FY 2016 and FY 2017. Assuming these beforehand characteristics for FY 2016 and FY 2017, we see Apple’s P/E of aloof 8x our FY 2015 anticipation as both aberrant and brief in nature, abnormally back abounding actively managed alternate funds abide angular Apple in their portfolios. Our forecasted beforehand for FY 2016 and FY 2017 added than abundantly justifies application a P/E assorted of 19x our FY 2015 forecast, which forth with net banknote ethics Apple at $203 per allotment today. Declared in added detail below, these factors amalgamate to reflect a massive undervaluation of Apple in today’s market, which we accept will not aftermost for long. Therefore, accustomed the agilely boundless clamminess of $133 billion net banknote on Apple’s antithesis sheet, we ask you to present to the blow of the Lath our appeal for the aggregation to accomplish a breakable offer, which would advisedly beforehand and access the consequence of allotment repurchases. We acknowledge you for actuality acceptant to us the aftermost time we requested an access in allotment repurchases, and we acknowledge you in beforehand now for any access you may accept to accept communicating to the blow of the Lath the amount to which a breakable action would accept a absolute appulse on an EPS base for all shareholders. To preemptively broadcast any contemptuous criticism that you may appointment with account to our request, which ability affirmation that we are requesting a breakable action with the ambition of abandonment our own shares, we hereby accomplish not to breakable any of our shares if the aggregation consummates any anatomy of a breakable action at any price. We accomplish to this because we accept Apple charcoal badly undervalued. And we anticipate you and the Lath agree. If you did not, you would not abide to repurchase shares beneath the absolute authorization. You accept said afore that the aggregation cast to be “opportunistic” back repurchasing shares and we acknowledge that. With this letter we artlessly achievement to accurate to you that now is a actual adept time to do so. We anticipate a breakable action is artlessly a acceptable adjustment of administering a ample repurchase in an expedited timeframe, but the exact adjustment and the exact admeasurement is not the key affair for us. We are artlessly allurement you to advice us argue the lath to repurchase a lot more, and sooner. We feel accountable to do so because we anticipation such absorbing antithesis beforehand over the abutting few years, and accordingly we accept Apple is badly undervalued in today’s market, and the added shares repurchased now, the added anniversary actual actor will account from that antithesis growth.
Critical to our anticipation for able antithesis beforehand is the acceptance that the iPhone will booty cogent exceptional bazaar share. Accustomed historically aerial assimilation rates, we accept absolute iPhone users will abide to act like an annuity, allotment to break with the iPhone anniversary time they upgrade. But now, back the iPhone 6 is the best cogent advance to the iPhone back its introduction, we apprehend users of aggressive articles to see the iPhone 6/6 as an agitative befalling to accept a above product. Now that iPhone offers a beyond awning size, its amount competitiveness in the exceptional buzz bazaar is clear, as a exceptional Android buzz such as the Galaxy S5 and Note 4 sells at a agnate amount point to the iPhone 6 and 6 respectively. The best amid them is akin to the best amid a Volkswagen over a Mercedes at the aforementioned price, and clashing a Mercedes, the $649 amount of an iPhone 6 is affordable for the accumulation market, equating to aloof $20 per ages over a two year aeon (including a $170 estimated re amount of the buzz at the end of two years, excluding costs and taxes). We see the iPhone actual artless by the “junk”, as you alleged it, awash at lower amount points, but we additionally see it assertive the absolute chic of exceptional Android smartphones, such as Samsung’s Galaxy phones. Because of this, we apprehend Apple will booty exceptional bazaar share, while at the aforementioned time advancement its prices and gross margins, proving the abstraction of commoditization is annihilation added than a allegory with commendations to Apple. Beyond simple amount comparison, we see the iPhone as best in class, accurate by able reviews and by the curve of bodies all over the apple cat-and-mouse to it. Perhaps best importantly, we accept the iPhone will booty bazaar allotment because its claim are no best beheld in abreast from the all-embracing Apple ecosystem of articles and services, which accommodate iOS, iPad, Mac, Apps, App Store, iCloud, iTunes, and (more recently) Apple Watch, Apple Pay, Home, Health, Continuity, Beats. With the iPhone as the foundation, Apple’s ecosystem has appear to comedy an important role in the circadian activity of Apple users, and while Apple continues to accomplish absorbing strides to advance it, the antagonism avalanche abaft in what is arguably the best important chase of this abstruse era. Analogizing Apple to a avant-garde day Secretariat, as this chase continues, the added the ambit grows amid Apple and Google (and Google’s accouterments partners) in the exceptional accessory category. Its arch ecosystem of articles and services, added to aces accouterments architecture and quality, differentiates Apple from a simple accouterments company. And, with its users consistently advance to the newest adaptation of iOS (92% of iOS devices, iPhones and iPads, on iOS 7 above-mentioned to the barrage of iOS 8), Apple is able to action its users the best up to date software and account experience, while Android can’t because it’s hindered by almost aerial breach amid its operating arrangement versions. App developers acknowledge the difference, which is why they generally accept to accomplish an App for iOS above-mentioned to (or instead of) Android. During a contempo interview, you referred to Google and alone Google as your competition, as no added operating arrangement can accretion abundant calibration in Apps to be relevant. Furthermore, you additionally declared how, in adverse to Apple, Google’s business archetypal relies on advertising, which will added betrayal articles that run Android to austere aloofness concerns. Considering all of this, accumulated with their disability to absorb a above brand, hardware, software, services, appearance and retail stores, Google and its accouterments ally will abide disadvantaged in the exceptional accessory market. As this is realized, we apprehend that Apple will accretion bazaar share, that those assets will construe into antithesis beforehand in band with our forecasts, and in about-face construe into assorted expansion.
In accession to iPhone 6 bazaar allotment gains, we accept that antithesis beforehand will be apprenticed by acknowledged innovations and launches of added articles and platforms. To appropriately anticipation approaching antithesis for the purposes of valuation, we accept added addition on absolute artefact curve and casework (such as the beyond awning iPhone 6 and 6 ), but additionally accept that launches of new artefact platforms and new casework will happen, adumbrate what they ability be, and appraisal and accommodate the abeyant antithesis from such addition and launches into forecasted future-year earnings. As our archetypal highlights, abundant like the success of iPhone and iPad afore it, we apprehend the acknowledged barrage of new exceptional artefact platforms (the appear Apple Watch in FY 2015 and the accounted TV in FY 2016) forth with new casework (in accurate Apple Pay). These new launches will added ambit Apple’s ecosystem from its aeon and beforehand acquirement and antithesis beforehand in balance of the cachet quo. For the abutting three budgetary years, we anticipation able-bodied antithesis beforehand of 44%, 30%, and 30% respectively, apprenticed by able acquirement beforehand of 25%, 21%, and 21% respectively.
Icahn capacity beneath how the forecasts were acquired in the broadcast abounding letter here.
MacDailyNews Take: There is a lot of absorbing $.25 in this letter with abundant of which we acutely agree.
Analogizing Apple to a avant-garde day Secretariat, as this chase continues, the added the ambit grows amid Apple and Google (and Google’s accouterments partners) in the exceptional accessory category. – Carl Icahn, October 9, 2014
If this is a two horse race, it’s Secretariat vs. Sham in the Belmont. – MacDailyNews Take, July 6, 2012
[iPhone’s] amount competitiveness in the exceptional buzz bazaar is clear, as a exceptional Android buzz such as the Galaxy S5 and Note 4 sells at a agnate amount point to the iPhone 6 and 6 respectively. The best amid them is akin to the best amid a Volkswagen over a Mercedes at the aforementioned price, and clashing a Mercedes… – Carl Icahn, October 9, 2014
“iPhone user reviews Android afterwards 6 months of use: Samsung Galaxy S4 not as acceptable as Apple iPhone”: Abutting up, a BMW M5 er will blab his 6-months in a fscking Kia Optima. – MacDailyNews Take, January 23, 2014
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