iWant you to buyback shares says iCahn

You can file this away for the weekend, for further reading, Carl Icahn and his two business partners have written a long and extended open letter in his capacity as a shareholder to Tim Cook and the Apple board: Sale: Apple Shares at Half Price. His price target for Apple is 203.23 Dollars. Oh. That means, in his mind, that the stock is dirt cheap and the board must definitely push for a stronger buyback program.


He makes some interesting assumptions about unit sales, suggesting that by 2017 there could be 242.5 million phones sold per annum, 95 million iPads, and even Apple Watch sales of 72.5 million units (including the straps). And an Apple TV (a new product from Icahn himself!!) run rate of 25 million per annum. iPod sales are nearly dead by then, according to the Icahn measures, 1.6 million per annum. Perhaps discontinued by then, who knows.


Icahn points out his returns, perhaps looking to attract fund inflows with this open letter, they have been exceptionally impressive, why not look to give yourself a punt. He makes a very interesting point about his Apple stake: ”At today's price, Apple is one of the best investments we have ever seen from a risk reward perspective, and the size of our position is a testament to this. This investment represents the largest position in our investment history, reflecting the strength of the convictions we have expressed in this letter.”


Wow. Two things, as time goes on and Icahn gathers more assets it is always likely that there is going to be a bigger and bigger investments, so that part I think is not as relevant. The fact however that he feels this is a real conviction buy, that is slightly different. I believe he is right here. I believe that Apple presents one of the best investments, however the replacement cycle of handsets (and all electronics) is so quick, that you have to watch these closer than most.


The comparison that Icahn draws between a Mercedes (Apple) and a Volkswagen (Android) is that the price differential on a contract overt time is not as much as the motor vehicles. Check:

”The choice between them is analogous to the choice between a Volkswagen over a Mercedes at the same price, and unlike a Mercedes, the $649 cost of an iPhone 6 is affordable for the mass market, equating to just $20 per month over a two year period (including a $170 estimated resale value of the phone at the end of two years, excluding financing and taxes). We see the iPhone remaining unaffected by the “junk”, as you called it, sold at lower price points, but we also see it dominating the entire class of premium Android smartphones, such as Samsung's Galaxy phones.”

I find it quite interesting that Icahn thinks 649 Dollars is affordable for the mass market, clearly rich people, yes, not so much the rest of the world. When he says you, he is talking to Tim Cook, the Apple CEO. All in all it makes for good reading, it is really long and well thought through, obviously Icahn is talking his own book and has bias, I do prefer that though, when someone actually has something to lose.