Apple Shareholder Meeting (2010)

Apple, Inc. (AAPL) held its annual shareholder meeting in Cupertino, California on February 25, 2010. Apple offered shareholders only coffee, tea, and water. Steve Jobs attended the meeting in his trademark jeans (with holes in the right knee area) and black turtleneck. Although he looked noticeably thinner than two years ago, he appeared healthy. Al Gore also attended the meeting, and he looked like he was in great shape (unlike previous years, where he appeared to be a tad overweight--perhaps recent Democratic victories have improved his health).

Much of the meeting focused on environmental issues. One person argued that if the science is right, then nothing else matters, and Apple needed to be more environmentally-conscious. Another shareholder summed up the issue by saying, "Pollution is waste, waste is inefficiency--it's as simple as that."

During the Q&A session, a shareholder mentioned Apple's $40 billion in cash, and asked whether Apple would issue a dividend. Mr. Jobs said that the cash provided security and flexibility, and Apple could take risks knowing that "the ground is always there if we miss." Mr. Jobs also implied that the stock price would stagnate if Apple issued a dividend.

Someone else mentioned that Nintendo was doing very well with its Wii and asked if Apple would consider a strategic alliance with Nintendo. Mr. Jobs said that such alliances take a lot of work, and Apple would need a big payoff to consider a strategic alliance.

I was tired of the environment-related questions. I explained that business-wise, it doesn't matter whether the science is right or wrong, only whether a majority of the American public believes that environmental issues are important. If the majority of Americans feel strongly about environmental issues, they will petition Congress or state legislatures to pass more stringent laws mandating certain corporate behavior. However, if Apple at least projects an image of being socially conscious, it will help stave off stringent legislation that might harm the company. In short, being ahead of the curve on environmental issues allows Apple to increase its chances of saving shareholders from potentially harmful and costly legislation. (It also makes little sense to criticize Al Gore whenever the Democrats control Congress, because Mr. Gore's presumed access to Democratic legislators allows him to provide input into legislation affecting Apple.)

Mr. Jobs responded by saying that it was even more simple--being environmentally-conscious "is the right thing to do." He then made several comments showing that Apple sincerely believed in environmental issues not just as a business issue, but as a philosophical issue.

I also asked what challenges Mr. Jobs saw for Apple, i.e., what keeps you up at night? Mr. Jobs first joked, "Shareholder meetings," but then became more serious. He said he was concerned about the overall economy, because if people were concerned about buying textbooks or putting their kids through school, then it would be more difficult for Apple to sell its products.

Overall, the meeting went well. Mr. Jobs was more pro-active in cutting off shareholders who would ramble on, but otherwise, it was a typical Apple meeting--people came to see Mr. Jobs and to get a piece of the Apple mystique.

Bonus: Mark Duncan has been a marketing consultant at askmar (www.askmar.com) for over 25 years, focusing on helping early stage start-ups develop traction in their marketplace. Mr. Duncan's thorough notes on the shareholder meeting are below:

* The meeting started at 10 AM, the formal meeting ending at 9:25 AM. At that point, Steve Jobs took questions and answers to about 10:20 AM.

* Apple wants to do the right thing. We have reduced the size of our packaging because it benefits us both from an environmental and business standpoint. People are noticing, our reputation is pretty good. Can it be better? Yes, but we’re working on it. Our recycling rates are phenomenal.

* What is Apple afraid about most, what keeps you up at night? Fundamentally, we require stability in the world. People aren’t going to buy our products unless they can put food on the table and afford school. We are affected by things beyond our control. Accordingly, we try to do the best we can.

* Why not issue a stock dividend? It is part security and flexibility. It nice to know when you jump that the ground will still be there if we miss. Also, we never know what opportunities are out there. Sometimes you need to think big and pretty large. When you want to do something big and bold, it is nice to be able to write out a check and not have to borrow a lot of money. Our judgment and instinct is to keep out powder dry. Quite frankly, if we issued dividends or did a stock buyback, our stock price would still be in the same place. What really drives our stock price is our ability to grow and keep up with new products that everyone wants.

* Internationally, we opened our first store in China, and have 25 more stores planned for China over the next year.

* [On environmental issues.] We are more interested in walking the talk, than talking the talk. Lots of companies set goals and attend conferences, than don’t actually meet their goals. We are the first and only company to actually do something about it. Dell challenged us on our green statements to the Truth in Advertising board, which found that we were correct [in our claims]. We have audited 100 of our suppliers, and over half of them told us that they had never been audited before. We do it because it is the right thing to do.

* With respect to usability and accessibility. We have the most accessible products in production available today, with a few hundred million passionate users. I personally receive 6 to 12 emails each week about accessibility.

* When I run across a security problem, it would be nice to have a way to email Apple regarding the threat. We will look at providing an email for this purpose.

* Will the increased emphasis on mobile products result in a decrease in traditional Mac products? First, we have decreased our app approval time from 2 to 3 weeks to one week. Our customers are buying mostly laptops, followed by iMacs, Mac Minis, and towers. We listen to our customers. We love the iMac, we think it is the best product of its type in the world.

* Apple has no retail stores in Wyoming, Montana, and North Dakota. Would like to see more theaters in stores. It is hard to do this [take Apple classes?] in smaller stores, particularly with the higher noise levels.

* Apple ads are primarily targeted at the young and hip. Yet the products have a tremendous appeal to middle aged and older people. Jobs noted that often older people like to think of themselves as young and hip!

Update: other reviews of the meeting are HERE and HERE.

Apple's Annual Shareholder Meeting (2009)

Apple, Inc. (AAPL) held its 2009 annual shareholder meeting on February 25, 2009. The meeting took place at Apple's Cupertino, CA headquarters. The majority of shareholder attendees appeared to be 45+ years old (the sea of white hair in the room was noticeable). Apple sometimes offers some food on the second floor, but this year, only coffee and tea were available. I noticed an inspiring mural above the coffee canisters titled, "To the crazy ones." The full text is below, and it complemented pictures of famous non-conformists, including Muhammad Ali, Cesar Chavez, and John Lennon (I did not recognize the man on the top upper left hand side--if anyone knows who he is, please add a comment).

Here's to the crazy ones.
The misfits. The rebels.
The troublemakers. The round
pegs in the square holes - the
ones who see things differently.
They're not fond of rules and
they have no respect for
the status quo. You can praise
them, disagree with them,
quote them, disbelieve them,
glorify or vilify them.
About the only thing that you
can't do is ignore them.
Because they change things.

- Jack Kerouac
quoted in an Apple Computer Ad, 1997
(search youtube.com to see the ad)

It's the perfect way to summarize Apple's image, isn't it? Unfortunately, this year's meeting was uneventful due to the absence of Steve Jobs. The only other "celebrity," Al Gore--who is on Apple's board of directors--appeared again this year and was noticeably more trim. After Apple's general counsel, Dan Cooperman, concluded the formal part of the meeting, COO Tim Cook made a short presentation. Tim Cook appeared in jeans and a black collared shirt. If memory serves me well, Steve Jobs appeared in a black turtleneck and jeans last year. Mr. Cook appeared to be doing his best to mimic Steve Jobs, even using some of his mannerisms. Overall, Mr. Cook did a good job, but unconsciously or not, he's trying to copy Steve Jobs. It won't work--no one has Mr. Jobs' charisma, so Mr. Cook eventually needs to find his own style.

Before the Q&A session began, Mr. Cook emphasized some sales results. He said Apple had sold 55 million iPods in 2008. Apple had also sold 13.7 million iPhones in 2008, surpassing its goal of selling 10 million. Meanwhile, iTunes was a raging success--Mr. Cook noted that Apple was the #1 music reseller, asking "Do you know who number two is? Wal-Mart! Can you believe that Apple sold more of something than Wal-Mart?"

The Q&A session itself was disappointing. After another shareholder called everyone socialists for advancing health care and environmental proposals, the running joke was "socialism." People jokingly said they were not socialists, used the word "socialist" whenever possible, and Mr. Cook opened the floor to questions from "conservatives and socialists alike." In any case, here is a short summary of the Q&A session:

1. Apple has "no comment" on the SEC investigation relating to Steve Jobs' health and a possible late disclosure of his health. (By the way, I am surprised Apple's lawyers don't cite the California Constitution and its right to privacy whenever this issue comes up--yes, an individual's health is important to a company, but it's also a private matter, and forcing a corporate officer to provide updates about his health would seem to violate the California Constitution. I realize the SEC is a federal agency and therefore not obligated to follow state law, but I don't see a direct conflict here--California's right to privacy is an extension of the federal right to privacy found in the U.S. Constitution.)

2. In the most lighthearted moment, an Apple shareholder asked everyone to stand up and sing Happy Birthday to Steve Jobs, whose birthday was yesterday. Most shareholders complied and delivered a rousing birthday song to Mr. Jobs. (You can't understand how devoted Apple shareholders are to Steve Jobs until you see the love in person--even when he's not there, shareholders make a point to include him.)

3. Another shareholder questioned Apple's diversity efforts. Its board of directors appears to be almost all Caucasian. (Apple does have an Iranian/Persian officer, Sina Tamaddon, as well as board member Andrea Jung of Avon Products, Inc., but like most companies, could use more diversity in its upper ranks.)

4. Another shareholder questioned why Apple pulled out of MacWorld. Mr. Cook responded that it had "other ways to reach many more customers."

5. A shareholder brought up Apple's advertising on risque shows, such as Two and Half Men. I thought the shareholder's comments backfired--she made explicit sexual references from the show, which must have been embarrassing, and probably got more people to become interested in watching Two and a Half Men.

The most interesting substantive issue was Apple's refusal to implement a shareholder proposal that passed last year. (This year, other than the re-election of directors, all shareholder proposals failed to pass.) Last year's successful proposal related to "Say on Pay" and executive compensation. I was very surprised to learn that when it comes to shareholder proposals, Apple operates like the Electoral College--a majority vote isn't enough to actually win. This was made all the more ironic by the presence of former presidential candidate Al Gore. It appears Apple is an iconoclast in every sense of the word--even when it means ignoring successful shareholder proposals. This seeming rebuke to shareholders won't dampen Apple's base, though. As long as Steve Jobs is around somewhere, shareholders will come to the Apple temple every year to engage in their own version of honoring their esteemed leader.

FYI: I was quoted briefly in this Reuters article:

http://blogs.reuters.com/mediafile/2009/02/26/apple-annual-meeting-proves-entertaining/

In case you're interested in another perspective, here is a shareholder meeting review I found to be accurate (except for the spelling of (Shelton) "Ehrlich"):

http://www.appleinsider.com/articles/09/02/25/apple_shareholder_meeting_dominated_by_politics.html

Disclosure: I own an insignificant number of Apple (AAPL) shares.

Apple v. Bank of America: Whisper Numbers Come Home to Roost

Some of you who have been following earnings releases will be forgiven for not understanding why the market punished Apple (AAPL) after it released better-than-expected earnings (19%+ EPS surprise), while Bank of America (BAC) increased from $20/share to $32/share after showing its net income decreased by 41%. AAPL's stock was down at one point by 10%. Its growth prospects are still quite good, especially because market penetration in China is incomplete (Steve Jobs indicated that iPhones were being used in China without providing revenue back to Apple due to hacking and IP issues). BAC, on the other hand, will have major problems with its acquisition of Countrywide as more and more notices of defaults (NODs) occur. In fact, in recession-resistant Santa Clara County, NODs recently spiked.

The market makes no sense sometimes, except when it does. Earnings guidance is a game played between companies and analysts. When Apple (AAPL) tells Wall Street it expects 10% increase in sales, it does so with a wink. Apple gives the Street lower numbers so it can beat those numbers come earnings time. The Street, of course, is a formidable player. It accepts Apple's lowered expectations with a wan smile and then dumps it if the numbers aren't dramatically higher. The real numbers required to maintain or increase share price are sometimes referred to as "whisper numbers." Wall Street accepts the lower numbers on paper but demands that the company meet its whisper number later on. It's a strange song and dance that serves no one well.

AAPL went down while BAC went up because shares prices are based on how much money a company expects to earn in the future, not what it made last quarter. So the Street doesn't care about the actual numbers released--it knows it's all a game. The Street pays more attention to how well the company says it will do in the future, especially whether the company will maintain or increase full year guidance (i.e., whether the quarterly numbers released every three months will add up to the full year's "earnings per share" expectations).

What is an average investor to make of all this? Only that share prices are based more on future expectations of value than on past statistics. As they say in business, past performance is no guarantee of future results.

Fun Shareholder Meetings

A friend once asked me about the most fun shareholder meetings to attend. Here is my list:

1. Apple, Inc. (AAPL) To believe how charismatic Steve Jobs is, you have to see him in person. Long-time shareholders always attend, and the techies ask intelligent questions and swap user tips with other shareholders. Plus, the Board is filled with top-level people, including recently, Al Gore.

2. Berkshire Hathaway (BRK-A, BRK-B). You can buy the "B" shares to get into this meeting, which were selling at around $4,390 (much less than the "A" shares, which cost $132,350 for one share as of June 2, 2008). Berkshire Hathaway is fun because of the Q&A session with Warren Buffett and Charlie Munger; the live entertainment (Jimmy Buffett and Susan Lucci have appeared recently); and the annual video, which once showed Warren beating LeBron James in a one-on-one game (I still want to buy Warren's "1/8" number jersey, but they don't offer it anywhere!). Mr. Munger and Mr. Buffett work together so well, it's almost like seeing an elite, educational Laurel and Hardy show. In addition, there's lots of shopping to be done. I bought some great Fruit of the Loom underwear and some See's Candies at a discount.

Some caveats: the meeting's value depends a bit on the questions asked--if the questions asked are terrible, the meeting won't be as great. Also, this event has gotten so huge that it feels overcrowded--about 31,000 people attended this year. For example, I had to wait in line for about 45 minutes to partake in a food buffet. In addition, some of the events are spread out around Omaha, like Furniture Mart and Gorat's Steakhouse, so you need a car and GPS to be able to experience all the events.

3. Starbucks (SBUX). Starbucks' meeting is similar to Berkshire Hathaway's in the sense that a surprise guest comes every year to perform. In 2008, k.d. lang sang three beautiful songs, an experience worth attending just for her. Obviously, coffee is offered, but the meeting itself is the reason to attend. Starbucks usually unveils new goals and new items to the shareholders first, and I knew more about future plans than non-Seattle employees did for about a month after the meeting. A goody-bag is offered to shareholders on the way out. One downside--a huge line awaits all shareholders wanting to attend, so get there early and hope it doesn't rain!

4. Peet's (PEET). Peet's meeting is fun for several reasons. First, it is still a relatively small company, so the meetings feel like a family event. Second, the food and coffee are delicious. Third, sometimes the meeting is held at a roasting facility, which allows shareholders to get a sense of how the business is run.

5. Electronic Arts (ERTS). This one is a kick. If you want to see the environment in which video game designers work, check out this shareholder meeting. ERTS has an arcade, air hockey, foosball, and several other games, all for free. I spent an hour (okay, three) reliving my high school days in the arcade playing some John Madden football. Some other online games are apparently offered on the computers near the arcade, but I used that to check up on a work matter (I had to review a tentative court ruling the day of the meeting). ERTS has a Starbucks inside its company. You never have to leave the company, basically. It's a bit like Yahoo's set-up, where it's a little city within a company. The presentation also includes a preview of upcoming games on a big screen. And the best part of of it all? ERTS gives out a free video game to its attendees every year. Booyah!

6. Google (GOOG) is a new company, but it knows how to take care of shareholders. Food is offered (a friend told me they served filet mignon in 2008), and the founders sit on stools in casual-wear and answer questions in an informal setting.

7. Intuit (INTU). This one I mention only because they have given out valuable free software in the past. If you buy your Quicken software and live locally in Mountain View, CA, you might be better off just buying one share of the company and attending the meeting. The former CEO, Stephen Bennet, was very friendly at the meeting I attended a few years ago--he even replied to an email I sent. (I try to praise and point out responsive CEOs.)

Please add your own favorites in the "comments" section. I am always looking for fun shareholder meetings. I heard McDonald's and Coca-Cola's meetings are great, but I am not traveling across the country on my own dime for a shareholder meeting until I get more information. The big one I've neglected to mention is Walmart's annual meeting--it's supposed to be a big bash, but it's hard to take a few days off to travel to Arkansas and keep up on work.

Curt Hazlett, in a March 28, 2005 article, “Annual Meetings Can Be Valuable Tools for Journalists,” describes one reason I go to shareholder meetings–they offer valuable insight into a company:

http://www.businessjournalism.org/pages/biz/2005/03/
annual_meetings_can_be_valuabl/

Adobe Shareholder Meeting, April 9, 2008

I attended the Adobe Shareholder meeting in downtown San Jose. CEO Shantanu Narayen--who has my nomination for the coolest name in business--stayed afterwards to chat with a few shareholders. He was articulate and obviously extremely intelligent. Some CEOs don't come across well at all (Atmel's George Perlegos comes to mind), but Mr. Narayen presents very well. For such a well-recognized company, very few shareholders attended the meeting, probably around 20 or so (aside from the directors).

In a nutshell, Adobe is doing very well. Almost every metric of measuring profit showed improvement, usually by at least 20%. Software has great margins, so it is usually a good business, assuming a competitor doesn't make it obsolete. But with 2 billion or so in cash, Adobe can pull a Microsoft and buy out its competition.

The refreshments were average, the usual spread of coffee, some fruit, and some muffins.

Following the Adobe/Apple saga, I asked about Adobe's relationship with Apple, and the CEO remarked that the relationship was fine and that Adobe had access to Apple's newly released code and was working on an application for cell phones called Flash Lite. Adobe seems to be creating new products that will allow it to remain the standard in the marketplace. Overall, I was impressed with the company but concerned that it was not doing enough to increase its profile in Wall Street. Adobe may want to hire a PR firm to increase its visibility among traders and the public.

2008 Apple Annual Shareholders' Meeting

I always enjoy attending Apple's shareholder meetings. Apple's meetings are like no other company's annual meetings, except for possibly Berkshire Hathaway. People today who asked questions traveled from Wyoming, Kentucky, and Pennsylvania. I asked a question about Adobe's relationship with Apple and why the iPhone was incompatible with Adobe's flash technology. Steve Jobs responded that the Adobe flash was too slow to be used in the iPhone, and thus far, no one had developed a similar technology that could be applied to smaller devices such as the iPhone that did not suffer from a loss of speed. He reiterated that Apple used Adobe extensively in its Macs and that the relationship was fine, and the iPhone issue was not an Adobe-specific issue because no company had the necessary technology.

Apple's meetings are fun because people feel comfortable enough to make comments as well as questions. Today, an older shareholder mentioned that last year he came with a tie, and this year, he had learned not to let his "generational handicap" get in the way and came tie-less (I actually wore a tie but was the only person I saw wearing one). Others asked specific questions about technology. What makes Steve Jobs so special is that he seems to know all of the features and quirks of his products, even to the most minute detail. As a result, Apple attracts a lot of smart shareholders who love the technology and can't wait to ask Mr. Jobs questions.

Apple's board of directors included Al Gore, who attended today. When he entered the room, most people started clapping. He has gained some weight and looks like a football linebacker--big, with a presence.

One shareholder proposal on executive compensation actually passed, causing Mr. Jobs to crack, "I hope you can help me with my one dollar annual salary." Comments like these make Mr. Jobs a joy to watch--even when he loses something, he still lets you know he's right, and he's on top of the matter. In someone less charismatic and prepared, this attitude would be insufferable. But Steve Jobs, in creating a viable competitor to Microsoft, has the allegiance of all the "Macheads," who view him as a genius sent from the tech heavens. In fact, almost every year, someone inquires about what will happen to Apple if he leaves or "gets hit by a bus."

At the end of the meeting, I went to shake Steve Jobs' hand. He is a wiry fellow, much trimmer than he looks on television. Immediately after the meeting, he went in a corner to talk with Eric Schmidt of Google before coming down to chat with the shareholders. Perhaps he was talking about a new Google-Apple product. With Steve Jobs, you always wonder what the next big thing is going to be, and that's the wonder of being an Apple shareholder and user.