Steve Jobs stayed in the shareholders’ boat

Outgoing Apple CEO’s genius has been for investment management as well as technology.

By SHLOMI COHEN/GLOBES
September 5, 2011 23:00
4 minute read.
Steve Jobs

Steve Jobs_311. (photo credit: Reuters)

Despite the enthusiasm that prevailed on the markets after the “we’ll meet in another three weeks” speech by US Federal Reserve Chairman Ben Bernanke two weeks ago, August was a very poor month for stocks.

The stock market dislikes uncertainty, and so there is a more optimistic atmosphere now. Bernanke’s speech is behind us, the hurricane is behind us, and – at the company level, after the changing of the guard at the world’s biggest technology company, Apple, went smoothly – so is the removal of a large cloud. In my view, this important stock will head northward in the coming months.

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Two weeks ago, the resignation of Apple CEO Steve Jobs released a torrent of words. Television channels brought out of the drawers the film clips prepared in advance, though for a worse eventuality than resignation. I read and watched the fascinating history of the man, and what caught my eye all the time was the stock-price chart, which has risen by thousands of percentage points since Jobs returned to Apple in 1997.

As one who for many years has monitored stock sales by founders and CEOs of prosperous Israeli technology companies, I searched in the US Securities and Trade Commission’s archives to find out what Jobs did during those years of steep rises in Apple’s stock price. The great surprise that awaited me there was the discovery that technological genius Jobs is also an investment-management genius who thinks outside the box. So far, he has not sold a single one of the 5.5 million shares he owns in Apple, a stake currently worth about $2.1 billion.

A $1 annual salary

Jobs accumulated the shares as a bonus only during his second period as CEO, which as mentioned began in 1997. He received the option relatively late, in January 2000, and at an exercise price of $22, after he had proved himself as a great creator of value for Apple since his return as consultant, director and temporary CEO.

“To reduce risk by diversifying investments elsewhere” is the reply I have always received from every Israeli CEO whom I asked why he had sold shares if his company was doing well and if its future would be as rosy as he predicted it would be. Had Jobs sold part of his stake in Apple, there was no chance of him obtaining a better return on his money somewhere else. Jobs’s approach to his money reminds me of what Texas-based serial entrepreneur and billionaire Mark Cuban said last month in an interview with The Wall Street Journal: “Diversification is for idiots.”

Jobs, like Check Point Software Technologies Ltd. founder and CEO Gil Shwed, has over the years received a token annual salary of $1, but unlike Shwed, since 2003, just before the stock price took off, and until today, Jobs has not received any more options from Apple.

Apropos Jobs’s compensation, the notice of Apple’s last shareholders’ meeting in February stated: “In 2010, Mr. Jobs’s compensation consisted of a $1 annual salary. Mr. Jobs owns approximately 5.5 million shares of the Company’s common stock. Since rejoining the Company in 1997, Mr. Jobs has not sold any of his shares of the Company’s stock. Mr. Jobs holds no unvested equity awards.

The Company recognizes that Mr. Jobs’s level of stock ownership significantly aligns his interests with shareholders’ interests.”

In other words, Jobs received no benefit beyond that token dollar. The incentives philosophy, apparently dictated by Jobs himself, was that if he were to succeed in enhancing the company, he would also enhance both his substantial stake in it and the stakes of the other shareholders, so that no further compensation was required.

Stick to Apple, not its suppliers

With the wisdom of hindsight, not only would hanging onto Apple and not selling have yielded investors a very high return, but it was distinctly preferable to hold Apple and not its suppliers. For example, Apple was the company that pushed the use of flash technology into areas that no one dreamed of when flash replaced film in cameras. Despite this, the leading stock in that field, San- Disk, has turned in a disappointing performance over the years, while Apple has raced ahead – because Apple is the company that has taken the cream by selling higher flash storage in its devices.

Just how risky and frustrating it can be to be invested in an Apple supplier was illustrated two weeks ago, when OmniVision, which sells Apple the camera chips for its iPhones and iPads, crashed 30 percent despite reporting very strong results. It turns out that the guidance for the October quarter was well below expectations. The analysts believe that Apple has switched from OmniVision to Sony for its orders for camera chips for the iPhone 5, and perhaps also for the iPad 3, because of problems that have appeared for the first time in production of camera sensors at the high level of eight megapixels, which it is widely assumed will be in Apple’s next devices.


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