Polishing the AAPL: 7 Steps to Greater Value

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Now that we have read numerous obituaries and tributes, it's time for us cold-hearted capitalists to focus on how Apple can enhance shareholder value going forward. Apple stock is trading at a lousy multiple given the company's industry-leading revenue and growth rate.

This is a company that could generate $45 per share in earnings at some point in the next couple of years, and given the growth rate, why shouldn't it trade at at least 25 times earnings, plus cash? That would imply a stock trading at well over $1,000 per share. But it's not. It closed yesterday at $378.25.

How can Apple's new CEO and board improve this situation?

I have a seven-step plan Apple's new CEO and board can adopt. Here is the summary:
  1. Offer an iPhone with a keyboard, to take market share from RIM's BlackBerry.
  2. Stop discriminating against T-Mobile USA for the iPhone.
  3. Offer a seven-inch iPad to bridge the gap between the iPad 2 and the iPod Touch.
  4. Enable Adobe Flash in the iOS browser.
  5. Sell highly profitable adult content in the iOS AppStore.
  6. Split the stock 10:1.
  7. Introduce a juicy dividend to return money to shareholders.

Let's discuss these seven shareholder value-enhancing moves in turn:

1. iPhone with a keyboard: There are four main reasons why people buy BlackBerry instead of iPhone, and they apply differently in different market segments and geographies: Keyboard, security, BlackBerry Messenger and service price. In the U.S., the service price largely doesn't apply, because bandwidth is plentiful and therefore cheap. Most consumers are yet not focusing on the BlackBerry's security advantages. BlackBerry Messenger's network lock-in effects may be going away with other innovative messaging options becoming available.

So this leaves us with the keyboard. Some people simply find it very annoying trying to type on glass as opposed to the outstanding BlackBerry signature keyboard. Yet, the same people fully acknowledge the superior computer characteristics of Apple's iOS operating system. Many people carry both an iPhone and a BlackBerry, or an iPad plus a BlackBerry for this reason. In an ideal world, they would like to get rid of the BlackBerry -- but the keyboard keeps them from doing so.

So what's the obvious conclusion here? Apple could cause tremendous damage to RIM's ( RIMM) market share if it offered an iPhone with a competitive keyboard. Why hasn't this happened already? Was Steve against it? If he was, Apple can now move forward with making an iPhone inclusive of a BlackBerry-style keyboard.

2. Stop discriminating against T-Mobile USA for the iPhone: Why is T-Mobile USA the only one of the four big U.S. carriers not offering the iPhone? It would have been easier to add T-Mobile USA than Verizon and Sprint, given that it's GSM. Yes, I know, T-Mobile operates on 1.7 GHz for the upstream HSPA data connection, but every other manufacturer, such as RIM, Samsung, LG, Motorola and others have offered versions for T-Mobile USA that gets around this obstacle. There is no technological reason Apple can't offer the iPhone on T-Mobile USA. None. It would be easier to do than the highly re-engineered Verizon version launched last January.

If there is no technological reason, why didn't it happen already a year or so ago? I don't know, but perhaps it had something to do with those T-Mobile USA ads that pitted its Android products against Apple? Did those make Steve upset? Was he blocking such an otherwise obvious deal? If so, this should now be an easy deal for the new Apple CEO to seal.

3. Offer a seven-inch iPad: Only one year ago, Steve argued against a seven-inch iPad in part for the reason that it would be too small for people's fingers(!). That seems like a highly strange comment, because of course Apple itself offers the iPhone and iPod Touch, both of whom are even smaller. It simply made no sense.

Since then, of course, Apple's tablet competition has fallen far behind expectations of market share, but perhaps for reasons other than size. People may just want different form factors. I wrote an article on April 26 called Tablet Size and Climate Change explaining these factors specifically.

Only one week ago, Amazon launched its seven-inch tablet, and based on pre-orders that could have already reached 250,000, this looks like the first tablet to break through the poor early sales performances of all the other non-iPad tablets. Why should Apple continue to boycott this obvious form factor? Recently, Samsung has either shown and/or shipped tablets sized 5.3 inches, 7.0 inches, 7.7 inches and 8.9 inches, just for starters.

It would appear that Apple's management team can now move forward with a seven-inch iPad.

4. Enable Adobe Flash in the iOS browser: The major weakness of Apple's iOS browser is that it doesn't handle Adobe Flash. This means some Web sites and some functionalities don't render. For example, have you tried to listen to a company's quarterly conference call on your iPhone or iPad browser? Whatever other weakness aside with the BlackBerry PlayBook and Android tablets, they do handle Adobe Flash at least to some extent, in their browsers.

Steve was very vocal against Adobe Flash, although it was apparently perfectly fine in the Mac laptops and desktops. I guess this was a case of selective religion. It's now time to create uniformity, and Apple should offer on the iOS browser the same Adobe Flash capability it already does on the Mac.

For example, one reason some people avoid the iPad in favor other tablets -- or perhaps in favor of a small laptop -- is that much adult content is in Adobe Flash. If Apple's new CEO gave the go-ahead to play nice with Adobe Flash, these customers would now be able to buy what they probably otherwise really wanted to buy instead, i.e., an iPad.

5. Sell highly profitable adult content in the iOS AppStore: What about adult apps in the iOS AppStore? Steve banned them. It seems to me that this decision has deprived Apple of billions of dollars in sales and profits.

Let's take a trip down memory lane on this one. There are other companies that also declared unilateral disarmament in the area of adult content. The cable company Adelphia comes to mind. Remember that one? It went bankrupt about a decade ago.

Adelphia was controlled by the Rigas family. They had this tremendous aversion to offering the kind of content where Comcast and Time Warner Cable made much of their money, i.e., adult video. Well, that didn't work out so well, did it? Why shouldn't Apple's shareholders now insist that Apple stop leaving all of these billions of dollars on the table?

And yes, Adelphia's assets were sold in bankruptcy to the other cable TV companies, such as Comcast and Time Warner Cable -- who are offering all the adult content there. Water runs downhill. Apple's shareholders should not be watching idly while Google's shareholders collect all of these billions of dollars in sales and profits.

6. Split the stock: Apple may have ceded the adult video profits to Google's device and advertising platforms, but what's with the Google envy on the absolute level of the stock price? Just because Google stock is hovering around $500 doesn't mean it's a good idea. Or was it envy of Berkshire Hathaway's $110,000 stock? Of course, as we all know, it doesn't matter logically/mathematically, but still - it could be an easy way for Apple to throw its shareholders a bone. Right now would be a good time for that.

7. Introduce a juicy dividend: Apple keeps piling up the cash. Large acquisitions have not happened. The largest acquisition in the last decade or so may just have been the Nortel patents this summer, to the tune of some $2.5 billion. Most other acquisitions have been much, much smaller. There are some scenarios that suggest Apple will be sitting on $150 per share in cash in the next year or two.

People don't want to invest in Apple because it's a glorified money market fund. There are at least three ways Apple could deal with this -- a one-time special dividend, a regular quarterly dividend and a buy-back. It seems to me that a regular quarterly dividend would be in Apple's best interests; $5 per share per quarter would mean Apple would yield over 5% at the current stock price, and still generate tons of free cash, adding to its cash pile. What would you rather buy -- U.S. 30-year Treasuries at 3% or Apple at 5% plus healthy industry-leading growth and no debt?

So let's recap this seven-step plan for how to improve the performance of Apple's stock: Make life really difficult for RIM by offering an iPhone with a BlackBerry-style keyboard, stop discriminating against T-Mobile USA, start selling a seven-inch iPad, enable Adobe Flash in the iOS browser and sell adult content in the iOS AppStore. These would generate many billions more in sales and profits. Then split the stock and introduce a 5%-plus dividend.

Steve Jobs engineered one of the most spectacular corporate turnarounds in history over the last 14 or so years, creating legendary products and selling them in a new consumer-friendly store concept that has generated record profit growth. This was a marvelous achievement that nobody predicted. Now, however, it's time to take Apple to the next level by taking these seven steps to even higher sales and profits. Will it take shareholder activism to get Apple's board and CEO to implement this seven-step plan, or will they now do this on their own?
At the time of publication, the author was long AAPL, GOOG, RIMM and QCOM, although positions can change at any time.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Anton Wahlman was a sell-side equity research analyst covering the communications technology industries from 1996 to 2008: UBS 1996-2002, Needham & Company 2002-2006, and ThinkEquity 2006-2008.

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