BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) was once riding high on success from the smartphone industry, but then it did a share buyback. So why is this important now? Brad Reed of BGR points to an article by Floyd Norris of The New York Times and suggests that this story should provide a warning for Apple Inc. (NASDAQ:AAPL) as it considers the suggestion of Carl Icahn.
Icahn sets a date with Cook
Icahn tweeted this past week that he had set a dinner date with Apple CEO Tim Cook to discuss the “magnitude” of the share buyback they were planning. The problem with this, according to Reed, is that when BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) did its share buyback in 2008 and 2009, it was at a disadvantage in terms of trying to keep up with competitors.
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BlackBerry rewarded short-term investors, punished long-term ones
According to the article by Norris, the share buyback done at BlackBerry offered major incentives for short-term gains while avoiding the long-term challenges. In addition, he says loyal shareholders who had invested in the company for the long term were essentially punished by the share buyback, while speculators were rewarded for their short-term investments in the now-struggling company.
The capital return strategy stands out in stark contrast to dividend plans, which provide greater rewards for long-term shareholders rather than those who are just in it for the short term.
Did BlackBerry destroy itself with a share buyback?
Norris said the share buyback came at an especially bad time for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) because it came right before it faced serious competition from Apple Inc. (NASDAQ:AAPL)’s iPhone and early Android models. He points out that BlackBerry took in $365 from exercising options and paid $3.5 billion to buy back shares.
Although accounting rules do not make that $3 billion affect the company’s profits, it did drain some of the resources the company had available for research and development and other costs.
Apple as the next BlackBerry?
According to Reed, Apple Inc. (NASDAQ:AAPL) should think carefully about its share buyback plans and how that will affect its ability to remain competitive in the market. Right now Apple faces shrinking market shares and stands at an important point. He thinks if the company isn’t careful, Icahn’s plan for a share buyback could make Apple the next BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB).