Steve Jobs's $1.1 billion AAPL windfall & Steve Ballmer's $11 billion MSFT blunder

Posted:
in AAPL Investors edited January 2014
After taking over as Microsoft's chief executive in 2000, Steve Ballmer presided over the liquidation of Apple's stock his company had acquired three years earlier in its $150 million investment in Apple. In retrospect, that was a fantastically bad idea.

Apple's Steve Jobs divests ARM, settles with Microsoft

Apple's own 1990 investment in its joint partnership with Acorn to build the ARM Architecture for mobile processors resulted in a two part windfall for Steve Jobs seven years later: a valuable stake in the "Windows" of mobile chip platforms and a wide supply of high performance, highly efficient components perfectly suited for powering iPods and other coming inventions.

Jobs had returned to Apple's helm in 1997 to turn around the company he founded twenty years earlier but had been exiled from for just over a decade. While he had nothing to do with Apple's original ARM investment brokered under John Sculley, Jobs was greatly aided in turning around Apple by the $1.1 billion he recouped from selling off that stake at its peak after ARM Holdings' Initial Public Offering in 1998.

ARM
Source: Google Finance


Just prior to that, Jobs had let go of Apple's $1.2 billion lawsuit pursuing patent claims and code theft damages against Microsoft. In exchange, the two companies agreed to an amicable cross-licensing deal and a show of support involving Internet Explorer and Office for Macintosh and a $150 million investment by Microsoft in Apple that would be held for at least three years.

Microsoft's Steve Ballmer divests AAPL

As Jobs unloaded Apple's ARM holdings, Microsoft was also itching to dump its show investment of $150 million worth of Apple preferred shares. In 2000 the non-voting stock was converted into 18.2 million common shares at $8.25 per share, and were subsequently sold off between August 2000 (the earliest date allowed) and 2003.

Apple split its stock in June 2000, right before Microsoft's conversion. The stock also split again in 2005. Additionally, the market crashed in 2000, causing Apple's shares to plummet from a split-corrected peak of around $30 to a new baseline that hovered around $10 over the next three years before beginning to take off in 2004, just after Microsoft bailed.

2000s MSFT AAPL
Source: Google Finance


That means Microsoft's liquidation of Apple shares, initiated in the first year of Ballmer's new role as Microsoft's chief executive, provided it with about $182 million, a return on its investment of about 20 percent. Had Microsoft held its Apple shares, they would today be worth around $9.1 billion.

Opportunities cost

Additionally, with the dividends Apple began paying last year, Microsoft would also be earning over $222 million annually in mad cash just holding those shares. That's enough to buy every one of Microsoft's 99,139 employees worldwide a nicely equipped 13" Retina Display MacBook Pro and a new iPad, every year.

If Ballmer were as magically prescient as Jobs appeared to be in unloading Apple's ARM shares at just the right time to cover Apple's embarrassing losses with an external windfall priced at its peak, Ballmer might have instead retained and then sold Microsoft's Apple shares last year.

That would have similarly covered Microsoft's $6.2 billion "impairment charge" related to its beleaguered acquisition of Quantive, back when those 18.2 million Apple shares would have been worth $11.5 billion, or alternatively, at their peak in last September, when they would have reached above $12.7 billion.

Baller would have had more than enough left over to also hide this year's $900 million "inventory adjustment" related to Surface RT, Microsoft's beleaguered iPad contender.

Microsoft's blunder in throwing away its Apple shares at their lowest point of the 2000s certainly isn't the only example of Microsoft's investments gone wrong under the Ballmer administration, however.
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Comments

  • Reply 1 of 51
    pazuzupazuzu Posts: 1,728member


    Good god- why is this guy still there? One disaster after the next.


    You almost feel sorry that they keep letting him continue to constantly f#@k up!

  • Reply 2 of 51
    kpluckkpluck Posts: 500member
    Hindsight is 20/20 with investment decisions, really? Who would have ever thought that? Hopefully scholars and historians are documenting this rare occurrence so that future generations will learn from it. :)

    -kpluck
  • Reply 3 of 51
    pazuzupazuzu Posts: 1,728member

    Quote:

    Originally Posted by kpluck View Post



    Hindsight is 20/20 with investment decisions, really? Who would have ever thought that? Hopefully scholars and historians are documenting this rare occurrence so that future generations will learn from it. image



    -kpluck


    I'm sorry but AAPL had no where to go BUT up. After the introduction of the smash iMac in 1998/1999 and the rumors of OSX it was inconceivable to sell at that point. This guy is just BAD.

  • Reply 4 of 51
    sockrolidsockrolid Posts: 2,788member


    Originally Posted by pazuzu View Post


    Good god- why is this guy still there? ...



     


    Because nobody else wants the job?

  • Reply 5 of 51
    philboogiephilboogie Posts: 7,438member
    It's AAPL, not APPL (that's petrol). Other than that, good article.

    I sure hope they keep Ballmer on as CEO; I don't watch TV so am missing out on comedy.
  • Reply 6 of 51
    melgrossmelgross Posts: 31,647member
    Well honestly, no one could have predicted where Apple would be going over the next decade or so. I certainly didn't, and I've had Apple shares during the 1990's. I didn't buy back in until the middle od 2004.

    On the other hand, Apple really needed that money from ARM share sales. Too bad, because if Apple still owned their one third, it would be worth $6.5 billion today, and Apple would have a lot of control over where the ARM industry is going.

    We can't predict the future.
  • Reply 7 of 51
    melgrossmelgross Posts: 31,647member
    pazuzu wrote: »
    I'm sorry but AAPL had no where to go BUT up. After the introduction of the smash iMac in 1998/1999 and the rumors of OSX it was inconceivable to sell at that point. This guy is just BAD.
    Not really. It wasn't until a couple of years later that Apple began to dig out of their hole.
  • Reply 8 of 51
    tallest skiltallest skil Posts: 43,399member

    Originally Posted by pazuzu View Post


    Good god- why is this guy still there? One disaster after the next.


    You almost feel sorry that they keep letting him continue to constantly f#@k up!





    Sorry? I'm elated! In fact, if you have throwaway income and are a fan of Apple, you should really buy shares in Microsoft so you can petition the board to KEEP BALLMER THERE. Him as CEO is the best thing to happen to Microsoft since… 


     


    What, I guess since before Gates decided to steal Mac OS.

  • Reply 9 of 51
    pazuzupazuzu Posts: 1,728member

    Quote:

    Originally Posted by melgross View Post



    Well honestly, no one could have predicted where Apple would be going over the next decade or so. I certainly didn't, and I've had Apple shares during the 1990's. I didn't buy back in until the middle od 2004.



    On the other hand, Apple really needed that money from ARM share sales. Too bad, because if Apple still owned their one third, it would be worth $6.5 billion today, and Apple would have a lot of control over where the ARM industry is going.



    We can't predict the future.


     


    Quote:

    Originally Posted by melgross View Post





    Not really. It wasn't until a couple of years later that Apple began to dig out of their hole.


    Microsoft didn't need the money and again there was nowhere for AAPL to go except up unless you think Apple was going to fold in 2000 which no one did after 1998/99.


    We may not be able to predict the future but we sure as hell can decipher what incompetence is. 

  • Reply 10 of 51
    pazuzupazuzu Posts: 1,728member

    Quote:

    Originally Posted by Tallest Skil View Post




    Sorry? I'm elated! In fact, if you have throwaway income and are a fan of Apple, you should really buy shares in Microsoft so you can petition the board to KEEP BALLMER THERE. Him as CEO is the best thing to happen to Microsoft since… 


     


    What, I guess since before Gates decided to steal Mac OS.



    Books will be written about this guy's tenure for years- he's virtually destroying it. It's been great for AAPL  but at this point it's beyond pathetic- it's rather sad.image

  • Reply 11 of 51


    As brain gets older, it loses its flexibility and charm.  It is not his fault.  Need new brains which have new ideas and agendas in it!!!


     


    Our politicians are the same. Need new blood!

     

  • Reply 12 of 51
    droidftwdroidftw Posts: 1,009member


    Judging what others did with their money in the stock market with the benefit of 20/20 hindsight is futile.  Furthermore, a 20% ROI is nothing to sneeze at.  We should all be so lucky to make those kinds of 'mistakes'.


     


    There's so many great reasons call Ballmer a buffoon.  In my opinion, this one is really stretching it.

  • Reply 13 of 51
    maestro64maestro64 Posts: 4,562member


    As we have all learned, Bill Gates have more confidence in Jobs than most people. Gates made a bet on Jobs, but was not in charge to really cash in on the bet. Ballmer had no faith in Jobs, or Apple, he had no clue what was going to happen. So 20% return was better than nothing or the write down if Ballmer was actually right. The question would be if Gate stuck around longer would he held the position.


     


    Yeah hindsight is 20/20, but I had faith and knew Jobs would pull it out, Yeah I sold, but also bought back in, I road the ups and sold and downs and bought. I still own today and ridding the up to a profit yet again and when the market wants to pound on Apple yet again I will buy at the lows yet again. these massive 20 to 30 % swings over months is great for making money.

  • Reply 14 of 51
    jason98jason98 Posts: 763member


    Apple may have lost $1b by not keeping ARM.


    But it have lost much more by not buying out all 3rd party multi-touch patents and ip before 2007 release of iPhone.


    Without multi-touch Android would have been far from where it is now.

  • Reply 15 of 51
    droidftwdroidftw Posts: 1,009member

    Quote:

    Originally Posted by jason98 View Post


    Apple may have lost $1b by not keeping ARM.


    But it have lost much more by not buying out all 3rd party multi-touch patents and ip before 2007 release of iPhone.


    Without multi-touch Android would have been far from where it is now.



     


    Aggressively using patents that they don't include in their products isn't Apple's style.  Apple isn't a patent troll.

  • Reply 16 of 51
    desuserigndesuserign Posts: 1,316member


    "AAPL had no where [sic] to go BUT up."


     


    I'm guessing you had no skin in the game at the time. Those of us who did didn't all feel that way.


    Although I felt pretty good in my investment in AAPL, it was seen as an incredible risk. Had I felt fully confident, I would have invested all my free cash back when it was  at $13 and would be several times a millionaire today (as you undoubtedly are.) But the fact is, it was a scary time to put money in AAPL and I didn't add to my initial investment until it after it topped $60. Even then it was in installments. Despite my stunning "stupidity," I did pretty well.


    Even when the iPhone was released, the market thought Apple would fail.


     


    Quote:

    Originally Posted by pazuzu View Post


    I'm sorry but AAPL had no where to go BUT up. After the introduction of the smash iMac in 1998/1999 and the rumors of OSX it was inconceivable to sell at that point. This guy is just BAD.


  • Reply 17 of 51
    "If ifs and buts were candy and nuts, we’d all have a merry Christmas”
    -- Don Meredith --
  • Reply 18 of 51
    stourquestourque Posts: 354member
    That dividend could have been one of Microsoft's biggest profit centres.
  • Reply 19 of 51
    All the Woulda-Coulda-Shouldas
    Layin' in the sun,
    Talkin' bout the things
    They woulda-coulda-shoulda done...
    But those Woulda-Coulda-Shouldas
    All ran away and hid
    From one little did.

    -Shel Silverstein
  • Reply 20 of 51
    just_mejust_me Posts: 590member


     


     


    Current Apple vs Microsoft score


    16012.87 vs 31993.25


     


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