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Last week, Apple (AAPL - Analyst Report) investors rejoiced in the hope that billionaire investor Icahn’s demands would be met while Cisco (CSCO - Analyst Report) investors expressed concern that the company was losing market share.

Apple Shares Say “I Cahn”

Activist investor Carl Icahn posted on Twitter that he had put a billion dollars into Apple stock and was pushing the company to authorize an additional $150 billion for share repurchases. Icahn’s view is that Apple is significantly undervalued and would trade higher if the repurchase was sanctioned. Apple shares rose after the announcement and continued to rise through the rest of the week.

It is true that Apple is trading at a much lower multiple than companies like Google and Facebook (FB - Analyst Report), but valuation is usually the way the market views a company. In Apple’s case, it appears that the stock is moving from the growth to the value category, or at least that’s the way the market views it. Investor delight at the chances of a higher payout further supports this view.

It’s possible that Apple will introduce some great products that push up its growth rates. But until that happens, investors are unwilling to pay a higher price betting on its growth. They are however eyeing its cash hoard and looking for a share.       

Cisco’s Switch Is Costing The Company

Cisco reported a good quarter but provided a disappointing guidance. Management commentary was not unexpected: it continues to do reasonably well in North America despite uneven economic recovery, its performance in Europe is on track with Southern concerns remaining and its performance in Asia is marred by weakness in China (as expected). But shares swooned nonetheless.

So what gives? Basically, management announced a massive headcount reduction (4,000 employees, or 5% of the workforce) with no corresponding increase in earnings projections. Management didn’t quite explain the delta other than an assurance that resources were being allocated to reposition the company in target areas (likely cloud computing, mobility, security, video, and software and services).

Cisco does have quite a bit on its plate at the moment with weak economies, constrained IT budgets, and the continued threat of software defined networking (SDN) eating into its core routing and switching business. Its Cisco ONE initiative is encouraging, but remains a fledgling effort as of now.

So while Cisco’s transformation into a software and service-focused company will not bear fruit for a while yet, it appears that costs will be slashed as necessary in an effort to maintain earnings growth.

Microsoft: Partnering With the Enemy?

Microsoft (MSFT - Analyst Report) lawyer David Howard had a field day pulling down Google, which blocked Microsoft’s YouTube app for the Windows phone (again). The earlier app that Microsoft produced didn’t allow ads, enabled video download and the viewing of reserved videos. Google’s current objections boil down to the HTML 5 coding language, which was part of the terms and conditions. Since neither iPhones nor any of the Android phones are required to use HTML 5, Microsoft published the new app as is, which Google subsequently blocked.

The important thing to note here is that all the other phones use Google search as the default, while Microsoft naturally uses Bing. Microsoft is also asking for Google’s metasearch data so it can serve the YouTube ads more effectively.

One can understand why Google would be hesitant to share such information with its fiercest competitor and only remaining search rival, but it’s unlikely that it can prove its innocence in a court of law. That’s because this latest move is not helping consumers and not promoting competition, the two things most important to antitrust regulators.  

 

Company

Last Week

Last  6 Months

AAPL

+9.79%

+9.20%

FB

-3.16%

+28.17%

YHOO

-1.67%

+28.32%

GOOG

-2.95%

+6.20%

MSFT

-2.59%

+13.37%

INTC

-3.01%

+3.89%

CSCO

-7.21%

+13.09%

 

Hewlett-Packard Company (HPQ - Analyst Report) and Analog Devices (ADI - Analyst Report) report this week. Read further about these companies going into their earnings announcements in our “Earnings Preview” section.

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