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An Apple Exec Unloads Shares: A Red Flag in Cupertino?

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Yesterday, there were reports that high-level Apple (Nasdaq: AAPL  ) exec Scott Forstall was unloading his shares. Is this insider sale a red flag for the Mac maker?

For example, Tech Trader Daily's report bore ominous language such as: "The sale represented a 95.5% stake of Forstall's direct holdings." Sounds much scarier than it actually is. Here's why.

There's plenty more where that came from
Forstall sold 64,151 shares for approximate prices between $601 and $604 last week. After everything was said and done, he had just 2,988 shares left directly in his name. At the same time, longtime Apple director Micky Drexler exercised options for 40,000 shares and also subsequently sold them around $604.

Forstall's trades brought him about $38.7 million, while Drexler netted about $23.7 million after accommodating for the enviable exercise prices of $9.16 and $14.21.

As scary as it may sound, these trades are nothing to fret over. Forstall recently had 120,000 restricted stock units, or RSUs, vest back in March. He promptly forked over 55,849 shares to Apple, which withheld them to help cover the associated tax liability. The most recent sale was just Forstall's cashing out the remainder of that 120,000 RSU grant from September 2008.

Apple's proxy filed in January lists the beneficial ownership of some of Apple's execs at the time, including their unvested RSUs. Here's just a taste.



Shares Beneficially Owned at the Time

Additional Unvested RSUs at the Time

Tim Cook CEO 13,754 1,362,500
Scott Forstall SVP, iOS 2,925 370,000
Eddie Cue SVP, Internet Software & Services 8,782 267,500
Peter Oppenheimer CFO 5,580 400,000

Source: Apple proxy statement filed Jan. 9, 2012.

In January, Forstall had 370,000 RSUs, and 120,000 of those have since vested and been sold. That leaves him with 250,000 RSUs still in addition to his roughly 3,000 directly held shares (which he adds to regularly through Apple's Employee Stock Purchase Plan).

At the $582.13 that Apple closed at yesterday, Forstall's remaining RSU position is still worth $145.5 million. He's not going anywhere.

Apple CEO 3.0?
In fact, we might even be talking about the executive who may one day become Apple's CEO after Cook's regime is over. At 42, Forstall is Apple's youngest senior executive and was always considered Steve Jobs' protege ever since Forstall started at NeXT as his first job out of grad school. Forstall even literally bought the exact same car as Jobs drove, a silver Mercedes-Benz SL55 AMG (although presumably, he probably leaves his license plates on, unlike Jobs).

There's no doubt that Forstall has his sights set on one day becoming Apple CEO, if the board will one day have him. Forstall has steadily risen through the ranks of Apple ever since Apple picked him up as part of the NeXT package in 1997 (along with Jobs).

As the executive in charge of iOS, his fate and influence at Apple have been directly linked to the meteoric rise of iOS devices, which now generate the vast majority of Apple's sales. The iPhone and iPad alone comprised 75% of revenue last quarter, and that's before including the iPod Touch and Apple TV (which Apple doesn't disclose). So, yeah, I'd say Forstall is pretty important.

When Cook took the role of CEO, Apple's board granted him 1 million RSUs that vest over 10 years. If Cook ends up staying that entire 10 years, Forstall will be 52 and likely the top candidate to take over when Cook decides to step down. Cook was 50 when he took the reins from Jobs. Regardless of when Cook steps down, I'm expecting Forstall to step up to the plate.

I'd diversify; wouldn't you?
In all likelihood, a disproportionate percentage of his wealth is tied up in Apple, so he's probably just looking to lighten the load a bit, although he's probably not as concentrated as (Nasdaq: AMZN  ) CEO Jeff Bezos, who has the bulk of his $20 billion-plus net worth tied up in the company he founded, despite his relatively modest salary.

Didn't your mother always tell you to diversify?

iOS is helping Apple dominate the world as the iPhone's international sales take off. If you need more ways to play emerging markets, check out another 3 American Companies Set to Dominate the World. It's free.

Fool contributor Evan Niu owns shares of and Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of and Apple. Motley Fool newsletter services have recommended buying shares of and Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 03, 2012, at 1:29 AM, prginww wrote:

    Did Bill O'Neil ever tell you to diversify? What about Jesse Livermore, George Soros or Bill Gross?

  • Report this Comment On May 03, 2012, at 2:30 AM, prginww wrote:

    Have you thought of maybe the plan forces them to sell them. I don't know the conditions of their RSUs, but it may be set where they have to sell them or forfeit them. It depends on the plan.

  • Report this Comment On May 03, 2012, at 3:19 AM, prginww wrote:

    You don't know whether Forstall will be leaving or staying unless he's told you.

    Maybe he feels $39 million is plenty for any one man to live on for the rest of his live, and that he doesn't need the potential $250 million - if Apple's price hits $1,000 a share.

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