Apple (s AAPL) has nearly $100 billion in cash on its books. It is also a source of constant nagging by Wall Street investors who want Apple to do something with it: a dividend, give it back to investors or something.
In order to address the cash balance issue, Tim Cook, Apple’s CEO, and Peter Oppenheimer, Apple’s CFO, are going to host a conference call to announce the outcome of the company’s discussions concerning its cash balance, the company announced Sunday. The call will be held on Monday at 6 a.m. PDT (9 a.m. EDT.)
During the Steve Jobs era, Wall Street’s demands fell on deaf ears. In a recent conference call, Cook’s position on cash balance wasn’t that extreme. As my colleague Erica Ogg pointed out, Cook and the board have been in discussions about the company’s cash position, which continues to rise. “We have more cash than we need to run the business on a daily basis,” he said during a Goldman Sachs investors’ conference last month.
I, for one, believe the company should just sit on the cash and not worry too much about Wall Street just yet. It is important that they use the cash to lock up supplies of components for its products. The cash cushion gives the company room to actively compete for talent as well as any future startups it might need to acquire to enhance its overall ambitions.
Om you say the company should just sit on the cash and not worry too much about the Wall Street just yet.
I say they’re buying Twitter and still will have 90% of immense cash reserves remaining.
Sure or they could use the cash to lock up components for their core products and make sure they are controlling the supplier market and keeping their rivals twisting in the wind. I think that is bigger and better use of cash.
Locking up components and controlling the supplier market is something they’ve been doing for years. I don’t see that changing anytime soon.
No, Om, they can’t. They’d have to pre-buy years worth of components to use that much cash. This would invite all sorts of nasty anti-trust scrutiny as they’d be controlling far too many markets.
They have to find uses of cash because it’s become irresponsible not to. I can’t wait till tomorrow till all of the ridiculous nonsensical notions that Apple can somehow make use of this money for >other< than entirely financial purposes get set aside.
At least some of it has to be returned to shareholders. Management runs the risk of becoming seriously undisciplined if they keep looking at their barely-interest-earning bank accounts and saying, "well, we have years of safety net, we don't really have to worry much". You should want Apple to worry.
No matter what they announce (and the smart idea is a dividend, the far-less good one is a buyback), they'll still maintain a huge cash horde with which to control enough of the supplier markets and maintain a rainy-day fund.
No acquisition Apple would ever contemplate would take a meaningful chunk of the firm's cash. Period.
Wait, did he say no toga party?
As an Apple shareholder, I am quite interested to hear what Cook & Oppenheimer announce about Apple’s Cash hoard.
The company has SO much more cash than they could possibly have any use for that I think a change is coming.
Apple has an incredible amount of shareholder goodwill that management can do whatever they want (in the short term) and not have to worry about any serious criticism. I believe Tim Cook is not dogmatic about the cash hoard and will make a change from current policy.
“I for one, believe the company should just sit on the cash and not worry too much about the Wall Street just yet. It is important that they use the cash to lock up supplies of components for its products. The cash cushion gives the company to actively compete for talent as well as any future startups it might need to acquire to enhance its overall ambitions. ”
Apple has so much cash that they can do everything Om suggests and still use up some cash. Their current rate of cash generation is staggering.
Apple should use some of their cash for strategic acquisitions and set aside $10 Billion for a startup fund for companies that build on their platform and help push their platform into Video and IPTV.
As a shareholder Apple should hold the cash for future needs. The company is in a unique position where no future business decisions need be effected by financial concerns. Paying dividends will open Pandora’s box, and become a nagging management distraction.
Agreed.
See, this kind of “Apple knows best” dis-logic is terrifying. Dividends don’t open a Pandora’s box. They are not a distraction. They are a way to return money to shareholders when the firm cannot make use of the money. Apple’s ever-growing cash horde is proof the firm cannot make use of as much cash as they have.
Not paying a dividend is the irresponsible path. The management distraction is the ever-growing cash horde and the lack of discipline it enforces.
2 comments.
1. They have more than $100B. They had $98B on Dec 31, 2011. They retain somewhere around $10B per quarter, average. So they’re closer to $110B.
2. They can afford both to give a $10-$20 annual dividend AND continue to grow their cash pile, obviously more slowly though. Numbers: http://www.kerryduncan.com/users/studuncan/weblog/9ea07/Can_AAPL_afford_a_dividend.html
I don’t think Apple will declare a dividend. It would be expensive, and constrain their cash reserves, as well as setting up an expectation for future dividend payments.
http://connectingthecircles.blogspot.com/2012/03/siri-will-apple-announce-dividend.html
Just how much cash to they need to lock up components? $100b $145B? #clueless
Maybe they could pay their workers. Just kidding! More suicide nets!
Why call an investor meeting to say “no change?”
I think they’re going to do something notable with the money, but we’ll soon know for sure.
Om,
you know I love Apple, up to a point, but don’t you think all this coverage of Apple smacks of famboy-ism? Meanwhile Sergei now has a beard, Amit has introduced Knowledge Graph (Facebook copied “Graph” from us 3 years before we came with it,) our ad clicks are skyrocketing as we improve the quality of search, over 2.5% of Androids now have Ice Cream Sandwich and many other exciting things.
Don’t forget about us.
How about Apple building the Wi-Fi network that Steve Jobs wanted five years ago?
This will not only put it at equal footing with the cell phone carriers, but also give Apple a fresh conduit to deliver the full spectrum of services for the iPad and iPhone.
Indeed, with it’s own Wi-Fi Apple will have the new niche all to itself — and beyond anything previously dreamed possible.
Moreover, as an alternate way to deliver volume content, Wi-Fi will make Apple the king of video entertainment, as well as an indispensible player in all cloud services.
To be sure, Steve Jobs had the right idea — though he did not have the money to do it.
Apple now does, and should not squander it’s singular opportunity for lasting greatness.
Fuck Wall Street and Investors. They have the right to invest their money but if they disagree with what a company should do or don’t have faith in the company, they’re free to move their money. Paying a dividend is extremely short sighted, especially given the growth the company has shown, which is unprecedented for a company of Apple’s size. And in many markets, arguably they still have LOTS of room to grow.
Amassing more cash on hand than spending it provides a few things. Here are some theories…
1. At some point, their cash on hand and its interest will exceed the cost of operating the company. At that point, the company reaches a threshold where it can never die again, completely avoiding a scenario where they reach near bankruptcy like in 96/97, even if their product line fails and their innovation stalls.
2. Huge strategic acquisitions beyond the minor ones they’ve done. Arguably Apple is a hardware company and software company. They have operating systems, desktop grade software, and obviously solid hardware. What they lack is a huge web arm, the likes of Google, Facebook, Amazon, etc… Since most of that is lacking and there is little overlap in some cases, particularly Facebook (out of the 3 examples listed), there is little anti-trust and potential to acquire a strategic arm that could deliver more. Ignore what FB is, and look at potential of what it could “do” with Apple.
Some examples are a social cloud base OS. Imagine a platform that has social identity built in for application development. Imagine re-writing the phone system with a pure VoIP network base not on phone numbers but on identity with full privacy controls and block access. Instead of paying two plans (phone and data), you pay only one and wipe the entire phone system. These are ambitious things and there are probably a ton of other things you can do but to be able to control that and push towards a new era would be amazing.
3. It could certainly continue what it does and open an R&D division for advanced research beyond what it currently do, similar to a Xerox PARC of its own. It can lower cost of goods even more by locking in more and increase margins.
The possibilities are endless and to go short sighted on this would be poor judgement.
Maybe if apple didn’t have so much spare cash they would stop suing other manufacturers for having a rectangular shaped telephonic device. Or they could ask a reasonable price for their hardware. And of course they could always throw a little more at their r&d department so their phones can actually make calls. Your holding it wrong.
I think Apple should not issue a dividend – is that even possible just a quarter after they reported FY11 earnings?
Anyhow, Apple should keep the money to further improve their supply chain relations.
http://scottsscripts.wordpress.com/2012/03/19/apple-will-announce-what-it-plans-to-do-with-its-100-billion-in-cash/
What about using the money for good, ala Bill & Melinda Gates’ Foundation. Save lives, not Wall Street.