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Apple Has Too Much Money
Hugh Pickens writes "AP reports that last week during a question-and-answer session at the company's annual shareholders' meeting CEO Tim Cook said he believes Apple has more money than it needs and his next challenge is to figure out whether Apple should break from the cash-hoarding ways of his predecessor, the late Steve Jobs, and dip into its $98 billion bank account to pay shareholders a dividend this year. 'Frankly speaking, it's more than we need to run the company.' The question of how to handle Apple's cash stockpile is a touchy one, partly because company co-founder Jobs had steadfastly brushed aside suggestions that the company restore its quarterly dividend which Jobs suspended in 1995 when it was in such deep trouble that it needed to hold on to every cent to keep from going bankrupt. Marketwatch analyst Mark Hulbert writes that a compelling case can be made that a huge cash hoard actually represents grave danger for Apple. That's because too much cash often burns a hole in managers' pockets, and they end up doing a poor job of investing that cash—engaging instead in foolish pursuits like empire building. Hulbert adds that a good strategy for ensuring that Apple remains a hungry, growth-oriented entrepreneurial company might be for it to distribute much of its cash to shareholders."
I thought I was a genius for doubling my money.
Apple is one of the most successful companies in the world -- right now.
But everyone with a soap box seems to think they know better than Apple management how the company should be run.
If they are really that smart go start your own company and beat Apple at it's own game.
just start charging less for their wares? Ya know, give back to the suckers that made them rich in the first place?
. . . pick some good staff and management to run them, let them come up with some good ideas. And just wait and see where they go. If nowhere, tough luck, but the mother ship's kids won't go hungry. On the other hand . . . maybe they might end up with a valuable subsidiary.
Giving cash to shareholders won't work. They will just use the cash to go out and buy yet again more Apple products.
So then Apple will be stuck with the money again, and not know what to do with it.
Schroedinger's Brexit: The UK is both in and out of the EU at the same time!
Take half the money, divide it into 3 piles, for the 3 stakeholders:
1) Shareholders in the form of a one-time dividend.
2) Employees get a one time bonus
3) Customers get a gift card based on their purchases in the past quarter.
Apple is still left with 50 Billion, and keeps everyone happy.
When they hit $100B again, rinse & repeat.
Reality has a liberal bias
How did jobs manage to suspend Apple's dividend in 1995 when he was still working at NeXT??
"Slow down, Cowboy! It has been 3 years, 7 months and 26 days since you last successfully posted a comment."
Here's an idea: buy up all patents on H.264 and make them freely usable. Then W3C would have no arguments not to use it in HTML5, google will have no excuse not to implement it, apple will have a head start on getting it implemented on all their devices, and we can have the fucking internet back.
I wrote my first program at the age of six, and I still can't work out how this website works.
Well, multiple problems.
One, why in the hell would you want Apple to sink Google, AMD, Intel, or Microsoft? From a user perspective killing any is bad. Alternatively, why the hell would Apple care to sink AMD or Intel, neither of which compete with Apple? If your claim is to stop other computer vendors from using the same instruction set as OSX systems, Apple has a pretty tight grip on OSX without instruction set lock-in (yes there are hackintoshes, but exceptionally rare in the scheme of things.
Second, that would be a fast way to draw attention for anti-competitive moves. Both from a regulator standpoint and quickly making enemies of a lot of companies with a lot of resources. They have a pretty comfortable competitive landscape right now, and a drastic move represents some huge unknowns that could be pretty devastating.
Finally, they frankly can't afford to buy most of those companies. Market cap is generally a good relative indicator of theoretical buy-out requirements:
Google: 200 billion
Intel: 134 billion
Microsoft: 265 billion
I don't know what percentage of shares is realistically available or how sky-high the price would be driven if Apple attempted a hostile takeover, but even baseline the market cap is beyond their reach. If they do have 98 billion cash on hand, then AMD is the only one they'd likely be able to subsume, but with a huge question of 'why would they?'.
XML is like violence. If it doesn't solve the problem, use more.
I couldn't read the linked article (I seriously need to log in to view an AP news article hosted by Google? That's rich!) but that's not at all what I have heard Cook discussed. He downplayed the likelihood of a dividend payout and made it sound much more likely that Apple would find other ways to invest the money. In fact, his quote (re dividend payouts) was "My message there is that the board and the management are thinking about this very deeply... and we will do what we think is in the best interest of shareholders." Call me crazy but that sounds an awful lot like "look, we're not going to outright say it, but we're NOT paying dividends. We're thinking of other ways to invest the money that are better for the company which is, in our opinion, better for the shareholders."
Look, I know investors _REALLY_ want a dividend payout because it amounts to free cash (and lately the trend is "Apple, you have tons of cash - GIVE ME SOME!!") but, face facts people, the company has a history of not paying dividends, they don't feel it's a good use of their money, and they feel there are better ways to invest the money. Just accept it and move on.
Want to get dividends? Invest in stocks that pay dividends.
Though, note that they were suspended in 1995, just not by Jobs, as you point out.
Apple has $90 billion in actual cash value, but it couldn't offer most of it in a dividend.
Why? Most of that $90 billion is held offshore. To offer a dividend, Apple would have to repatriate that money, and that will kick in an automatic tax (about 30% off the top). Then, to issue the dividend, Apple pays another tax. Also, the income is taxable capital gains for its stockholders as well. By the time Apple stockholders take the dividend to the bank, they're down to somewhere around 20% of the original cash.
If Apple wants to reward stockholders, it could buy back shares overseas. Normally, I hate stock buyback plans, but this is one of the few times it would make sense.
Brain: We must prepare for tomorrow night
Pinky: Why, what are we doing tomorrow night?
Brain: We're going to go to Cupertino.
Pinky: What will we do when we get there?
Brain: The same thing we do every night, Pinky - try to take over the world!
...and fly a man to Mars. :)
Ezekiel 23:20
Abysmal timing to announce "we have more money than we actually know what to do with" so hot on the heels of the negative stories about workers rights in the factories making Apple (and other) components. Perhaps they wouldn't have the "problem" of having such a colossal cash mountain if all workers in the supply chain were paid a fair wage?
And depressing that the best suggestion for dealing with the cash mountain is to distribute it to investors (to keep already highly valued share prices inflated), rather than any one of a hundred other uses- from increased pay, smaller profit margins on sale prices, increased R&D to come up with some truly innovative technology, or even just good old fashioned philanthropy.
Prices are deduced by how much people value the products and are ready to pay for them, not by how much it costs to produce them.
But everyone with a soap box seems to think they know better than Apple management how the company should be run.
If they are really that smart go start your own company and beat Apple at it's own game.
They don't know either.
If Apple's management were such geniuses, then why don't they take that cash and start another business line that will make them even more successful?
Or for a bad idea, buy a company that will add to their business - like Intel? (Using cash for acquisitions almost always turns out to be a bad decision. )
Sitting on a load of cash is a sure sign that management doesn't have any good ideas in the pipeline to keep the business growing and the company is headed towards stagnation.
It happened to Microsoft.
congratulations, capitalism. after Jobs passed away, it took less than a month for the hedge funders to begin the pillaging of the organization for their own personal aggrandizement.
apple will soon become 'the next HP', a gutted wretch whose main business is screwing people out of toner ink. bravo.
I know they get criticized for it, but until there's a shareholder revolt and/or people stop buying the stock (fat chance), I don't see the "need" to pay out a dividend. Apple could instead do one or more of the following:
1. Lower its profit margins and steal even more market share from its competitors. Tons of people already buy Apple products; imagine if they were that much cheaper.
2. Hire an even more talented workforce by offering "way above market" pay. Establish a threshold like 10%. Fire the lowest performing 10% of Apple employees. Technical, design, sales, the whole nine yards. Then give everybody who's left a 25% raise. Then fill the vacant positions with "superstar" caliber replacements. (Note: it shouldn't do this unless it's confident it can accurately gauge employee performance.)
3. Get into a market it doesn't yet play in and dominate it. This with the understanding it will incur a short-term financial loss. Prior to the iPhone's release, who would have ever thought the most popular phone in 2012 would be from Apple? Not me.
making you work 80 hours a week, making you live in a tiny room with 20 other people, make you use dangerous chemicals that damage your brain, threaten you with prison for even talking about a union, etc?
The problem is, this kind of acquisition often doesn't make sense. For example, one proposal was that Apple would buy ARM. They could afford to without making a significant dent in their cash reserves, even if they paid double the current market cap. But would Samsung want to license CPU designs from Apple? Almost certainly not - they'd just drive the other mobile device makers to designs licensed from MIPS or even Intel. The net result would be that Apple would end up paying a much larger share of the R&D costs. This was one of the main reasons why they switched to Intel chips in Macs: they were IBM's only laptop / desktop CPU customer and so were paying for all of the R&D, while they only pay something like 5-10% of Intel's R&D costs. Buying other companies on their supply chain would have the same problems.
If I were in their position, I would do the same thing a number of other successful tech companies have done and set up an in-house VC program. If an employee has a cool idea that is not a market that Apple currently wants to be in, then Apple should front them the cash to set up their own company, own 50% of the shares, and let the employee go on sabbatical and return if the company fails.
I am TheRaven on Soylent News
i dont understand why people who believe in the free market keep looking to China as some kind of model on a hill. China is run by the Communist Party, and the corporations over there are part owned by the same party.
There are no labor unions, there are no workers rights laws, there are no environmental laws. There are mines and factories that are run on prison labor - 'criminals' being people who speak things the government doesnt like. Criminals being people who mention forming a union. That is not a 'free market' upon which wages were decided. That is a captive market, not a free competitive market.
In case you have forgotten, slavery was what the Republican Party was founded to eliminate from the face of the Earth. Not to make a profit off of it by claiming it was 'fair'.
The idea that someone should not have to inhale N-Hexane on an assembly line to save 1% on the cost of a product has nothing to do with 'socialism'. It is about basic human decency, basic morality, basic common sense. It is about the difference between a civilized society and lawless barbarism.
How about Apple invests in a server business that corporations can actually use? Buy Windows client and AD licenses for all Macs ... no, all Apple devices. Build a better AD than Microsoft, own the corporate environment, give big customers real choices. Interoperate better with Linux. Extend SAMBA and support FOSS projects... (who am I kidding, right?)
Good on Apple for being extraordinarily profitable. While it would eat in to that profit, Apple should seriously considering bringing their manufacturing to the states. $98B would go a long way toward building a [financially] sustainable infrastructure for US manufacturing. Do it now!
stubborn tiny lights vs. clustering darkness foreverok?
Complete bollocks dividends are the major part of the return from any portfolio of securitys - this is investing 101 its also real money you cant fake dividends via dodgy accounting practices.
Now, Jobs is gone. So, unless the current board has plans to go "Thermonuclear" on someone, it's time for some dividends.
No, because you get to keep the dividend and use it to buy more stock if you prefer.
They could spend 50 billion of it on curing cancer. You know, I wondered why Steve Jobs didn't do that .. I kept putting off writing to him to tell him to do that -- I now regret that. All he had to do was get all the world's top cancer scientists together to work on the problem in a focused way. He did that with computer animation and it worked. He did that with smartphones and it worked. Why can't it work for cancer or for regenerative medicine (growing new body parts)?
And yes, it would be massively profitable .. they can charge the equivalent of 1 or 2 years of chemotherapy for the cure. The insurance companies would gladly pay for it (it'll be cheaper than paying for 3-5 years of various expensive chemotherapy drugs and tests that the average cancer patient needs).
They would get their invested money back within months.
The fundamental value of a stock is the sum of future payouts in the form of dividends, spinoffs or liquidation. For companies with finite resources, such as a mining company, this is easier to compute than for a technology company like Apple. But if Apple would never pay a dividend or spin off parts, the value of the stock is zero. The discussion above shows a remarkable lack of understanding of the basics of capitalism. The only reason not to pay a dividend is that the money is better invested in the company now so that it will generate even higher profits for the owners in the future.
When you buy stock you own part of the company. Isn't it kind of silly to not take any of the profit out of the company you own once it's mature and has all the money it needs for operations into the indefinite future. Intentionally deciding not to get paid as the owner of a company seems silly.
E pluribus unum
All those starving lawyers out there and all that cash laying around... obscene amounts of cash... private army amounts of cash... could buy a dozen small to medium sized nations for that amount of cash.
Apple could buy every politician on the planet for just about that amount of cash. They could sustain legal aggression against competitors indefinitely for that amount of cash.
But don't even THINK about bringing manufacuring and support back to the US... Apple doesn't owe anyone anything.
Statistically speaking, the Foxconn suicide rate is lower than the US college suicide rate.
20 people out of Foxconn's 1 million workers have committed suicide in the last 2 years. We don't know why these 20 committed suicide but it's presumptuous that working condition were the only cause. As for wages, the average Foxconn worker makes more than they would at other factory jobs. And Apple specifically pays those that work on their products more. Most of the workers work more than 40/50/60 hours because they volunteer for them as they get more pay. Also 40 hours a week is a US standard. Over in Europe they think working 40 hours a week is abominable. The Japanese and Chinese feel you are slacking off if you only work 40 hours a week. In rural America, 40 hours a week is just warming up on a farm.
Well, there's spam egg sausage and spam, that's not got much spam in it.
The problem is you're playing the greater fool game. If you intend to make money by selling a stock at a later date, then what you're saying is that you think you can find someone willing to buy AFTER you got the value out of it. Your buying strategy is also then based on inside information, "intuition" or some other divine insight, otherwise people would have already known and driven the price up. Another downside is that you have to actually SELL your assets to get any money from them.
The old school way which is now gaining popularity again is to buy companies that pay dividends. This gives you a return without finding a fool to sell to or cashing out. It's how it's supposed to work. If the stock goes down, it's not even relevant unless they cut the dividend (there is eventually a correlation there). Now a few words about yield. A company can only pay (long term, at most) a dividend of 1/PE where PE is the price/earnings ratio. So a PE of 20 means they can potentially pay a 5% dividend if they pay out all the earnings. A PE of 10 is potentially "undervalued" in this regard. Apple with a PE around 15 isn't actually bad, they should probably just start paying a dividend based on earnings and keep the pile of cash for a rainy day. Then the dividend could be kept up during tough times.
Through last summer I hemmed and hawed about whether to hold or sell; my Apple shares had gone up 500% and were hovering around that point. Then Jobs passed, and I kicked myself for not having pulled the trigger before then. The share price dipped, of course, and the temptation to join those heading for the exits was strong.
But it was reading Slashdot that kept me on board. I had not been aware that Tim Cook had already been running the company for quite a while, that he had been thoroughly groomed by Jobs, and that Jobs had left a roadmap for several years of products.
Flash forward to February 2012 and the share price is up 700% from where I bought it, and they're mulling a dividend. Thanks, Slashdot!
Do what you can, with what you have, where you are.
Ok, here's something that I'm sure will piss off a lot of people, (maybe even myself if I think about it!) but why doesn't the US enact a law that mandates a majority of Apple products SOLD in the US be MADE in the US? (not just designed)
I know this would suck for consumers (and the corporate planners at Apple which would have to deal with the havoc this would cause their supply chains) but it would bring back manufacturing jobs to the US (now we'd just have to keep those pesky migrants from taking them!). I mean, this wouldn't be illegal by international trade rules would it? (Brazil has a similar policy and it's still a member of the WTO). Also the auto industry has something like this in place, lots of foreign car companies manufacture cars in the US.
Like I said, this is not going to be popular with lots of people, even me a (very) happy Apple shareholder. However, as a committed well-off Democrat, I'm used to advocating positions that might not be good for my own self-interest IN THE SHORT RUN in support of the common good. Maybe I should be committed! ;)
Missing option.
Buy shares. It goes up. It goes down. Market crashes, it goes down more. Buy more at fire sale prices. It goes up slowly.
Remember, buy low, sell high. You may have to wait for the high and resist selling in a panic.
When people were getting out of the market, I got in.
The truth shall set you free!
Apple has too many US DOLLARS, that's its problem. With 15% inflation it is insane to keep savings in that currency, they need to come up with a diversification strategy. However paying dividends to shareholders is also a very reasonable suggestion.
Too many eggs in one basket, I'd look at completely different businesses (agriculture, mining, but obviously not in US, it's too dangerous, there will be more nationalisation and more taxes and more inflation and other types of theft by government).
They definitely need to diversify out of their own bonds, which are dollar denominated though. Again - buying up some mining businesses, joint venture into energy, metals, agriculture.
15% inflation? What are you talking about?
They should not, under any circumstance, reduce cash reserves at this point. Re-establishing a dividend might make sense, but not an excessive one, and not as a means of managing capital.
Do you know why it took a year for competitors to bring out a real iPad competitor? It wasn't because Apple had much better tech, or because the others didn't have the prototypes - it was because no one could order parts. Before Apple launched the iPad, they bought up so much of the manufacturing capacity for key components - screens, especially - there was no way that Samsung could contract enough suppliers to bring a competitor to market.
Doing this takes a lot of capital. If they're talking about reducing operating capital, that tells me they don't have a "Next Big Thing" that they're planning on launching like they did the iPhone and iPad. That means drastically lower long-term growth.
Learn about Photography Basics.
I am talking about real inflation, the real money printing that causes it and the increase of prices that is coming to USA due to it, though it was able to severely delay that by exporting all of that inflation (specifically because the printed money leaves the country to buy foreign goods, where it is accumulated).
Real inflation, the kind of inflation that should have been used as deflater to the fake GDP numbers (GDP has been shrinking in USA for over 20 years, not growing, and in all cases, GDP is 70% spending of imported goods, and there are bail outs and military spending there too). Real inflation, which is the real tax on everybody holding US denominated assets.
Real inflation, the way it was calculated during Nixon, when simple 4% was enough for the gov't to set wage and price controls (misguidedly, as all economic and fiscal things gov'ts do). It was calculated without substitutions and hedonics, without reverse engineering the numbers to fit the narrative.
Or real inflation as calculated from rise of commodity prices (and no, it's not 'speculation', that's a cop out for the gov't inflating its money, buying its own debt, there are always 2 people in each transaction - one buy, one selling).
Real inflation, which does not need to see increase in wages, that's Keynesian nonsense. Wages don't increase because there is nothing manufactured.
You can't handle the truth.
I hope they use that money to further stifle innovation. All these technological novelties and the accompanying technobabble are growing over my head.
If Pandora's box is destined to be opened, *I* want to be the one to open it.
Donate a billion or so to NASA to keep deep space exploration going.
Undetectable Steganography? Yep, there's an app fo
Most, possibly, but at least Google with its two types of shares is reasonably immune to that: Larry and Sergey alone still control more than 50% of the voting power.
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"That's because too much cash often burns a hole in managers' pockets, and they end up doing a poor job of investing that cash—engaging instead in foolish pursuits like empire building."
Siri, PA Semi... appear to have been wise purchases. All of these (purchases/acquisitions since 2008) seem to have, for the most part, worked out well. (not counting the last 3 since it's too early). 2-3 billion.. of almost 100 in the bank. they could have bought those companies with the interest.
April 24, 2008 P.A. Semi Semiconductors United States US$278,000,000 [31] Apple A4, A5 (SoC)
July 7, 2009 Placebase Maps United States — [32] Maps
December 6, 2009 Lala.com Music streaming United States US$17,000,000 [33] iCloud, iTunes Match
January 5, 2010 Quattro Wireless Mobile advertising United States US$275,000,000 [34] iAds
April 27, 2010 Intrinsity Semiconductors United States US$121,000,000 [35] Apple A5 (SoC)
April 27, 2010 Siri Software United States — [36] Siri
July 14, 2010 Poly9 Web-based mapping Canada — [37] Maps
September 20, 2010 Polar Rose Face-Recognition Sweden US$29,000,000 [38] iPhone software (camera)
September 14, 2010 IMSense High Dynamic Range Photography United Kingdom — [39] iPhone software (camera)
August 1, 2011 C3 Technologies 3D Mapping Sweden US$267,000,000 [40] Maps
December 20, 2011 Anobit Flash Memory Israel US$390,000,000 [41] iPhones and iPads
February 23, 2012 Chomp App-search software United States US$50,000,000 [42]
I'll bet a significant chunk of that money would be well spent tooling OTHER manufacturers facilities to make Apple parts. Spend the money to upgrade a factory to make the seamless glass panes they used in the NYC store (for example) and they get really good prices on that glass for another construction project.. the new HQ.. which apparently has all glass exterior walls (and no right angles).
spend the money to upgrade the CNC machines to tool unibody chassis, and no other vendor can use that facility (because Apple bought exclusivity). OR they bought all the machines (since it literally takes HOURS to cut a chasis out of a billet http://plasticsnews.com/china/english/chinablog/2011/12/apple_turns_to_new_materials.html)
Corning shelved Gorilla glass because they couldn't find a market for it. along comes Jobs... next thing you know, Corning is making Gorilla glass screens for everyone. I don't think Apple paid to re-tool... but probably gauranteed a shit ton of units ordered to get them to start making Gorilla glass in mass.
you can complain all you want about their marketing, their products, whatever. but you CANNOT, in any way, argue that their business model isn't ROCK SOLID.
as the saying goes.. if it ain't broke....
Tell that to Marxists. As far as they are concerned, everything that is put into business owner/investor's pocket is 'stolen' from the labourer hired at a wage.
You can't handle the truth.
Can anybody who's a real lawyer say anything about perpetuities?
I thought I read about a case where a huge sum of money was to keep accruing interest forever.
The state disallowed it because they didn't want to allow the creation of a monster.
Aside from legal aspects, if Apple wanted, couldn't it create a fund which would eventually dwarf all other financial entities on Earth? And even own everything? I mean, if they don't give out a dividend, that's where it's going eventually anyway.
I'm not a lawyer, but I play one on the Internet. Blog
Keynesian ideas to economics are what foreskin is to a Hasidic Jew.
However I am very well versed in relative value of things - did you know that in gold and silver oil prices are not only staying steady, but are falling somewhat? All that while paper currencies of the world are being destroyed, I might add.
You can't handle the truth.
They would not, in any terms, give away what they develop on their own.
Grand Central Dispatch
Zeroconf (bonjour)
LLVM
The list goes on and on... Apple continues very much to give away a lot of things as open source.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
...as an incentive to either pay out dividends or to put the capital to work.
And not that businesses shouldn't have the ability to build cash reserves, but US corporations are sitting on something like $2 trillion in assets. Some have so much cash that banks are charging steep fees to handle it.
At some multiple of earnings, these cash hoards are actually a drag on the economy. For one, they represent underutilized capital -- generally a firm's cash is tucked into short-term securities for liquidity, meaning the cash has a poor rate of return.
Paying dividends is a mechanism not only to keep granny Vanderbilt in her upper east side mansion, but to distribute excess capital to firms owners (shareholders) so that they may re-invest it or put it to direct use in the economy (ie, spending it).
Instead, management is allowed to hoard it, locking it away from productive use or tempting them to use it for self-serving purposes, such as "stock buybacks" where firms with stagnant share prices and/or earnings buy their own stock, essentially shrinking the number of outstanding shares. The idea is to drive up the price of the shares so that management, compensated with stock grants, can sell them at a premium.
It astonishes me that boards let this happen -- it's almost patently a way to pay themselves a dividend instead of the regular shareholders, in addition to perverting the incentive share grants were supposed to provide (ie, grow the company and increase its value so that the share grants appreciate).
But this is the new world we live in, where the wealthy and powerful use capitalism as a banner for their own encrichment despite grossly perverting it in practice.
In fact, why not help get rid of it? Send any paper currencies you have my way. I'll er... dispose of them for you. I'll even do it for free!
- I have only a few notes, no paper, it's not worth the postage to send it.
You can't handle the truth.
There's no such thing as too much money. This kind of thinking always leads to trouble and is short sighted. Best relatively recent example - The former US budget surplus. George W Bush thought the same thing that we had way too much money on-hand, so he slashed taxes, installed Medicare part D, and . . . uhm . . . other military things in the middle east somewhere. Steve Jobs' ultimate genius was his indifference toward shareholder opinion and focus on cash generated from operations (an example that all corporations should be following to avoid more booms and busts - the economy is something that needs to be managed, not let run amok.) It's the begining of the end of Apple's reign, it'll be in trouble again in 6 years.
If they have amassed too much money why doesn't Apple pay its employees? You know, the ones who built all of their products for wages well below the US minimum? They made all that money by way of exploitation - outsourcing jobs so they could pay workers less. Obviously that strategy worked very, very well.
This is a hacked account, for which the owner can not be held responsible.
I didn't even have to live in Israel for a year to answer this question, but I did live there in 93.
A Hasidic Jew needs to lose that part of body, otherwise it's not a perfect union between him and his god, same with economics - the person studying it needs to lose that part of nonsense, that Keynesian ideas present, otherwise he will not achieve the understanding, and it's not bigotry just because the word 'Jew' is thrown around.
You can't handle the truth.