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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.
. . . 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!
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."
just pay more to the people who produce their wares? Ya know, give back to the suckers that made them rich in the first place?
There, fixed that for you,.
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.
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?
Do you know what is a fair wage in China is? Most people only look at the wage in US dollars and immediately claim to be unfair without ever looking at what people are paid relatively in China. The wages at Foxconn plants are slightly better than average for factory workers in China. Apple pays those that work on their products more than competitors do at Foxconn.
Well, there's spam egg sausage and spam, that's not got much spam in it.
Didn't Tim Cook take over day to day operations of Apple in 2006? Steve Jobs was always the official CEO, but Steve had been grooming Tim Cook for almost half a decade when he finally stepped down. Most of the decisions made in the last six years have been, in part, made by Tim Cook.
I don't think you really know what you're talking about when you say things like "So far, Tim Cook hasn't really done anything significant one way or another and has been kind of 'coasting' on the companies success." when in actuality he has been running the company for 4+ years.
moox. for a new generation.
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?
to keep already highly valued share prices inflated.
By P/E ratio Apple is valued less than Google, Amazon, Verizon, ATT, Oracle, LinkedIn, NetFlix. It is one of the CHEAPEST tech stocks in the markets it competes in (devices, media, mobile), even though it continues to see phenomenal growth.
Sounds like more right-wing clap-trap about the underprivileged and under-appriciated 1%. Your going to have to do better than generalities to claim that 80% of the value of a dividend would be eaten in taxes. First my understanding is that Apple only pays the difference in corporate taxes from what it pays overseas and what the US tax if all the money had been made here. So that takes a good chunk out of your 30%. Secondly long-term cap gains is 15% but that shouldn't be added on to the cost of the dividend to the shareholder, since the shareholder gets that on any dividend. I never heard of this 35% tax (80 - 30 - 15 = 35) of which you refer to for simply issuing a dividend.
I would be leery too if I were them of issuing dividends, but not for tax reasons. The principle appears to have served them well. They are probably working on some sort of optimal ratio of cash to operational costs (or some other relevant factor) to aim for and then figure out a dividend that can glide to that ratio so they don't feel the need to yank it back later when the competition starts to tighten up again.
Dividend payments thought would also engender some good will towards them. Just like when Microsoft started paying dividends the effect was seen in personal income on a national levels, an Apple dividend would help spur the US economy.
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.
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They are paid so terribly, that thousands of Chinese line up and wait for hours for a chance to work at Foxconn. And the job ad even says the starting wage is $261:
http://micgadget.com/21420/thousands-line-up-for-foxconns-jobs-in-zhengzhou/
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.
I'm glad you aren't running my company. None of these things have any basis in reality for even the most green in managerial finance. Having excess capital, while generally a good problem to have, is still a big problem. Companies can bleed it through stock buybacks, dividends, or by investing it, but they cannot give it away. What Apple needs to think about doing is buying or creating other companies, be it by horizontal or vertical integration. For example, they could buy or build a competitor to Foxconn (or buy Foxconn itself, this is one I would seriously look at). Or they could take a controlling interest in Facebook. Or invest in the million other smaller start ups that could bring new innovations to Apple. Apple is seriously at a crossroads right now. Without an innovative product pipeline (or Jobs) and a supply chain that is costing a ton in PR, Apple is going to have to start putting their big boy panties on and start acting like a big boy company.
No, because you get to keep the dividend and use it to buy more stock if you prefer.
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
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.
There are two aspects, reality and perception.
For reality, it's hard to say. Through the end of 2010, all choices had to go through Jobs. Even if you can fairly say Cook 'made the decision', Jobs had final say and might have even vetoed some moves we never heard of. It seems unlikely that Cook was operating fully indpendently.
In terms of perception, Jobs was undeniably CEO until 2011 and his name was attached to all of the right decisions, whether earned or not. Without Jobs, the shareholders may be putting quite a different set of pressures on Cook. Even absent of that, I would expect Cook not making decisions conscious of how Jobs would think of them, rather as official CEO or as chairman of the board. It might be a full year before the body of shareholders and management really start showing how they will be different or not in a post-Jobs world.
XML is like violence. If it doesn't solve the problem, use more.
Remember, buy low, sell high. You may have to wait for the high and resist selling in a panic.
Yes, but markets can be irrational for much longer than you have the money to keep up.
"Little does he know, but there is no 'I' in 'Idiot'!"
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.
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And ignoring sensible dividends and going hell for leather for growth is what did for the likes of Enron.
The 'fraud on a massive scale' thing probably had something to do with that one...
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.
Missing option.
Another missing option: Don't gamble, or try to make money from literally nothing. -- What, pray tell, social benefit does moving numbers around actually do? You shift them around smartly and the numbers get bigger? Oh I see...
It gives companies something to borrow against when people think highly of them at the cost of having the rug ripped out from under them (and their shareholders) at any given moment by mere rumors... Companies that don't borrow against their stock price can survive even terrible market conditions by PROVIDING BENEFIT to their customers alone.
Don't get me wrong, I understand investments. It's just that the stock market isn't the only way to invest. When I invest in something, it's because I actually believe in the company based on something more than just erratic market trends. The value of my investment doesn't fluctuate with the moronic whims of a fickle market -- My returns actually reflect the company's profits. If they don't seem to be performing well, then that's my fault for not doing my research, or just bad luck. "Shit Happens."(tm)
Now if I can sell my failing investment to someone else, then I've just made some poor fool a sucker. The stock market is full to the brim with suckers... I may have dodged that bullet, but I actually don't do this unless absolutely necessary -- Instead I try to see if there's some way to fix the issue instead of bailing out at the first sign of trouble (unlike a stock marketeer). I sleep better at night, and make better investments, because I have a vested interest in actual, not momentary, success and don't play in the stock cesspool.
Think you'll find that was 1997 not 2007 he returned to Apple...
"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?"
By and large that's actually what Apple has been doing. To wit:
- They were a computer/software maker and started making money doing that thanks to the iMac. So, they:
- Started up the iPod business selling music players that were pretty easy to use and fill up. So they:
- Started up the iPhone business, selling phones that were pretty neat along with apps that can be used to fill 'em up. So they:
- Started up the iPad business, selling tablets that were pretty neat compared to anything out at the time, along with even more apps that can be used to fill 'em up.
The problem for them is figuring out what the next "So they" should be. In my opinion, unless they have some really amazing stuff hidden (like AR glasses or something similar), I don't see them having an easy time bringing out yet another class of "must have" gadget.
But I could see them essentially buying up huge chunks of content - music, movies, television catalogs - in a way that gives them complete and total control over how they are able to run the content part of iTunes.
I could see them trying to set up their own cell/data provider, starting with the most advanced networks they could.
The problem with those would be that, given the way Apple has historically handled negotiating with the content providers and their network carriers, Apple made the lion's share of the profits and had the relatively easy part while the providers and networks made money but had to deal with the more difficult parts (like provide service).
I could see them doing something like taking a lot of that money and starting up their own idea incubator - they have a LOT of very smart people working for them and wanting to work for them - and just basically being a venture capital group. That's been done before, of course, but I could see Apple trying to do it again, but this time "right" since that's one thing they tend to do well.
As for what such a load of cash is a sign of - I think in Apple's case it's more a sign that they REALLY didn't anticipate the level of success that they had. Usually in business it's a very good idea to plan for as many failure modes as you can think of as well as how to build on successes, but most people don't go, "Gee, and if we sell 20x as much as we think we could we should buy everyone ponies and have free ice cream day!"
If they were completely out of ideas, I don't think we'd see Tim Cook walking around saying "We're trying to think of the best way to handle this" - I think he'd be flat-out lying and saying "We have amazing things in store for these funds" while trying desperately to see if there's anything "magical" they can pull out of their asses.
Since I can't tell them apart, I treat all ACs as the same person.