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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.
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.
That's because Jobs didn't suspended the dividend. It was ended by Gil Amelio:
http://news.google.com/newspapers?nid=1755&dat=19960214&id=sRYcAAAAIBAJ&sjid=6HwEAAAAIBAJ&pg=3973,6289068
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.
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.
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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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.
In regards to #2, some of these factories are in the middle of nowhere because the land was cheap. If the companies didn't build dormitories, their workers would have had no housing as the factories were built so quickly that the local area has not been able to keep up with residential construction. This is the same reason some of the factories are mini-cities. There really isn't any place for the worker to eat or shop. Cars are not the norm in China so most workers can't just get in their car and drive to the nearest town for supplies and housing. Now if you don't build these amenities, your competition is ready to do so and get workers and the contracts you wanted.
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.
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'!"
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...