“Talk about your apple juice: The computer company’s current cash position is $18.4 billion, up an astounding 20% in a single quarter,” Megan Johnston reports for Financial Week.
“Analysts and investors cite Steve Jobs’ legendary insecurity over Apple’s competitive position, rational or not, as the reason such a large pile of cash is idling away on the balance sheet. As a result, they have little expectation that Apple will issue a dividend, engage in a stock buyback or undertake significant M&A activity to reduce its cash stake. And that makes some of them angry,” Johnston reports.
“‘It’s outrageously high,’ Gene Munster, senior research analyst at Piper Jaffray, said of Apple’s cash position,” Johnston reports. “In its fiscal first quarter, Apple added another $3.1 billion in cash to its balance sheet.’ …Although Mr. Munster and others say they are frustrated by the size of Apple’s cash portfolio, it’s not likely that the company is planning to do anything about it anytime soon.”
We are, I think, managing the business very, very well. Stock buyback programs and other forms of returning the cash are discussed with the board from time to time. But our preference continues to be to maintain a strong balance sheet in order to preserve our flexibility to make strategic investments and/or acquisitions. – Apple CFO Peter Oppenheimer during Q1 08 conference call
Johnston reports, “Back in the 1990s, the once-mighty Apple was losing hundreds of millions of dollars a year as it watched rival Microsoft roar past it. ‘They want to be ready to make any and all acquisitions that they want,’ Andy Hargreaves, a senior research analyst at Pacific Crest Securities, said, ‘and their experience through the 1990s and early 2000s, when the company was literally threatened, I think has led them to lean on the side of having a large cash position in case the worst happens. It’s a little bit strategic, and a little bit emotional.'”
Johnston reports, “Adding a dividend or stock-buyback program seems equally unlikely. ‘I don’t think Steve Jobs would do a buyback even if the stock was $8,’ said Tom Telford, a manager for two American Century mutual funds, Technology and Ultra. American Century holds 5.4 million Apple shares. ‘He just doesn’t believe in them.'”
“The company spends 3% of sales on R&D, compared with 14% at Microsoft,” Johnston reports.
More in the full article here.
MacDailyNews Take: That’s a sorry indictment of Microsoft (to go along with their actual indictments). Redmond reported income of $6.48 billion last quarter. 14% of which is $907.2 million. Let’s hope and pray that Microsoft shareholders are satisfied with billion-dollar Big Ass Tables, bad iPod rip-offs, poorly faked Mac OSes — the latest of which is unacceptable even to their base of sufferers who are largely ignorant of superior alternatives — and that they never, ever question Ballmer about the massive waste he oversees or why Apple routinely out-innovates Microsoft by a large margin at a fraction of the cost. May Steve Ballmer continue to run Microsoft until the whole mismanaged mess meets the ground.
As for Apple’s growing pile of cash: ‘Tis better to be safe than sorry.
Ability to invest big in R&D;all the way through economic downturns.
wow that is a sad comment on MS. what on earth do they do with that R&D;money? burn it to keep the building warm?
a thought for the curious.
Apple and MSFT have nearly the same amount of cash on hand. Apple could buy Yahoo the same way MSFT is trying to buy yahoo, with cash and stock.
Of course Apple is smart enough to know that Yahoo is better off by itself, and a merger would be counter productive. MSFT isn’t that smart.
apple‘s cash pile is obscene high. apple give the money back to us shareholders! (it is ours, did you forget mr. jobs?) or DO something with it. Buy something. having it on the bank or in short term investments is not an option. that means wasting money. make your strategic investments and/or acquisitions for god’s sake. buy nintendo, adobe, sony (half in cash, half in shares as microsoft wants to do on yahoo). do something or give it back! probably 23 dollars a share in cash at the end of this quarter. apple are you crazy?
The only acquisition I want to see is Adobe. Otherwise, I don’t mind having a large stock pile of cash.
that they do nothing to stimulate the economy. The current tax cuts amount to less than $1000 per tax payer, and there are far fewer than 300 million tax payers in the US. That means that less than $1 Billion dollars is expected to boost the economy.
Imagine what would happen if companies like Apple, Microsoft, HP, etc., were to invest $1 billion each in their employees by giving bonuses or pay raises to the average workers and skipping upper management. The recession would be just a memory.
@ralph from berlin. It’s ours! It’s ours! Ve Brrritish must stick togezzer. (Clicks heels).
Keeping cash on hand prevents the need to sell out to Microsoft like AAPL had to 10 years ago.
How much is Nintendo worth right now? Maybe there is a possibility for acquisition or at least strategic partnering that would give credibility to the rumored gaming suspect for AppleTV, iPhone, and iPod Touch.
Why does Johnston compare only Apple to Microsoft. Isn’t comparing a hardware and software like comparing Apple’s to oranges? LOL.
@ron – your comment is idiotic or what?
Sorry ralph from berlin, I missed your earlier conjecture and was not trying to steal your thunder.
Why does Gene Munster and the rest of Wall Street care why Apple has money in the vault? Why exactly should they care? Do they want access to it or dividends?
ralph from berlin,
The U.S. economy is about to go through either a short sharp or a prolonged recession. As well, Apple derives most of it’s income from consumer purchases. One would expect some kind of sales hit from declining consumer expenditure. The reason for this is that in a recession the expenditure that takes a hit are discretionary expenditures. That means that people will defer purchases such as computers, ipods and cell phones.
So ralph, the last thing Apple needs is to start spending money willy nilly. Besides, I reckon by the time this downturn is over (and it may yet spread to other countries) there’ll be some very attractive buyouts. For the time being Apple to needs to keep it’s purse well and truly buttoned.
Apple shouldn’t let that cash pile get much larger than $20 bn. There doesn’t come a point in time when a cash pile just gets too big to be of much use, unless your plan is to get to the point where you can buy Adobe in cash. And as much as I see certain cheerleaders here applaud that move, it would be hyper-anti-competitive and should be rejected by our monopoly regulators.
Stock buybacks are stupid, they help a small handful of shareholders who want to cash out.
Once that cash pile hits $20 bn, a dividend is the most reasonable thing to do with the money. They help all shareholders equally and over time.
So I’m like, Um, excuse me, lady, now I’ll be the first to admit that I’m not an MBA and I was never very good at math since I’m totally right-brain and artsy, hence the black turtlenecks, but I have been around business most of my life and I’ve always understood that it was a good thing to have loads of money and no debt. But what do I know?
Like missing the opportunity to split Apple stock when it was above $150, Apple managment can´t figure out what to do with it´s profits.
What is the purpose of making a profit if Apple doesn´t invest it in it´s business or reward faithful stock holders? If Apple does not need profits I would suggest lowering the prices on all products so profits do not occur.
Lots of consumers would like that.
@Bill in Britain. Yes – sucks thumb. Up ManU.
The cash pile enables Apple to make strategic acquisitions during the upcoming recession, when share prices will be down and there will be bargains galore to be had. This will position Apple well for the recovery.
It will be smart technology purchases in emerging markets, not old dinosaurs like Sony or Adobe.
They should keep accumulating the cash, and use it do what they do best, and start doing it worldwide !!!
iPhones, Apple TV, iTunes movie rentals, Apple stores, SDK, the upcoming iTablet, etc… all that needs to happen all across the planet.
Apple don’t need anything else, nobody else, but executing their vision worldwide.
tommy, i agree. the point is not if apple should have enough cash on hand (they should) to make all their small strategic acquicisions (fingerworks, logic, final cut) but they won’t do a major acquicision on the scale of nintendo or adobe (as much i wish they would) this is not the companie’s culture. so what do they need the money for? starting to pay a dividend after 7 years in a row of earning money every quarter is a must. why the big stockholders like the mutual funds mentioned in the article don’t force apple to do just that is beyond me.
@silverhawk
it’s simple, the analysts often give lectures to university students studying accounting or finance. they are well recognised and cheered as they walk in a lecture…and likewise in society
they analyse everything using flawed formulas, to predict the behaviour of a successful company…
Apple’s isn’t microsoft. Microsoft worked in the 90s, but not now.
The analysts don’t want to be in a position, where they’re wrong… for example, they rock up to uni, provide a theoritical explanation about why, companies need to use their excess fund for high risk investment to have a higher rate of return, as part of their survival and to maximise shareholders wealth…
and then little tommy stand up and says, what about apple…
And they’ll be pulling their hair out…
… paying a dividend (starting with a bigger bonus dividend) would also help the stock price … 117, 41 % down from the last high. when you think the stock is going down for no reason, think again.
Cash is a Current Asset on a company’s Balance Sheet. While there are obvious benefits to having cash on hand such as a better solvency position, better ratios such as the current ratio, quick ratio, and working capital there are some DISADVANTAGES.
While proper cash management requires that enough is available to meet the needs of a firm’s operations, too much idle cash can be a net disadvantage as it provides a non-optimal return and loses purchasing power during periods of inflation (which we are in right now).
An example. Let’s say a firm has $1,000,000 of cash and could earn 10% in an investment. That would mean that at the end of the year the 1 million would be worth $1,100,000 (a gain of $100,0000). On the flip side the economic environment is inflationary (let’s assume it’s 5%). So if the cash is left idle, the firm would need to $1.05 million at the end of the year to buy goods and services that could have been bought for $1 million at the beginning of the year.
So the above demonstrates that cash by itself is not a productive asset. Cash over and above the levels needed for operations should be either invested (in income-producing areas such as short-term investments, long-term investments, or intangible assets) or returned to shareholders via a dividend.
Apple is demonstrating through its large cash balance that it is not operating at its full potential because it has more cash than necessary for day-to-day operations. There fact that the cash balance is growing at such high levels demonstrates that Apple’s management is either being too cautious or is mis-managing the firm’s assets.
My fellow MBA’s will understand what I’ve just described.
Unlike you guys, I’m not an expert in world finance, so I’m not qualified to have an opinion. It’s an interesting situation, however.