“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.
My guess on the large sums of cast: Apple is setting it self up to acquire a major record label. With this acquisition in hand, Apple can implement pricing strategies they’ve wanted on iTunes for years, with the content control to back it up. Apple’s success would force record companies back to Apple’s iTunes table on Apple’s terms. Apple has learned that having ownership of media content is better than negotiating for access to parts of it. As a side note, could Apple remodel or reinvent a new music business model? They certainly have done so with Pixar in the animated film industry. The Apple of the future will be less know for gadgets, and more for effective integrated media distribution. Apple’s money will be well spent to gaining media control to make already great products ever more meaningful to customers.
I do think that Apple is doing things right. But I also think that they should spend more time and money on their overseas operations. I can see no reasonable reason why their prices should be so much higher abroad than in the US.
I also wonder why there are no Apple stores in most major cities, where the market potential is much larger than in some of their US stores. Where is their advertising abroad? I think they could well use some of their cash on expansion in continental Europe and Asia.