Some investors, analysts question Apple’s rapidly growing cash pile; currently $18.4 billion

“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.

52 Comments

  1. Keep the cash, grow the pile, spend it wisely.

    A decent sized stash of cash, which is little different in proportion to the value of the business than over the last several years, helps to keep the bankers at bay. Imagine what the bankers’ shills on The Street would have done to the share price without that cushion. They make a profit per transaction, up, down makes no difference to them, they just want more transactions. So what if it diverts the companies’ attention from doing their business, more transactions = more profit, there’s always another business to mess around with.

    Call it insulation, or independence.

    It will be interesting to see what Apple does with the stash, maybe some sort of media company, a decade’s time maybe.

  2. It’s a little too early to be criticizing Apple for their cash hoard. (BTW, it’s not really cash, it’s “cash”–i.e., it is invested in bonds and T-bills.) As several have pointed out, Apple should see where their cash hoard is after the next recession before making any decisions to reduce it. Or, they can revisit the issue after their pile hits 40 billion, whichever comes first.

  3. Taking heat on this position must mean even further that Apple is doing extremely well despite the potential recession.
    I do wish Apple would buy the Wii, but I can’t think of anyone else who is doing anything revolutionary or what Apple can’t already do themselves.
    I think a kick butt next generation iPhone will do the most for them in the longterm and allow them to truly expand exponentially into a futuristic market that just is not going to go away. I would also try to distance myself further from Vista by yes, still coming out with the next big cat operating system. Make Redmond OS writers bang their heads against the wall even more.
    Number one goal at Apple if I was Steve Jobs…make an iPhone that will meet the high standards of Japanese consumers. There are millions waiting to be sold just on that island…satisfy Japan, and China will follow.

  4. What’s interesting is that if Apple was a person and not a company, these analysts would be praising Apple for not being in debt, for being self-insured, independently wealthy, and set for life.

    I think it’s another example of analysts who don’t like the fact that Apple is secretive and won’t tell people what its plans are, so they have to find something “wrong” with $16 billion in cash.

    Once you start paying dividends, investors expect them to continue in perpetuity. Why buy back stock? Apple does just fine. That’s just spending money for nothing in return. It’s not like Apple has a few major shareholders out there who can control the company.

    Apple makes M&As;when it makes sense. Apple also doesn’t make huge, blockbuster, AOL-type acquisitions (many of which are mistakes anyway).

  5. some of the 18 billion should be pooled with other Silicon Valley tech companies to create a Tech industry backed wireless broad band provider

    Apple 18 billion
    Google 14 billion
    Intel 15 billion

    So then we’ll have Telcos vs Cable vs Silicon Valley….pricing will drop like a rock

  6. A significant amount of it has been widely reported to be in commercial Real Estate and will be less subject to the ongoing decline in he US Dollar. Long term, it will produce even more money for the bottom line.

    Apple had a near death experience in the late 1990’s and INVESTED in R&D;during the time after the Tech Bubble went bust and the 2001 recession and competitors cut back on development. That set the table for much of today’s success. Otherwise, going with a contrarian model worked for Apple. Call it Thinking Different.

    The people clamoring for a buy-back are short-sighted, short-term market players looking for a quick hit to offset the losses they have had in the recent market downturns. They do not care about Apple or it’s long-term prospects.

    The long-term track record for buyback schemes is not impressive. In a down market the short term bump in value can be wiped out in a market downdraft- pissing away truckloads of money with little to show for it. Having real cash (not debt) and solid assets in a tight credit market is a phenomenal plus to a growing company and gives the company options it might not otherwise be able to afford.

    As to acquisitions, many never pan out. Differences in corporate culture kill many in a very short time. Companies heavily valued on intellectual capital can also experience a huge brain drain after a buy out. Many of Apple’s best and brightest followed Steve Jobs out the door in the 1980’s, contributing to the decline of Apple over Sculey’s tenure. The same could happen with any company Apple might buy.

  7. The decline in stock price should be addressed by Apple. Using some of the cash would seem reasonable. Buying Adobe has been mentioned before. Keeping good reserves is important. Apple correctly learned its lesson from the past. But near $20 billion would appear to be adequate. Another look at this by Apple may be a good thing.

  8. Microsoft has had as much as $75 B in cash. Intel, Oracle, Cisco, and others have around 20B in cash each. Apple is now finally joining this group of Silicon Valley companies in this regard. Future ventures (in and out of Apple’s core field), speeding up production, purchasing companies, spreading worldwide, etc. are uses for the cash. Also, just accumulating it as the SV companies above (and many others do) as protection against the future, for investor dividends, etc. Al l this cash (without debt) is a product of, almost unique to the computer-internet revolution of the last several decades, especially these Silicon Valley players. (Google and other are also joining.) It’s almost a new phenomenon for an industry and the possibilities (and questions about its non-use) are endless. Perhaps a deep study of the phenomenon of huge cash/no debt in SV is worth undertaking. (E.g., one person I know says that it is a product of a relatively new phenomenon of self-multiplication of money now occurring in the world now.)

  9. Reference Goople’s post above, and I repeat:

    Apple – team up with Google, et al

    Spend $10,000,000,000 if need

    Win this 700mhz spectrum auction going now

    Set up a wireless network across USA/Planet

    That will be worth $1,000,000,000,000’s

    Plus – we’ll Change the World™

    BC

  10. Apple have made plenty of acquisitions in the past and will continue to make them. The cash they have makes it easy to invest when they want to.

    Just remember only Jobs and the board know what their long-term plans are. This war chest will come in handy when they need to make a big move into some new arena.

    Whilst it is annoying the stock has dropped so much in the past month, it will bounce back soon enough. Those who cashed out can buy new stock. Those like me who stayed in will bide our time. All my stock is in a rollover IRA and since I have another 20 years to retire I can wait.

  11. What you bois been smoking??? I agree Apple fortunes have been good and I can agree the do seem to have a good model when it comes to their future fortunes and investment. However ot attack MSFT again for doing more than approaching ideas with a good healthy cash infusion for their R & D is truly pathetic. Dont you fanbois get it. MSFT is so big and growing because they do look at oppurtunities and are not afraid to inject the necessary capital to see how far a new tech idea goes. That is why they do lead in software, and had the #1 game console, and had the biggest game franchise ever, and in a year and half sold 4 million Zunes, and the list goes on and on.
    You see fanboise Apple only has the Mac, Ipod, Iphone and of course der Fuerher famous hobby Apple TV.
    Keep trying though, you bois just might get it right.

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