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Apple’s massive $66 billion war chest; what’s it for?

“In its latest earnings report on Wednesday, Apple recorded cash and cash equivalents of $65.8 billion, adding to the prior quarter by about $6 billion. The sum easily trumps Apple’s peers. Google, which boasts the second-largest cash pile, reported $36.7 billion in cash last week, less than half of Apple’s war chest [sic],” Evelyn M. Rusli reports for The New York Times.

“And the Apple machine, supported by the fierce popularity of its iPhone and iPad products, shows no signs of slowing down. Revenue rose 83 percent, to $24.67 billion, in the last quarter. But as it grows, analysts say, at some point Apple will have to crack the piggy bank — and maybe go shopping,” Rusli reports. “‘It’s going to become truly untenable,’ said Yair Reiner, an analyst with Oppenheimer & Company. ‘Two years ago, I would say its cash pile would be untenable at $50 billion, and now we’re at $70 billion. At some point something will need to get done.'”

“As long as Apple can maintain its trajectory, analysts say, it will be difficult for shareholders to complain about excess cash. But the pressure is mounting. Apple is trading at a discount to the broader Standard & Poor’s 500-stock index, according to Mr. Reiner’s calculations. The average company in the S.&P. trades at 13 times 2012 estimated earnings. If you subtract cash from Apple’s price, it is trading at about nine times 2012 earnings, he said,” Rusli reports. “‘Now that Apple is trading at a discount to the overall market, it’s easier to argue that Apple is being penalized for holding onto its cash,’ Mr. Reiner said.”

Rusli reports, “If and when Apple decides to spend, it is unclear what the company might do with the money… One possible target is Netflix, a movie rental service that streams content to users’ personal electronic devices. The service, which is also available on Apple’s iTV [sic] device, could compliment [sic] Apple’s iTunes service, which hosts thousands of movies and videos, according to James Cordwell, an Atlantic Equities analyst… The analysts interviewed said an acquisition of Facebook remained a remote possibility.”

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