Tim Cooks’ $98 billion problem: Apple CEO faces first test with cash mountain

)”Apple CEO Tim Cook has a problem, a $98 billion problem,” Poornima Gupta reports for Reuters.

“Just 18 months ago, Apple’s $46 billion mountain of cash – while huge by most standards – attracted only muted complaints from investors, who did call for a dividend or share buyback, but were mostly happy with the meteoric rise in the stock price,” Gupta reports. “But with the growing cash balance now a much bigger overhang on the stock, widely considered to be undervalued, investors are clamoring more vocally for Cook to put the money to work.”

Gupta reports, “Apple’s runaway success presents Cook with his first real public test as chief executive officer – figuring out what to do with the money. Apple’s cash balance is now a quarter of its $415 billion market capitalization and roughly equals California’s 2012-2013 state budget. And even though $64 billion of Apple’s cash is overseas – meaning it will have to pay a hefty tax to bring it into the United States – calls for a dividend on Wall Street grew louder after the company said on Tuesday it was in “active discussions” internally on what to do with the money. Wall Street is strongly in favor of Apple returning the money to shareholders through buybacks or dividends, even if it is only a one-time deal.”

Read more in the full article here.

[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]

40 Comments

  1. Let it grow to a trillion. They are spending the cash on investments such as recently purchasing the SSD company in Israel, building up iCloud, and it looks like they are expanding the datacenter by constructing a second one in Oregon. Apple doesn’t need to spend for the sake of spending. It should make sense. I love the fact that Apple runs lean and they produce quickly, yet the quality is epic. That should never change direction. It might make sense for Apple to buy AMD and in doing so they get Nvidia. They could control the entire channel. I would never want to see Apple do what AOL did in the late 90s or Yahoo in the early 2000s. Just because you have cash to burn, doesn’t mean you have to fall into that trap. If anything Apple should by back as much as possible of their own stock. Currently they can buy back 25%. Eventually they can afford to buy it all back and pull themselves off the NASDAQ.

    1. First, Apple did not buy an SSD company. They bought a company that does designs for specific interfaces for NAND memory. Thus they can design and have built their own interfaces to SSDs as well as other solid state devices (hint, hint).

      Second IF Apple were to buy AMD it would NOT get Nvidia. AMD and Nvidia are direct competitors in the GPU market. What they would get is the old ATI group. This would be an advantage, but they would also get all the AMD CPU baggage — something that is losing money right now. Probably not a good move.

      Third, Apple needs to acquire technologies, not companies. These must be technologies that move *Apple* forward. These must not be moves that might give Apple a small business advantage but “rescues” the company they buy.

      Third, buying a lot of stock back is ONLY done if it is done to prop up or rescue a stock. There is absolutely NO other reason to do a huge buy back. There is absolutely no reason for Apple to buy even 5% of its stock back let alone 25%.

      Finally, unless a very small number of people each worth well over 10 billion were to finance a buyout of Apple, it will never be a private company again. In theory it could happen, but Samsung coming up with a band new, unique smartphone design that is 100x better than anything Apple puts out is more likely than Apple going private in the foreseeable future. Such a thing might have happened back in the lowest point of the “dark days” when Apple could have been purchased lock, stock & barrel for under $10 billion, but it won’t happen now.

  2. Seek out the very best people in R&D then hire them.
    Seek out technologies best suited for future needs then acquire them.
    Stay smart, Apple. Stay sharp. Invest in what’s to come.

  3. Tim Cook doesn’t have any sort of problem regarding the $98 billion. Far from it being a problem, it’s a massive advantage.

    Apple has never followed the advice of analysts and Tim Cook won’t either. He has said that it has recently been discussed and there is currently nothing to be said on the subject.

    I would venture to suggest that one of the reasons why Apple is so successful is that it does not do what other companies do and therefore the advice from commentators who may have expertise relating to conventional companies is inappropriate when applied to Apple – but that doesn’t stop them spouting off pointlessly.

    1. BINGO so totally right on. Wall Street and Analyst = Greed.

      They are only interested in their own interest at the moment. All else is beyond them. That is why they do not get Apple.

      en

    2. I would say that perhaps that these Wall Street crooks should stop assuming they know more than Apple. They clearly don’t. They should be taking advice FROM Apple, not be trying to GIVE them advice.

      I would not presume to give Lance Armstrong tips on how to ride a bike, nor Michael Phelps how to swim, nor Tiger Woods how to play golf. Why do these clueless analysts think they know more than a company which has been growing off the charts consistently over the past 7+ years? What do they really have to contribute here?

      1. That is exactly right! Who is there on Earth that is qualified to give advice to Apple? It seems that only God knows more than Apple and Wall Street analysts or any other analysts aren’t God.

  4. As a stockholder, I’m quite pleased, but I also feel my investment is undervalued and the experts say that would change if Apple would offer a dividend.

    While I trusted Steve and not Tim to lead the company, I don’t know that I agree Apple needs to hold onto $100B.

    Why not offer a small dividend? Why not give 10% back to shareholders? I realize that by saying this, I’m not blindly following Apple as many on this forum do. But, seeing my portfolio surge to $500-525 per share for add significant value while still leaving AAPL with a horde of cash.

    Ultimately, a good CEO & CFO don’t just satisfy the customer an employees, they also satisfy investors. I’m not implying I’m not satisfied at $450, but I’d be thrilled if the stock better reflected the company’s value. I’d imagine anyone who owns significan shares would agree.

    1. Some here won’t agree, but I think even a one time dividend equivalent to 10% of their existing cash horde would go a long way toward helping the stock price grow. As a stock holder it is frustrating to see the stock only rise 6% after posting one of the most blockbuster quarterly profit numbers in US corporate history. AAPL is so severely undervalued right now that it’s not even funny anymore.

    2. Sorry but it does not work that way…. today.

      A dividend is blood in the water, the sharks come, buy 100,000 shares, get their blood money, then quickly sell before the price drops to reflect that the company is worth billions less.

      They may even complain (after selling their shares) that the company is worth so much less just to drive the price down…. then buy back in.

      That is the new version of making wealth in America. There is nothing produced, just making money out of your losing money. PERIOD>

      1. Good point…seen that happen to many other companies that offer special dividends. The short-term opportunists jump in to steal some of that cash pile from the long-term investors owning the company for months or years. I don’t want Apple to give away that very, very, very hard-earned cash to these short-term hedge fund managers like K. Finerman.

  5. Clearly, Wall Street has had and continues to have the best grasp and understanding of Apple stock and how to value its earnings, run its day to day operations and predict its viability. We should carefully listen to this retreaded dividend advice “guaranteed” to up Apple’s stock price. Then, like lemmings, follow these experts off the cliff they keep jumping off of quarter after quarter. Please, the best Apple can do is the opposite of what the Wall Street experts recommend. They have no credibility. I love the framing of Tim Cook’s “first crisis” being that he has 100 billion dollars to figure out how to spend. I’m truly impressed with the author’s ability to turn a 100 billion dollar cash pile into a problem. What FUD.

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