The secret reason why Apple has hoarded so much cash

“Apple’s huge cash hoard is a something of a mystery,” John Carney writes for CNBC. “And, for some investors, a frustration.”

“At the close of last year, the company had $98 billion in cash and cash equivalents. By now, it certainly has over $100 billion,” Carney writes. “Why on earth does Apple hold on to that much cash?”

“This stunning level of cash accumulation — the likes of which has never before been seen in the history of corporate America — is the legacy of Steve Jobs,” Carney writes. “As Fortune magazine’s Adam Lashinsky has explained, Jobs ‘loathed stock buybacks, arguing, with good reason, that they are bribes to investors rather than good uses of capital… such topics were considered off the table with Jobs.'”

Carney opines, “This position would make sense if Apple had an investment strategy that included ‘good uses of capital.’ But the level of capital accumulation indicates that it doesn’t have a growth strategy that requires the use of this capital. In fact, chief executive Tim Cook recently said the company’s board is ‘in active discussions’ about what to do with the cash — a clear indicator that they don’t have a use of capital that is arising organically from their business strategy. Or rather, Apple’s managers do have a current use of capital, but not one that they are likely to acknowledge publicly. The current use of Apple’s capital is to preserve the fortunes of executives, employees and large, undiversified shareholders at the expense of ordinary investors.”

Read more in the full article here.

MacDailyNews Take: Or maybe, just maybe, Apple has a reason or reasons for accumulating that cash that a CNBC editor cannot fathom? Perhaps it’s as simple as Apple’s near-death experience having taught the company a valuable lesson and they never wish to be in that position again? Or maybe they just want to save up for a few more quarters and buy Microsoft outright and put it out of its misery?

Here’s a radical idea: Instead of whining about dividends, stock splits, and/or buybacks, Apple shareholders who don’t like how Apple Inc. is run should divest themselves of their Apple shares.

[Thanks to MacDailyNews Readers “Fred Mertz” and “Lynn Weiler” for the heads up.]

74 Comments

      1. With all due respect, does Apple need a competitor? Who was pushing them to build a phone or a tablet? The 27″ iMac I’m staring at has no peer in the PC world but Apple will update it anyway.

        That’s all I have to say, except for one other observation: “…tape-recorded board conversation…”???

        1. Everybody needs competition. Apple needs competition to diversy and is doing quite well. Apple needs competition between its suppliers to get the best quality for the best price and makes the most profit in the business.

      1. I’m Long Apple – VERY LONG Apple …. and the quick answer is no for tomorrow …..

        A little longer answer is yes, the gains will be retained and even more to come ….

        Short term – Sell now you have had a nice run …. Long term – Which is my position, hold …. I don’t even try to buy / sell and trade around my position …. Just hold and it has worked for me ….

        Past Performance CANNOT GUARANTEE Future Gains, I might add ….

        1. “As of Mid-2011, Macintosh continues to enjoy rapid market share increase in the US, growing from 7.3% of all computer shipments in 2010 to 9.3% in 2011.”
          I take it then that the other 70-85% of computers are of the “failed” Windows variety? Why would sooo many people prefer windows? Are they all just dumb? Or is it the other way around; (big 9% share of market) Apple users who have been hoodwinked by hype?
          duh

  1. I like MacDailyNews’ take on this. Why do AAPL shareholders think that Apple owes them something? The entitlement mentality that has been instilled in brain dead men (and women) by our socialist pimping government is out of control. Nobody, including Apple, owes you anything!

    1. @MarcusAureliusII
      Shareholders want a dividend because they are capitalists. The shareholders provided capital and they’d like a return on their investment. Apple DOES owe them something. I know it probably feels good for you to steam on about socialist government, but you missed the mark by a couple of miles.

      1. @Mikey

        As a shareholder, you have plenty of choices for stocks that do a) offer dividends, b) split their stock until the price per share (meaningless) is at a level that satisfies your pre-pubescent brain, or c) cater to your delusional sense of well-being that comes from socialism and a government that increases your dependence on it.

        @MarcusAureliusII couldn’t have been more right if the words were spoken from Steve Jobs himself.

        1. Don’t you even follow the shareholder meetings, moron?!

          The majority of Shareholders have voted confidence in Apple’s managment and nixed the dividend issue multiple times.

          Hedge funds and institutions are very far fom aligned, in interests and objectives, with the privet shareholders.

        2. @Huh…
          agree MarcusAureliusII has a great point,
          disagree Jobs would have ever put it that way,

          And Apple does owe us something,
          listening to consumers and continuing to make great products because once they stop… Apple is no longer Apple.

          1. Are your stocks worth more now than when you bought them?How do you figure that they owe you more than that? If you don’t like it so much, sell your stock, take your profits to a company that pays dividends and wants your entitlement attitude, and then STFU!

        3. in my opinion, the only thing Apple owes investors is to keep the company healthy by producing innovative products that attract buyers. Their reward is the value of the stock. If they don’t like the way Apple manages itself they should sell that stock and buy something else.

      2. No question shareholders want dividends because they live, breath, eat and sleep capitalism. Mr. MarcusA seems to be looking for a place, any place, even if not related to knowledge of the topic at hand, to become a political spokesperson.
        What Apple DOES owe is increasing value for their investment, if Apple wants them to continue investing. Apple seems to be doing a good job of that, to date.

      3. It’s a fallacy to say that shareholders provided capital.

        Only shareholders that bought their shares directly from Apple when Apple have issued new shares have provided capital (such as at IPO, or a rights issue). In the case of Apple that hasn’t happened for a very long time.

        There’s so much churn in Apple shares that very few current shareholders have provided capital to Apple. Almost all of Apple’s shareholders are speculators, hoping to make a buck on Apple’s increasing share price. Apple therefore owes them nothing.

      4. @Mikey

        No one who has not bought shares directly from Apple (IPO, new issues) has provided any capital to Apple. It is not the fault of the people who participate in the modern financial market, but as designed, it offers no ethical justification for companies to have to give a crap about their shareholders. One has no standing to demand that strategy be tailored to one’s interests if one can abandon the enterprise at the drop of a hat, and if one’s greatest contribution to the enterprise is dealing with someone who dealt with someone who dealt with someone … who dealt with someone who originally gave the enterprise some money.

    2. Limbaugh Jackass Fanboi: “Why do AAPL shareholders think that Apple owes them something?”

      Because, you simpleton, I own a portion of Apple. Apple owes me approximately $100,000.00 for every 1000 shares I own. That’s the portion of the Apple cash balance that is mine. They in fact DO owe it to me. It’s called mathematics, something you apparently missed when you were in school.

  2. People calling for a dividend don’t understand AAPL. Horace at Asymco.com has done a great analysis of this. The stock price has been directly proportional to the cash. Pay out a dividend and the stock price goes down. It is more valuable for investors for Apple to keep the cash and have the share price increase.

      1. That’s good enough. Cash position goes up, stock price goes up. Dividend paid out, cash position drips share price goes down. Now you have a tiny amount of cash that you paid taxes on and it drove down the stock price. Overall loss except for Uncle Sam.

    1. It was indeed a great article!

      Though I don’t think Horace was actually going so far as to suggest a causal relationship between cash and share price. Simply that no other financial model he’d tried provided a closer fit to the historical data. Unfortunately, it’d take AAPL actually paying a dividend to test which of us is right!

      Anyway – anyone who reads asymco.com enough to reference one of his articles is awesome in my book! 🙂

    1. Steve Jobs noted Apple strategizes out 5 and 10 years for what they see coming and for longer term trends, just as Steve had done for decades.

      One trend they know all to well is what they do to provide their own connection network for their now massively expanding Mac & iOS ecosystem. Establishing a nationwide new form of wireless system is going to take tens of billions of dollars and allow Apple to control its ecosystem in its entirety.

      The yocals @ CNBC aren’t looking at the “next stage” of Apple needs for growth.

  3. I have mentioned this before and think it is worth mentioning again: StockHOLDERS are those who retain possession of stacks for a long time and not for short term purposes. They INVEST in companies. They deserve something in return. The current climate, except for some of the readers of MDN who bought APPL years ago and have held on through bad times and good, are nothing more than speculators. They do not INVEST in companies. Unfortunately people like Mr. Carney, do not appreciate a solid business strategy that does not involve management manipulating numbers to drive money to the bottom line, but instead involves focus on providing customers with product that they need and want. Hail to that strategy and screw the speculators!

  4. Didn’t only the people who bought original issue shares provide the capital for Apple to grow and thrive? Everything bought and sold since then has absolutely no effect on Apple’s corporate finances, does it? All it is now is a gambling game, albeit one that has made lots of money for lots of people.

    1. thats a little like saying the person who first bought your house from a developer when it was new is the only one who contributed to building it. True. But you’re the present owner of the house regardless.

      People tend to forget corporations are the property of the shareholders. Just as your house is your property.

      Having said that. The reason I own AAPL is that I trust the management. If I didn’t I’d sell the shares. But at this point who am I to second-guess Tim Cook?

      1. >>The reason I own AAPL is that I trust the management. If I didn’t I’d sell the shares.<<

        And this is what makes modern, speculator-dominated financial markets completely different from buying a house, or an oven, or whatever else. Ownership (both ethically and functionally) is about commitment and control and shares today offer precious little of either.

        1. The discussion is good. But there’s a difference: There is generally one (sole) owner of the house. If you sold “shares” in your house, to the tune of 10 million shares, then there would be no “ownership” or commitment. AAPL is something like 65% owned by institutional investors. Were that quantity to consolidate in a single owner then he/she/it would have a say in what happens at the board level at least.
          Personally, I think fitting any sort of “model” to Apple is wasted effort, as Apple has proven again and again that there is no other company like it. So I hold AAPL long and ignore all the outsiders who think they know better than the folks (Tim Cook, et al) who are actually doing it.

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