“Apple Inc. is pulling back on buying corporate bonds with its overseas cash as it prepares to bring the money home to the U.S., according to people with knowledge of the matter,” Nabila Ahmed, Sally Bakewell, and Sridhar Natarajan report for Bloomberg. “About $157 billion of Apple’s $285 billion in cash, mostly held overseas, is invested in corporate debt, making it a leading lender. The cutback in buying, echoed by other tech firms with sizable overseas holdings, such as Alphabet Inc. and Oracle Corp., could have an impact on corporate borrowing costs.”
“U.S. companies with savings held offshore will likely move them home or use them by 2020, Credit Suisse analyst Zoltan Pozsar wrote in a Jan. 29 report,” Ahmed, Bakewell, and Natarajan report. “Investors in investment-grade corporate bonds have been bracing for a market with fewer buyers since the new U.S. tax law was enacted late last year. It gives companies incentive to repatriate their overseas money. Companies such as Apple have been buying bonds with offshore funds rather than simply holding cash.”
“U.S. companies have an estimated $3.1 trillion of corporate cash offshore, most of it in government and corporate bonds. The Trump administration’s tax bill slashes the tax rate on repatriated cash and liquid securities from 35 percent to 15.5 percent,” Ahmed, Bakewell, and Natarajan report. “Last week, Apple said it plans to bring its net cash position down to zero, meaning cash levels would equal debt outstanding. Apple held net cash of $163 billion at the end of 2017.”
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MacDailyNews Note: From Apple’s Q118 earning report conference call with analysts:
Our thought process around M&A has always been the same, and really doesn’t change. We’ve been acquiring companies over the years. In calendar 2017, we’ve acquired 19 companies. And the thought process is always to acquire something that allows us to either accelerate our product roadmaps, filling gap in our portfolio, providing a new experience to customers. So it’s always with the customer experience in mind that we make acquisitions.
We look at all sizes, and we will continue to do so. We have plenty of financial flexibility, of course. We had that even prior to tax reform. And as I said, we will talk about capital allocation plans when we report at the March quarter and that will include talking about timeframes and pace and so on. And so we’ll try to be to be very thoughtful. As we said, $163 billion is a large amount and there are even practical considerations around it. So we’ll see. — Luca Maestri
And just for clarity, let me add one thing. What Luca is saying is not cash equals zero. He’s saying there’s an equal amount cash and debt, and that they balance to zero. Just for clarity. — Tim Cook