Apple’s $130-billon problem: Zero-cash goal could be a cause for concern in a few years

“Apple has a $130-billon problem, and it could impact the company’s stock down the line,” Tiernan Ray writes for Barron’s. “The tech giant has said it plans to reduce its net cash position to zero, a process that could take several years to address. The question is what happens then, and what happens on the way to that event?”

“A very large acquisition seems unlikely for Apple, which has never done huge deals. Hence, the reduction of Apple’s cash will likely happen through buying back stock and paying dividends, as has been its practice,” Ray writes. “A vexing trade-off may face Apple: some investors might want more cash sooner, but that would hasten the inevitable — the arrival of a day when Apple doesn’t have as much money to spend on buybacks and dividends.”

“Come 2023, will investors balk at an Apple suddenly less generous with its capital returns?” Ray writes. “And if Apple puts off that day as much as possible, plodding along with no significant increase in capital returns, will it lose the support of those fickle buyers hungry for shares with meaningful dividend buyback increases every year?”

“Shebly Seyrafi, who follows the company for FBN Securities, explains the math. Apple’s capital return program is running at about $100 billion annually, as he sees it. The company is probably going to generate about $70 billion in free cash flow this year,” Ray writes. “If Apple spends all its free cash flow on buybacks and dividends, that implies another $30 billion drawdown of gross cash. Divide $130 billion in net cash by a drawdown of $30 billion annually, and it would take just over four years to burn off the balance.”

Read more in the full article here.

MacDailyNews Take: Regardless of what happens next, as Ray writes, Apple is still a buy for many investors because of the flood of buybacks to come over the coming years.

The outlook also fails to account for new products and services (Apple Glasses, autonomous vehicles, original content streaming etc.) that could dramatically alter the math.

We’ll possibly get a hint of things to come when Apple updates its capital returns program this spring.

Apple cash neutral: Smart capital allocation or corporate gimmick? – March 14, 2018
What ‘cash neutral’ means to Apple shareholders – February 22, 2018
UBS: How Apple could get to zero net cash – February 14, 2018


  1. I was always more comfortable when Apple had a mountain of cash and no debt. It was the most important protection when economic times turned sour and other companies were folding or the good ones could be had for a song. Frankly, I anticipate a recession pretty soon. Might not be as bad as the GOP Great Recession, but we are probably on the tail end of the Obama Recession – and Apple needs to retain strong (and growing) cash reserved. Dividend Greed is a great way to pull Apple down.

    1. Yes and Jobs never catered to blood suckers and, in addition, Apple no longer needs investors’s cash to run its operation and to remain viable.

  2. Crazy how they don’t know what to do with all that money. They try and think about everything else to do with it except the workers that make the least amount of money. lol

    1. I think what is crazier is they forgot that they almost went bankrupt. I don’t understand how they don’t keep at least 50B net (which for a company Apple’s size is not crazy big) for a rainy day. If you think it will never come, well good for you, you’ve earned some interest on it. But when you need it, and do not have it, things get ugly fast.

      To me, this just seems to be ignoring lessons from the past. Worse than that, it’s lessons experienced by the very same company.

  3. Wow, that was like the most fake what-if story ever. What if Apple runs out of money to return to shareholders? What then? Will shareholders run away to another company with $100B to return to shareholders a year? Yeah, how many companies have $100B to return to shareholders every year? Exactly.

  4. Biggest mistake Apple ever made was playing to stock holder whims. The only people who ever really invested in Apple were the original buyers of stock. The people who bought and sold after that are nothing but speculators. Buying back stock is a total waste of resources just as paying out excess dividends just to drive down cash reserves. They owe nothing to speculators.

    1. For what it’s worth, read “Apple Will Reach $240” on seeking alpha. Apple has evolved/devolved. The writer posits; “Peak Apple,” with some decent logic.

      So far, Cook has been Mr. “Fierce Ambition” (Ming-Chi Kuo’s phrase) in proclamations (only) re: future releases. I sincerely hope I’m wrong.

  5. Why is it that everything Apple decides to do is a cause for concern to investors? I find it strange how a company that consistently makes so much money is always being doubted by big investors and pundits alike. I thought that over the years, Apple has tried different methods to please investors but nothing ever satisfies them. It has to be big investor greed and not much else.

    As an Apple shareholder, I would definitely like to see Apple pay off a large percentage of its debt as I feel more comfortable with a company having as little debt as possible. I think my ideas are antiquated because there are plenty of companies that Wall Street praises for having high debt as long as they’re investing in growth. I don’t know if Apple is investing in growth because so few big investors think it is. Considering how Microsoft is now much more valuable than Apple, I believe Apple must be doing something wrong when it comes to investing in growth.

  6. “Shebly Seyrafi, who follows the company for FBN Securities, explains the math. ”

    Great math, a lousy projection of Apple’s future.

    In Seyrafi’s math model he doesn’t give any value to Apple’s propensity to develop new products in new product categories and make a lot of money.

    Over the course of the last 22 years, AAPL has experienced 5 significant downturns. The first was the Y2K market selloff of calendar 2000 as purchasing of Y2k compatible software and hardware purchases came to a screeching halt. The second occurred in 2008 as a result of the bank meltdown.

    The third, fourth and fifth came in 2013, 2016 and 2019. All of these occurred during periods of worldwide market selloffs of equities (check FTSE, EuroStox 50, DAX, CAC, Hang Seng, Nissei, DOW, and S&P 500 indexes).

    During that 22 year period, Apple went from nearly going bankrupt to becoming the first $1 Trillion publicly traded firm.

    Apple has a lot of market influence but not enough to drive world equity markets on multiple occasions.

  7. On the one hand, Tim Cook deplores extreme investors, those focusing on ROI. He says if you don’t like your ROI, then get out. Read more here:

    On the other hand, I blame Cook for creating this investor entitlement culture in 2014 at Apple. It began when a whiny, disgruntled Capitalist who was a major investor, (Carl Icahn) must have identified a weakness in Cook, that he was a sucker for pleasing influential people like he at the time. He instigated a meeting with Cook by means of an open letter to media and to blood suckers to demand a better entitlement return and eventually got it when Apple increased its ROI. Totally deplorable. Read more here:

    Jobs would have dismissed him with a witty, sardonic phrase. Ask me why I want a more punchy, confident CEO. As reader Ken says, save for a rainy day. Don’t reward the idle rich.

    1. From Merriam Webster Dictionary

      “Definition of capitalism
      an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market”

      In business, capitalism is the efficient use of capital.

      There is nothing efficient about having surplus cash sitting idle earning about 1% per annum when you can borrow for less.

      Icahn was correct in pointing out that holding more cash than necessary to finance the following 36 months of operation (as of the end of the December quarter, Apple held $44.771 Billion in cash and $158.608 Billion in marketable securities. Total term debt was $99.989 Million, the annual cost of operation (including R&D) for FY2018 was $30.941 Billion. In other words, Apple has enough cash reserves to operate (with $0 revenue) for more than 3 years), was a poor use of that cash. His own self-interest dictated that he wanted Apple to pay dividends, buy back shares or both. There is nothing wrong with expressing your self-interest.

      The decision on how to use Apple’s surplus cash was the domain of Apple’s Board of Directors with input from the Firm’s President and CEO (Tim Cook).

      In choosing to pay both a dividend and buy back shares, in lieu of making a large acquisition, Apple had determined that it had more than enough to pay a dividend, buy back share and to make strategic acquisitions that benefitted the Company’s long-range goals/targets.

      Steve Jobs and Tim Cook are two different people that shared the same long term vision. When Jobs was President/CEO of Apple it did not have the cash reserves that accumulated under Cook’s leadership. Apple’s BoD decision on how to best use Apple’s surplus cash had nothing to do with any “pressure” from Icahn, to think otherwise demonstrates a complete lack of understanding of how a publicly traded firm makes decisions.

      How much more cash to do you think Apple should accumulate, and what better use for its cash (other than returning it to its shareholders) do you think Apple should implement?

      As a shareholder (minor compared to Icahn) I am very pleased with management’s decision on the use of its cash. I’ll bet you are not a shareholder, otherwise, you wouldn’t be whining about management’s decisions.

    2. Exactly. Don’t reward the idle rich like John Dingler, rich artist. Taking advice from John Dingler is like asking a Windows User for an opinion on Mac OS, or a vegetarian on what an Angus Beef steak tastes like.

  8. Don’t put too much stock in this article. People spin out these sort of “what if” scenarios all the time. They are useful to help wrap your head around the situation. I seriously doubt that the future will play out this way.

    One issue is that as the share count goes down it will be harder to find people willing to part with their shares for a low price. If the price goes up too high maybe Apple will decide to do something else with the cash.

    Even if Apple does get close to zero retained cash they will still be pulling piles of cash every year.

  9. I prefer Steve Jobs position on building up a cash hoard. He preferred having a large pot of money ready for use when the time came.

    I always thought he wanted to buy a competitor or large company (e.g., IBM) that might make sense for Apple – maybe. Plus, the cash was always a backstop if anything unexpected happened.

    Keep some cash. What’s $100 million, give or take $20m, to Apple? Just in case.

    1. I agree, whats a couple hundred million dollars. Apple has a net $103.39 BILLION. I think Apple has more than enough emergency contingency funds.

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