Print 90 comment(s) - last by lightfoot.. on Mar 3 at 12:43 PM

  (Source: Apple Gazette)
The company's $40B USD cash stockpile allows the company to "write a check for" "big, bold things"

Apple is currently sitting on a vast pile of cash -- an estimated $40B USD -- equal to about one fifth of its market capitalization.  That's a rarity in the business world to say the least; in fact just about no company in tech industry, other than perhaps Microsoft has that much cash sitting around.

In a recent annual meeting, Apple Chief Executive Officer Steven P. Jobs discussed Apple's fiscal fatness and why he feels it's a good thing.  Sporting his traditional  trademark blue jeans and black mock turtleneck top ensemble, the Cupertino head man says that Apple is unlikely to commit to dividends or stock buybacks that would surely please the holders of Apple stock, which currently is trading at over $200/share on an average daily volume of 25M shares traded daily.

Instead, the cash allows for big moves -- like the iPad.  He states, "We're a large enough business now, that in order to really move the needle, we've got to be thinking pretty bold, pretty large. And who knows what's around the next corner.  When we think about big, bold things, we know that if we needed to acquire something, a piece of the puzzle, to make something big and bold a reality, we could write a check for it."

Some might interpret his last sentence to refer to acquisitions, but Jobs primarily is referring to internal expenditures.  Apple's current rosy financial situation came thanks to enormous risky investments in super-products like the iPod and iPhone that when they first debuted were unlike anything else seen on the market.

Apple also specializes in small acquisitions, typically to gain experience in a field it's unfamiliar with.  Describes Broadpoint Amtech analyst Brian Marshall, "Their historical use of cash has worked obviously very well.  Doing small deals, buying private companies with 100 to 150 engineers and integrating them with the Cupertino establishment and then taking their technology and making it pervasive throughout the organization."

The outlook for Apple is rather promising for the next year.  The company looks to grow and expand in the key Chinese market, opening 25 new stores there next year.  Some analysts also think that despite some public jokes and criticism about the company's new iPad tablet, that the tablet-cum-e-book reader may sell between 2 million and 5 million units.  Next month will give the first glimpse of the public's interest when the Wi-Fi version of the iPad debuts.  Some may wait until April, when the 3G version lands.

Despite its tremendous cash pile and popular products, Apple does face some key risks.  Its soaring popularity and brand image have come at the cost of increased scrutiny, and recent quality issues have soured Apple's image for some.  Apple also faces difficulties with it's tradition of intense secrecy, a tradition that reportedly leads it to maintain an army of secret agents that spy on its workforce.  The company's secretive nature recently came under fire when a worker at one of Apple's Chinese suppliers died under suspicious circumstances after losing an iPhone prototype; and a recent incident in which security guards at a parts supplier beat a foreign correspondent didn't help things much either.

Probably the biggest threat it faces, though, is maintaining the momentum on its products.  When the iPhone and unibody MacBook Pro debuted they had hardware on par with their top of the line competitors and they enjoyed sleeker packaging -- keys to justifying the devices' price premium.  Now several phones beat the iPhone's hardware in various areas (and they have Flash, something Apple feels threatened by and refuses to support).  Meanwhile, the MacBook Pro's hardware, particularly its CPU and GPU selection, is looking increasingly stale.  That said, there will probably be a MacBook refresh coming very soon and another iPhone refresh this summer that will help remedy those shortcomings.

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I actually agree with Steve (on this one)
By 3minence on 2/26/2010 10:26:16 AM , Rating: 2
It's good to have some financial resources at hand. It's good for a rainy day so you don't have to go see the banker, and it's good for what Steve said.

Now if they would just spend a little of it to give the iPhone/iPad a real multitasking OS...

RE: I actually agree with Steve (on this one)
By mcnabney on 2/26/2010 11:20:49 AM , Rating: 2
Or you could just buy some shares back. It would raise their shareholder value and the money could be easily replenished when needed under a new stock offering. It isn't making anyone any money if it sits around as cash.

RE: I actually agree with Steve (on this one)
By porkpie on 2/26/2010 12:10:58 PM , Rating: 2
" It isn't making anyone any money if it sits around as cash."

What's reported as "cash" is swept almost entirely into short-term investments of one sort or another. Apple is making money on their cash on hand, never fear.

By lightfoot on 2/26/2010 12:46:52 PM , Rating: 2
I heard that Apple was investing it in the iMattress.

By killerroach on 2/26/2010 12:23:50 PM , Rating: 2
Also, once you progress into a market niche, further moves require greater and greater risk, usually speaking. People were puzzled about the iPod when it was first announced, quasi-skeptical about the iPhone, and now almost flat-out doubtful about the iPad's prospects.

It's possible that further plans will prove to be just as profitable as their predecessors, but devouring a large chunk of a market is nowhere near as risky as trying to grow the market once you're already the 800-pound gorilla in the room.

By kb9fcc on 2/26/2010 12:42:26 PM , Rating: 2
I also agree. Far too often companies focus too intently on sucking up to the shareholders with short term profits and large dividends rather than taking a long term, big picture approach. Instead of realizing that maybe the best thing for the shareholders just might be a strong, stable, financially secure company with long term (5, 10, 20+ years) goals as to where they want to be and are actively working and investing in those goals now, they look for the quick buck.

How many times have we heard " focus on our core competencies..." as companies spin off some profitable (often cash cow) business unit as they take a gamble on some units they do keep? And really, instead of financing to the hilt remaining projects, the cash goes to the shareholders (and upper-management) as a distraction from the main event. Here's a thought, how about keeping the cash cow and using it's profits to subsidize the new projects until they get on their own legs? Does your financial investment adviser tell you to put all you money into only one stock? No? Then why do companies do that to themselves?

Or how about this one? How does a company quickly show a profit to have a good end of quarter showing to keep the shareholders happy with some pittance dividend? That's right, you layoff a bunch of your employees and get those "nasty" expenses off the books to reap that paper profit. Never mind no one is left to do the work, understand the product, or is now so over worked to do a good job on all projects. Or that the work "off-shored" is in jeopardy because it's taking longer to get up to speed due to logistics, etc. or that your IP is possibly being compromised as that workforce turns over faster than clothes in a coin-op laundry mat.

So, good for Jobs and Apple. Build that war-chest and invest it in R&D, blue sky projects, and hobbies like Apple TV, etc. Bank on the future and innovate like crazy. Tell the shareholders to be patient and not so greedy. Tell the analysts to shut up and stick their heads where get most of the ideas (where the sun don't shine) because they've shown over and over (Mac, MacBook, MacOS, iPod, iTunes, iPhone, and soon iPad, etc.) that they absolutely no clue and have either financial private agendas or are shills for other interests.

And no, I do not own Apple stock or have Mac, iPod, iPhone, or even an iTunes account. My newest Apple is a IIGS that's almost 25 years old and gathering dust in the basement.

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