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  (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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The headline burn 'mo eyes...
By porkpie on 2/26/2010 12:14:42 PM , Rating: 2
"Apple is currently sitting on a vast pile of cash -- an estimated $40B USD -- equal to about one fifth of its market capitalization...."

Apple's last annual balance sheet shows them with just under $30B in cash equivalents and other short term investments...equal to Google, a bit more than Intel, and much less than Microsoft's $50B.

Tech companies (and many others) traditionally do not pay dividends (i.e. "give back money to their shareholders"). For any company in a fast-growing field, dividends are generally a bad idea, the shareholders buy into these firms not for a small cash return, but because they want the company to grow in value as much as possible.




RE: The headline burn 'mo eyes...
By JonnyDough on 2/26/2010 12:24:00 PM , Rating: 2
To give you an idea how much 40 Billion is though...

If you had one billion and bought a $200,000 car every day for a year you'd only spend $73 million or 73,000,000.

A billion is 1,000,000,000.

Possibly also of interest:

http://infosthetics.com/archives/2009/01/one_billi...


RE: The headline burn 'mo eyes...
By porkpie on 2/26/2010 12:38:09 PM , Rating: 3
I'll give you a better idea how much a billion is. If you spent $1B a day every day for the next 10 years, you still wouldn't equal the amount of money Obama is spending on the 2011 budget.

Now for the $64,000 question...what does any of this have to do with Apple?


RE: The headline burn 'mo eyes...
By UncleRufus on 2/26/2010 2:02:07 PM , Rating: 2
Or in less sensationalistic terms, a 14% spending increase over George Bush's 2009 budget.

Still a sizeable increase, though, yeah.


RE: The headline burn 'mo eyes...
By porkpie on 2/26/2010 2:15:44 PM , Rating: 2
"a 14% spending increase over George Bush's 2009 budget."

An increase from $3T (2009) to $3.83T (2011) is a 27% increase.

And the more important figure is the increase in the deficit-- from $400B to $1.56 trillion: a 390% rise.


RE: The headline burn 'mo eyes...
By excelsium on 2/27/10, Rating: 0
RE: The headline burn 'mo eyes...
By UncleRufus on 2/26/2010 2:13:41 PM , Rating: 2
Correction, make that 18%. I was looking at the 2010 budget.


By UncleRufus on 2/26/2010 2:15:42 PM , Rating: 2
Oops, yep. I was doing my math backwards. Apologies.


RE: The headline burn 'mo eyes...
By sinful on 2/26/2010 7:50:05 PM , Rating: 1
quote:
I'll give you a better idea how much a billion is. If you spent $1B a day every day for the next 10 years, you still wouldn't equal the amount of money Obama is spending on the 2011 budget.


Or, about the same price as what the War in Iraq/Afghanistan is going to cost us. Thanks Bush!


RE: The headline burn 'mo eyes...
By porkpie on 2/26/2010 10:11:00 PM , Rating: 2
"Or, about the same price as what the War in Iraq/Afghanistan is going to cost us"

The war in Iraq has cost $704B to date...or less than the costs from the amount Obama has increased the size of government by in his first year in office alone. Even worse, a war is a temporary expense...but you pay for a government expansion forever.


RE: The headline burn 'mo eyes...
By lightfoot on 2/26/2010 1:02:11 PM , Rating: 3
Or put another way if the $40 Billion dollar cash horde were converted to $100 bills (the largest US bill currently in circulation) the pile of cash would weigh about half as much as the USS Enterprise (CVN-65) supercarrier.


RE: The headline burn 'mo eyes...
By porkpie on 2/26/2010 1:33:17 PM , Rating: 2
Not even close. $40B at 1 gram per $100 bill = 400M grams = 400 metric tons. The USS Enterprise weighs 92,000 long tons loaded...and a long ton is just a bit larger than a metric ton.

In $1 bills you would be correct.


RE: The headline burn 'mo eyes...
By lightfoot on 2/26/2010 2:10:06 PM , Rating: 2
My mistake - you caught my math error before I did.

Only 400 Metric tons of $100 bills.

Still, counting your money by the ton is a good problem to have.


RE: The headline burn 'mo eyes...
By Solandri on 2/26/2010 4:46:58 PM , Rating: 2
quote:
To give you an idea how much 40 Billion is though...

It's enough to buy every man, woman, and child in the U.S. an iPod Nano (~$135 ea).


RE: The headline burn 'mo eyes...
By JonnyDough on 2/26/2010 12:31:46 PM , Rating: 2
quote:
...the shareholders buy into these firms not for a small cash return, but because they want the company to grow in value as much as possible.


Those who wish to can reinvest their dividends. I think the option should be up to investors. Those with smaller investments would probably prefer a dividend, as would shorter-term investors. Ever hear the term "playing the stocks"? If I let Apple borrow $5K for one year and they make money it would be nice to be able to actually SEE a bit of that return as stock prices may drop tomorrow or may never rise despite the company doing well. The SMART thing to do is give SOME back to investors. Why hoard it? Without investment the company won't grow. This could actually make Apple stock DROP as people sell stocks because the company is unwilling to share. Small dividends paid out can be a great reminder to investors that your company is doing well. It can actually help secure future capital.


RE: The headline burn 'mo eyes...
By porkpie on 2/26/2010 12:44:05 PM , Rating: 3
" If I let Apple borrow $5K for one year and they make money it would be nice to be able to actually SEE a bit of that return"

You don't buy stock, I see. First of all, buying shares is not "lending" money to Apple. If you want to lend money, buy a one-year bond. You'll then get your money back, with interest in 12 months.

In the stock market, you buy shares for them to appreciate in value. Shares increase in value when a company increases in value. Companies in fast-growing fields do that best by retaining their profits to reinvest and grow the business....NOT by piddling away their capital in small dividend payouts.

Apple has nearly a billion shares outstanding. Paying out their cash pile as dividends would equate to a bit more than $40 per share...but doing so would drop their per-share value by at least the same amount, and also leave the company in a very vulnerable position, should it need cash for any unexpected expense.


RE: The headline burn 'mo eyes...
By lightfoot on 2/26/2010 2:23:55 PM , Rating: 2
Good points, but specifically buying stock in a company is buying an ownership stake in the company. It is not lending money to the company, it is literally buying the company (at least a very small part.) If the company grows or otherwise becomes more valuable, your share of the company likewise becomes more valuable. Companies grow in two ways - by reinvesting profits in themselves, and by issuing new stock. By paying out dividends or buying back stock, Apple would be effectively shrinking the company. Not something that is generally looked at as a good thing.

Very large companies (like Microsoft, GE, and Boeing) tend to pay out dividends because further growing their companies could run afoul of anti-trust laws. Apple is nowhere near this point (except possibly in the MP3 player market.) Their best course of action, as mentioned by others earlier, is to continue to grow their company.


By crystal clear on 2/27/2010 7:13:58 AM , Rating: 2
Without any reference to Apple & just for information-

Intel Declares Quarterly Cash Dividend

SANTA CLARA, Calif., Jan. 22, 2010 – Intel Corporation's board of directors has declared a 15.75 cents per share quarterly dividend on the company's common stock, reflecting the previously announced 12.5 percent increase from the fourth quarter of 2009. The dividend will be payable on March 1, 2010 to stockholders of record on Feb. 7, 2010.



http://www.intel.com/pressroom/archive/releases/20...

The company generated more than $11 billion in cash from operations and paid cash dividends of $3.1 billion.

http://www.intel.com/pressroom/archive/releases/20...

Now to Apple- Note it call itself a mobile device company !

Yes they did the right thing NOT paying dividends as they now have to compete with giants Nokia,Google etc for that you need a lot of cash sitting on the fence for acquisitions & other expenses that come with the competition in the superbowl league of the mobile world.

Microsoft will heavily subsidize hardware manufacturers to use their Windows mobile 7,whilst Google will do the same to use their Andriod,whilst Intel via Nokia will also do the same with their MeeGo software platform (read the link)

http://www.intel.com/pressroom/archive/releases/20...

In this superbowl of the mobile world, the teams are cash rich with No expenses spared.


"It seems as though my state-funded math degree has failed me. Let the lashings commence." -- DailyTech Editor-in-Chief Kristopher Kubicki














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