Apple Now Debt Free, Says Internal Memo 627
An anonymous reader writes "99mac.se publishes an internal memo from Steve Jobs to Apple employees today.
According to the Memo, Jobs states that "Today is a historic day of sorts for our company." Apple used $300 million in cash to pay off the rest of their debt, and is now a debt-free company. A big turnaround from over $1 billion in debt in mid-1997.
Also noted in the memo is that Apple has $4.8 billion in the bank at this time." (Since this is not coming straight from Apple, confirmation -- or debunking -- would be helpful.)
want confirmation? (Score:5, Insightful)
Lets see... (Score:5, Insightful)
Witness... (Score:3, Insightful)
why wait so long? (Score:2, Insightful)
About Time (Score:2, Insightful)
Re:Because.. (Score:2, Insightful)
Good for everyone (Score:5, Insightful)
Choice is good - including platform choice.
Market share isn't everything! (Score:5, Insightful)
Who needs the market share when you've got a cool 4 billion bucks in the bank, and the mind share - apple equals style and coolness, like it or not.
Now back to my beige box... :(
Re:Lets see... (Score:5, Insightful)
This is more of a business decision to run a debt-free company. With 4.8 billion cash on hand they could have been debt free before now.
Re:Witness... (Score:1, Insightful)
Otherwise they would be selling Mac OS X for the Intel platform at $199.99, and we linux users would have to shit our pants and start writing quality code because we wouldn't be competeing against just Windows any more.
Debt isn't necessarily bad... (Score:4, Insightful)
It's how a company uses its debt and the amount of debt relative to things like cash flow, equity, etc., that's important.
Debt management is a complicated game (Score:1, Insightful)
Re:Isn't this a bad thing? (Score:3, Insightful)
As opposed to Red Ink Republicans? (Score:5, Insightful)
But you go right ahead and keep the faith. Obviously reality isn't bothering you enough to change your thinking.
Re:debunk (Score:5, Insightful)
Yeah, and your mother owes you millions for dropping you as a child, since those of us who weren't dropped, went to the store and bought a $40 optical scroll-wheel mouse ;-)
(Sorry, pet peeve for those who complain about the fact that a computer, designed+marketed to be EASY TO USE, comes out of the box with only one mouse button but is perfectly capable of using a fancier one if your heart desires).
Re:From the iPod Propels Apple Department (Score:2, Insightful)
This is good news for all computer users. (Score:5, Insightful)
We all saw what happened when AMD became a viable competitor for Intel, processor speeds dramatically increased and prices dropped.
Without Apple continuing to innovate and capture user mindshare we'd all probably be stuck using something along the lines of Windows ME.
Re:First to say - Well Done (Score:1, Insightful)
One of the key reasons why Britain is so rich, for example, is because it was willing to carry a debt in the process of expanding, while other countries were not.
Of course, it doesn't hurt to colonize numerous less powerfull nations, systematically remove all profit and natural resources, then "benevolently" grant said colonies their independence when everything of value is gone and they're no longer profitable to the empire. Just ask the Indians and north Africans . . .
Re:First to say - Well Done (Score:5, Insightful)
Re:want confirmation? - SEC filling just happened (Score:5, Insightful)
Re:Solvent debt free (Score:1, Insightful)
Re:This is a bad thing (Score:2, Insightful)
I can imagine (read: I have no real idea) that the interest rates charged to a struggling company that many people have given up for dead (ie Apple before the iMac) are quite high.
Correction (Score:5, Insightful)
Also noted in the memo is that Apple has $4.8 billion in the bank at this time.
and
Apple has $4.8 billion in total assets
Are not synonymous. Assets include buildings, machinery, office equipment, which I'm sure Apple has laying around somewhere...
Re:All this means... (Score:3, Insightful)
Allps products are usually built like tanks. The iBooks (though cheap in price) are sturdy little buggers, and the powerbooks are elegant and sturdy.
While they may LOOK odd, at least their made of sturer stuff.
Re:is that a good thing? (Score:3, Insightful)
A lot of companies have borrowed money, and spent it, and failed on the ??? step, so they didn't have the profits, so they're bankrupt.
Interest on borrowed money is an expense that Apple has eliminated. Good for them!
Re:How does this compare with other companies? (Score:3, Insightful)
Re:Witness... (Score:5, Insightful)
The reason why OSX "just works" on Apple computers is because Apple has complete control over the hardware.
The x86 world is so heterogeneous that if an OSX for x86 was released, it would have so many compatibility problems that Windows XP would look elegant by comparison.
And before you say "If Linux can run well on the desktop OSX should be able to as well", the answer is NO, Linux does not work well as a desktop platform yet precisely because of all the unsupported hardware and software.
And before you say "OSX has a fairly large number of commercial software availeable that could give it an edge over Linux as an alternative x86 desktop", the answer is NO, all that software would have to be redesigned, recompiled and retested for x86 which would take a very LONG time.
You OSX-for-x86 folks are so naive, it ceased to be funny a long time ago.
Apple's current business model of making their own hardware _AND_ software is working very well. It is the only way they can stay alive in a Redmond dominated world, and still compete with free (libre) alternatives like Linux.
Re:Witness... (Score:4, Insightful)
Oh Boy.. Bad IDEA. (Score:2, Insightful)
It should have just refinanced it debt at the lower interest rates then just used all it's free cash to expand operations, and also invest in some solid dividend paying stocks to provide a scource of income incase things don't work out.
By paying off the debt, it has reduced the amount of free cash, and when it need to take out lone to expand operations in the future, it will be at a much higher interest rate.
Re: good insights from Feb 3 article (Score:2, Insightful)
That's particularly impressive since the iPod sells for $299 (15GB), $399 (20GB), and $499 (40GB). Even if Apple only sold the 40GB iPods, the $349 per unit revenue would be more than a 200% markup over cost. If that's true, why haven't other manufacturers been able to undercut Apple more significantly?
Being that the median price of the iPod (not sales-weighted) is $399, I can't believe it only costs $50 to make an iPod.
Re:According to their last 10-Q (Score:2, Insightful)
Because the largest share of any automobile maker is <30%, whereas the market share of Microsoft in the OS market is >90%.
Re:debunk (Score:2, Insightful)
Re:Good for Apple (Score:4, Insightful)
offtopic (Score:1, Insightful)
Brilliant thinking. If there was no teaching, there'd be a helluva lot less doing.
Re:debunk (Score:5, Insightful)
The hockey puck wasn't hated because it only had one mouse button. It was hated because it wasn't easy to use. It will go down in history as the worst designed mouse ever.
Re:ok, so... (Score:3, Insightful)
A little more perspective: Nintendo has $10 billion in cash.
Re:How does this compare with other companies? (Score:3, Insightful)
Re:How does this compare with other companies? (Score:3, Insightful)
These are all good points. In general, a debt free or even low debt corporation is a bad sign, unless there is an industry specific reason for it to be that way. At best it means the management is far too conservative and is not creating growth opportunities, or simply has run out of growth opportunities to pursue. At worst it means the firms managment is not serving the interest of the shareholder, which is all the more suspicious in a firm that pays no dividends. In a frim like Apple with a good credit rating, this will become a value destroying position in the long term.
However I suspect that they will just as quickly take on new financing, or face the consequences from their shareholders.
Re:Witness... (Score:4, Insightful)
No, it's something you say to point out that Apple has a much smaller of hardware combinations to support.
to revolutionize the industry, it isn't necessary to support all hardware. You could support only ECS K7VTA3 boards, with an ATI video card. And that tiny slice of the PC world would still DOUBLE YOUR MARKET SHARE.
It would also put Apple directly in the crosshairs of Microsoft. There's no way Microsoft would overlook this challenge. It's not a matter of losing a few percent over years, but a real danger of mass exodus. Remember also that this is a Microsoft that just basically got off with a slap on the wrist with its anti-trust case. Can you imagine another Attorney General taking them on again soon?
your protestations that a huge amount of work would have to be done to port everything over to x86 simply betray that you haven't written code to compile cleanly on multiple systems.
Compile cleanly? You're not seriously suggesting that something that compiles cleanly is good enough to ship? Different hardware platforms and compilers will make bugs show up. You'll also need to increase QA capacity dramatically.
It's not very hard to port code to a different platform and get it to an alpha level. To get it ready to ship is another story entirely.
Also, while Adobe might port Photoshop to x86 OS X, do you imagine Microsoft would port Office to it?
All the applications that Apple depends on were originally written for the real computer market -- MS Office, Adobe, etc, and ported only as a way of squeezing a few more sales out of them.
Excel was originally developed on the Mac in 1985. Word was also developed on the Mac before there was a Windows version (a DOS version that doesn't really act like either predates the Mac version). The original version of Photoshop was written on a Mac Plus. So what are you talking about?
Why are Jobs & Followers limiting their potential market in this way ? The only answer is that they are afraid of being precisely the type of computer revolutionaries that they pretend to be in Super Bowl Ads.
I have a much simpler explanation: they are afraid of Microsoft. Why do you find that hard to believe?
Re:How does this compare with other companies? (Score:4, Insightful)
If you have no need to do capital investments in things like plant and equipment or buying another company then debt is a BAD thing because you're paying interest and usually more than you'd get investing in a similar risk item.
Americans seem to have an idea that being in debt is a good thing. For some things like a House which will normally be a long term asset whose value will be more than the total cost of the debt this is an OK idea. For cars and such its usually not a great idea as the asset depreciates very quickly, for computers its even worse. Unless of course you use that asset for something useful like running your business (one of the reasons Graphics people don't care about the cost of a new Mac is that it pays for itself very quickly).
So lets look at Apple. Their major assets are their people and ideas. If they have enough revenue to continue to pay those people they shouldn't borrow for it. R&D is normally expensive but most of what Apple does is consumer design, software development and (some) assembly. CPU's, Disks etc are all developed by others - sometimes with input from Apple. For these things they don't need extensive physical assets like factories and machinery. They need enough space for everyone to work, and they can get someone else to build/assemble their designs at very little risk to themselves usually.
This is one of the reasons why tech companies usually have very little debt.
In Apples case debt would only be good if they needed to acquire another company and believed they could run the acquisition better than the current management or they needed to invest significantly in something else that required a large chunk of change up front.
Low debt may make a company a takeover target but in Apples case you'd 1. Have to pay a significant premium over the value of their cash assests and 2. be really sure you could run the company better than Steve and his key people. Otherwise you'd be buying a declining asset or looking to put a competitor out of business. Microsoft might like to try but the Anti-trust brigade would have a field day.
As long as Apple stays profitable and can fund its own R&D internally it doesn't need more debt.
Re:Good for Apple (Score:5, Insightful)
OK, I'm shopping right now anyway. I go to dell.ca and apple.ca and try to build equivalents.
Dell:
Dual Xeon 3GHz, 1GB RAM, 250GB SATA, modem, good keyboard low-end mouse, DVD+RW/CD-ROM, Audigy Soundblaster w/ firewire, ATI Fire GL X1 128MB, Win2K, no monitor:
$6,711 [CDN]
Apple:
Dual 2GHz G5, 1GB RAM, 250GB SATA, modem, Superdrive, Radeon 9800 pro, everything else standard, no monitor:
$5,044.00 [CDN]
OK so they aren't exactly equivalent. The Dell includes a floppy; the Apple's missing a mouse button. More, the Apple comes with optical sound connects, firewire800, and gigabit ethernet (no mention of the Dell's onboard networking in the summary). The Superdrive is way better than the Dell's DVD+RW. The Dell has a better video card by a bit. Some think that the Xeons would be faster but that probably depends heavily on application, and the g5's have a huge bus bandwidth. Not to mention other technology differences underneath it all, like case design and wireless integration. Oh, and, umm, bundled software and the operating systems.
Disclaimer: I'm comparing Apples and Dells because they're tier 1 manufacturers and people think Dells are cheap.
So, like, DUDE! why is the Dell costing $1600+ more than the Apple? Is it worth it? Which one is better made, longer lasting, which one is faster over all, which the better deal?
Since this is not coming straight from Apple... (Score:3, Insightful)
How about you call them? They're required, as any public company is, to release information that may affect their stocks' value in a timely manner, especially if it has leaked - to avoid insider trading. That's a very firm legal obligation.
Have any of you ever tried calling their PR/Investor line and saying "Hi, I'm an editor for slashdot.org, we get x amount of hits, and I'm about to publish y bit of information"?
Re:How does this compare with other companies? (Score:3, Insightful)
I'm not sure what mean by 'on paper', there has never been an instance where debt did not exist in the real world. The fact that it is recorded by people and companies is just a matter of accounting.
Having debt does not necessarily incur negative consequences. It has precisley the consequenses you agree to when you take it on. If you can afford it, then it is positive. Quite the contrary, debt greatly expands an individuals and a companies choices. Home and auto ownership are made possible by debt. Emergency/variable funds are made quickly and easily available to anyone with a credit card. If your car breaks down in the middle of nowhere, and you have no cash, trust me, having the ability to take on debt greatly expands our choices.
Debt financing works whenever it is cheaper relative to the cost of equity capital. The nominal rate is irrelevant, it could be 1% or 50%.
A sharp rise in interest rates would affect profitability only if the rate was floating, or if new debt was needed. And even if these cases were true, even a modestly sophisticated company now can effectively hedge against such interest rate risk.
The bottom line is, debt properly used by a firm, will maximize its total return to the shareholder. The relative requirements of debt and equity holders are what determine its appropriateness. Qualitative beliefs such as debt averseness are irrational, and ultimately destroy shareholder value. A firm can operate just fine on no debt - in fact there are several surprisingly large firms that grew through much of their histroy debt free - UPS and Dominos come to mind. Still, they would likely have grown faster and generated greater returns through the proper use of debt.
The aim of finance is to optimize returns. The residual asset claim is effectively the same for both, so the only question for the firm is, which is cheaper.
Re:How does this compare with other companies? (Score:4, Insightful)
However, you fail to consider the intangible benefits of being able to show investers that you went from $1 billion in debt to no debt whatsoever.
In 1997 Apple was in very bad shape, and investors and consumers were distancing themselves from the potential for losses and orphaned technology.
There is now a great reassurance to people who might buy Apple products that the company is recovered fully, will exist indefinitely, and can be safely counted upon.
Jobs likely expects the benefits to outweigh any loss of financial opportunity here.
Re:Good for Apple (Score:3, Insightful)
Yes, we know that the Apple curve is below the Dell curve for that fucking supercomputer you've spec'd out. But do the same comparison on equipment that would be okay for most home users, and it's a bit of a different story.
Re:How does this compare with other companies? (Score:3, Insightful)
Long term it can cost you more than if you had just waited and saved.
Only if your interest (not mortgage) payments exceed what you'd pay in rent. You still have to have a place to live while you're saving for your house. Keep in mind also that while the portion of your house payment that goes to interest decreases during the course of the mortgage, your rent will go up. The appreciation on the value of your home also tends to offset the money lost to interest.
Let's look at some numbers. Suppose that you purchase a home for $200,000, on a 30-year loan at 6% interest. Suppose that renting the same house would cost $800 per month. Suppose that inflation is at 2% per year for the duration and that both rent and home values increase accordingly. Finally, suppose that you pay about 20% in net taxes, and that you can itemize and deduct your interest payments.
Your monthly mortgage payment is $1,199.10, which means that your total payoff cost will be $431,676.38, which means you'll pay a total of $231,676.38 in interest. That sucks, right? Sure it does, but not as much as it might appear. First of all, that interest is tax deductible, which basically means that you'll get 20% of that back, so it's really only $185,341.10. Still a big chunk of change, certainly.
However, look at the rent side of it: Even if we assumed your rent never went up, you'd pay out $288,000 during those 30 years. Assuming an annual 2% increase in rent prices, that's $389,453.56 over 30 years. That sucks much worse than the $185K in interest.
Now let's look at what you have at the end of the 30 years in each scenario. Assuming you rented and banked the difference between your rent payment and the mortgage payment you opted not to take, you'd accumulate somewhere in the neighborhood of $100K (I'm too lazy to figure that one out exactly; it's around $55K plus some accumulated interest, which I'm assuming is at 5%) over the first 20 years at which point your rent payments exceed what your mortgage payments would have been, so you have to start dipping into the savings account to pay your rent which means that your savings grows more slowly. I estimate that your final balance will reach about $150K -- not even the original purchase price of the house, and nowhere near its present value.
On the other hand, if you borrowed and bought, at the end of 30 years, you own a home worth around $350K.
At the end, borrowing money and paying interest saves you $200,000 over renting and saving for a home that you may never actually get to buy. In practice, there are some costs to owning a home that renters don't incur, which will eat away some of the difference, but you're still much better off.
There's a whole lot of guesswork and estimation in the above numbers, but I think they're pretty realistic. If anything, they're slanted a bit in favor of renting -- the cost of rent tends to be closer to the cost of a mortgage payment, and in some cases exceeds it. Many people also have higher net tax rates than 20%, which means they get proportionally more benefit from the tax deduction.
I'm not a big fan of debt, but some debt does make sense for individuals. Corporations are an entirely different can of worms of course, since their debt can usually generate revenues and profits that far outweigh the cost of financing.