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The Almighty Buck Businesses Apple News

Apple Has Too Much Money 570

Posted by timothy
from the so-lucky-not-to-have-that-problem dept.
Hugh Pickens writes "AP reports that last week during a question-and-answer session at the company's annual shareholders' meeting CEO Tim Cook said he believes Apple has more money than it needs and his next challenge is to figure out whether Apple should break from the cash-hoarding ways of his predecessor, the late Steve Jobs, and dip into its $98 billion bank account to pay shareholders a dividend this year. 'Frankly speaking, it's more than we need to run the company.' The question of how to handle Apple's cash stockpile is a touchy one, partly because company co-founder Jobs had steadfastly brushed aside suggestions that the company restore its quarterly dividend which Jobs suspended in 1995 when it was in such deep trouble that it needed to hold on to every cent to keep from going bankrupt. Marketwatch analyst Mark Hulbert writes that a compelling case can be made that a huge cash hoard actually represents grave danger for Apple. That's because too much cash often burns a hole in managers' pockets, and they end up doing a poor job of investing that cash—engaging instead in foolish pursuits like empire building. Hulbert adds that a good strategy for ensuring that Apple remains a hungry, growth-oriented entrepreneurial company might be for it to distribute much of its cash to shareholders."
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Apple Has Too Much Money

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  • Or they could.. (Score:3, Insightful)

    by Anonymous Coward on Sunday February 26, 2012 @09:44AM (#39163441)

    just start charging less for their wares? Ya know, give back to the suckers that made them rich in the first place?

  • by PolygamousRanchKid (1290638) on Sunday February 26, 2012 @09:44AM (#39163447)

    . . . pick some good staff and management to run them, let them come up with some good ideas. And just wait and see where they go. If nowhere, tough luck, but the mother ship's kids won't go hungry. On the other hand . . . maybe they might end up with a valuable subsidiary.

    Giving cash to shareholders won't work. They will just use the cash to go out and buy yet again more Apple products.

    So then Apple will be stuck with the money again, and not know what to do with it.

  • 1995? (Score:5, Insightful)

    by mfnickster (182520) on Sunday February 26, 2012 @09:49AM (#39163465)

    How did jobs manage to suspend Apple's dividend in 1995 when he was still working at NeXT??

  • Re:Or they could.. (Score:4, Insightful)

    by Anonymous Coward on Sunday February 26, 2012 @09:49AM (#39163467)

    just pay more to the people who produce their wares? Ya know, give back to the suckers that made them rich in the first place?

    There, fixed that for you,.

  • Re:Some ideas (Score:5, Insightful)

    by Junta (36770) on Sunday February 26, 2012 @09:57AM (#39163503)

    Well, multiple problems.

    One, why in the hell would you want Apple to sink Google, AMD, Intel, or Microsoft? From a user perspective killing any is bad. Alternatively, why the hell would Apple care to sink AMD or Intel, neither of which compete with Apple? If your claim is to stop other computer vendors from using the same instruction set as OSX systems, Apple has a pretty tight grip on OSX without instruction set lock-in (yes there are hackintoshes, but exceptionally rare in the scheme of things.

    Second, that would be a fast way to draw attention for anti-competitive moves. Both from a regulator standpoint and quickly making enemies of a lot of companies with a lot of resources. They have a pretty comfortable competitive landscape right now, and a drastic move represents some huge unknowns that could be pretty devastating.

    Finally, they frankly can't afford to buy most of those companies. Market cap is generally a good relative indicator of theoretical buy-out requirements:
    Google: 200 billion
    Intel: 134 billion
    Microsoft: 265 billion
    I don't know what percentage of shares is realistically available or how sky-high the price would be driven if Apple attempted a hostile takeover, but even baseline the market cap is beyond their reach. If they do have 98 billion cash on hand, then AMD is the only one they'd likely be able to subsume, but with a huge question of 'why would they?'.

  • by Anonymous Coward on Sunday February 26, 2012 @09:58AM (#39163511)

    hmm what bubble?
      - should i invest in company that tries to pay fair wages and make employees feel good/have nice life and earns just 25%/year profit
    or
      - should i invest in company that takes as much advantage of its workers and uses them as slaves, uses child labour, with some of them even killing themselves as consequence, but earning 100%+ ROI per year?

    easy to answer for me, and probably majority people investing money, what do i care about other poorer people and how they live, i will go with one earning me more money, no matter what

  • Um, what? (Score:5, Insightful)

    by whisper_jeff (680366) on Sunday February 26, 2012 @09:58AM (#39163513)

    I couldn't read the linked article (I seriously need to log in to view an AP news article hosted by Google? That's rich!) but that's not at all what I have heard Cook discussed. He downplayed the likelihood of a dividend payout and made it sound much more likely that Apple would find other ways to invest the money. In fact, his quote (re dividend payouts) was "My message there is that the board and the management are thinking about this very deeply... and we will do what we think is in the best interest of shareholders." Call me crazy but that sounds an awful lot like "look, we're not going to outright say it, but we're NOT paying dividends. We're thinking of other ways to invest the money that are better for the company which is, in our opinion, better for the shareholders."

    Look, I know investors _REALLY_ want a dividend payout because it amounts to free cash (and lately the trend is "Apple, you have tons of cash - GIVE ME SOME!!") but, face facts people, the company has a history of not paying dividends, they don't feel it's a good use of their money, and they feel there are better ways to invest the money. Just accept it and move on.

    Want to get dividends? Invest in stocks that pay dividends.

  • Re:Or they could.. (Score:4, Insightful)

    by K. S. Kyosuke (729550) on Sunday February 26, 2012 @09:58AM (#39163519)
    Actually, the fact that the suckers made them filthy rich in the first place suggests that their price is just right. (I'm not an economist but the college intro course in economy they tried to instill in us techies did actually leave some marks in me, I hope.)
  • by Anonymous Coward on Sunday February 26, 2012 @10:02AM (#39163539)

    Giving cash to shareholders won't work. They will just use the cash to go out and buy yet again more Apple products.

    So then Apple will be stuck with the money again, and not know what to do with it.

    The fact that Apple has so much cash is a failure of management. If they had some good ideas they would have used their cash long ago, before it became such huge a hoard. The question of what the shareholders will do with the money is irrelevant, they will do whatever they please; this is of no concern to management.

    All to often the shareholders permit this kind of behavior on the part of management. They don't seem to realize that "management", in this case, is another word for servant.

  • by Junta (36770) on Sunday February 26, 2012 @10:03AM (#39163551)

    Well, to be fair, the guy who reigned over apple as it ascended to crazy success had this 'problem' as an explicit strategy. Tim Cook is questioning the wisdom of that decision.

    So far, Tim Cook hasn't really done anything significant one way or another and has been kind of 'coasting' on the companies success. Now Tim Cook could start making decisions differently from what Jobs would have done. I do think 98 billion on hand is ludicrous, and if I were a significant shareholder or employee, I'd be kind of miffed about it, so I think he's right, but then again I didn't drive a company to nearly a half-trillion market cap..

  • by Oswald (235719) on Sunday February 26, 2012 @10:06AM (#39163567)

    Like I said to my sister in 1999, there's no way not to hate yourself if you invest in stocks. What are your options?

    Buy a stock and it goes down, apparently forever. What a dope I am.
    Buy a stock and it goes up. Sell, and it goes up further. Damn, I knew I got out too early.
    Buy a stock and it goes up then back down. Shit! I got greedy and lost money.
    Buy a stock and it goes up, you sell, then it goes down. I knew I had that stock figured out! Why the hell did I only buy 200 shares?

    So sure, you can make money, or you can lose money, but there's really no way to be happy with the outcome. ;)

    (Haters please note that this is intended as humor. I'm sure that, aside from the universally felt twinge at having left money on the table, parent poster is perfectly happy to have "only" doubled his/her money.

  • Poor timing (Score:3, Insightful)

    by Patch86 (1465427) on Sunday February 26, 2012 @10:09AM (#39163575)

    Abysmal timing to announce "we have more money than we actually know what to do with" so hot on the heels of the negative stories about workers rights in the factories making Apple (and other) components. Perhaps they wouldn't have the "problem" of having such a colossal cash mountain if all workers in the supply chain were paid a fair wage?

    And depressing that the best suggestion for dealing with the cash mountain is to distribute it to investors (to keep already highly valued share prices inflated), rather than any one of a hundred other uses- from increased pay, smaller profit margins on sale prices, increased R&D to come up with some truly innovative technology, or even just good old fashioned philanthropy.

  • Re:Poor timing (Score:4, Insightful)

    by roman_mir (125474) on Sunday February 26, 2012 @10:16AM (#39163609) Homepage Journal

    That's retarded. They already covered their costs, Apple is not a charity, they bought labour at fair wages (market value, as opposed to what you want obviously). Companies EXIST to make money for their INVESTORS, nobody else. All the wealth (products, services) and all the wages and taxes they pay are completely incidental to their goal (which is why free market the best tool for creating wealth in the first place).

    They need to do one thing for sure though - diversify out US denominated assets (though they already have their production capacity in Asia and other places), but they need to look at moving money out of US dollars and probably into other businesses, unrelated to tech - energy, mining, agriculture, whatever - just not in socialist 'paradise'. Paying out dividends to their investors is a completely reasonable suggestion, in fact they should do that too.

  • by decora (1710862) on Sunday February 26, 2012 @10:22AM (#39163655) Journal

    congratulations, capitalism. after Jobs passed away, it took less than a month for the hedge funders to begin the pillaging of the organization for their own personal aggrandizement.

    apple will soon become 'the next HP', a gutted wretch whose main business is screwing people out of toner ink. bravo.

  • by decora (1710862) on Sunday February 26, 2012 @10:24AM (#39163665) Journal

    making you work 80 hours a week, making you live in a tiny room with 20 other people, make you use dangerous chemicals that damage your brain, threaten you with prison for even talking about a union, etc?

  • Re:Some ideas (Score:5, Insightful)

    by TheRaven64 (641858) on Sunday February 26, 2012 @10:26AM (#39163685) Journal

    The problem is, this kind of acquisition often doesn't make sense. For example, one proposal was that Apple would buy ARM. They could afford to without making a significant dent in their cash reserves, even if they paid double the current market cap. But would Samsung want to license CPU designs from Apple? Almost certainly not - they'd just drive the other mobile device makers to designs licensed from MIPS or even Intel. The net result would be that Apple would end up paying a much larger share of the R&D costs. This was one of the main reasons why they switched to Intel chips in Macs: they were IBM's only laptop / desktop CPU customer and so were paying for all of the R&D, while they only pay something like 5-10% of Intel's R&D costs. Buying other companies on their supply chain would have the same problems.

    If I were in their position, I would do the same thing a number of other successful tech companies have done and set up an in-house VC program. If an employee has a cool idea that is not a market that Apple currently wants to be in, then Apple should front them the cash to set up their own company, own 50% of the shares, and let the employee go on sabbatical and return if the company fails.

  • Re:Poor timing (Score:5, Insightful)

    by rgbrenner (317308) on Sunday February 26, 2012 @10:26AM (#39163689)

    They are paid so terribly, that thousands of Chinese line up and wait for hours for a chance to work at Foxconn. And the job ad even says the starting wage is $261:
    http://micgadget.com/21420/thousands-line-up-for-foxconns-jobs-in-zhengzhou/ [micgadget.com]

  • by decora (1710862) on Sunday February 26, 2012 @10:28AM (#39163695) Journal

    i dont understand why people who believe in the free market keep looking to China as some kind of model on a hill. China is run by the Communist Party, and the corporations over there are part owned by the same party.

    There are no labor unions, there are no workers rights laws, there are no environmental laws. There are mines and factories that are run on prison labor - 'criminals' being people who speak things the government doesnt like. Criminals being people who mention forming a union. That is not a 'free market' upon which wages were decided. That is a captive market, not a free competitive market.

    In case you have forgotten, slavery was what the Republican Party was founded to eliminate from the face of the Earth. Not to make a profit off of it by claiming it was 'fair'.

    The idea that someone should not have to inhale N-Hexane on an assembly line to save 1% on the cost of a product has nothing to do with 'socialism'. It is about basic human decency, basic morality, basic common sense. It is about the difference between a civilized society and lawless barbarism.

  • by OnlineAlias (828288) on Sunday February 26, 2012 @10:30AM (#39163703)
    I'm glad you aren't running my company. None of these things have any basis in reality for even the most green in managerial finance. Having excess capital, while generally a good problem to have, is still a big problem. Companies can bleed it through stock buybacks, dividends, or by investing it, but they cannot give it away. What Apple needs to think about doing is buying or creating other companies, be it by horizontal or vertical integration. For example, they could buy or build a competitor to Foxconn (or buy Foxconn itself, this is one I would seriously look at). Or they could take a controlling interest in Facebook. Or invest in the million other smaller start ups that could bring new innovations to Apple. Apple is seriously at a crossroads right now. Without an innovative product pipeline (or Jobs) and a supply chain that is costing a ton in PR, Apple is going to have to start putting their big boy panties on and start acting like a big boy company.
  • by mjwalshe (1680392) on Sunday February 26, 2012 @10:32AM (#39163723)
    Complete bollocks dividends are the major part of the return from any portfolio of securitys - this is investing 101 its also real money you cant fake dividends via dodgy accounting practices.
  • by swalve (1980968) on Sunday February 26, 2012 @10:37AM (#39163763)
    No, because you get to keep the dividend and use it to buy more stock if you prefer.
  • by LeoXIII (888066) on Sunday February 26, 2012 @10:42AM (#39163803)
    The fundamental value of a stock is the sum of future payouts in the form of dividends, spinoffs or liquidation. For companies with finite resources, such as a mining company, this is easier to compute than for a technology company like Apple. But if Apple would never pay a dividend or spin off parts, the value of the stock is zero. The discussion above shows a remarkable lack of understanding of the basics of capitalism. The only reason not to pay a dividend is that the money is better invested in the company now so that it will generate even higher profits for the owners in the future.
  • by samkass (174571) on Sunday February 26, 2012 @10:43AM (#39163809) Homepage Journal

    When you buy stock you own part of the company. Isn't it kind of silly to not take any of the profit out of the company you own once it's mature and has all the money it needs for operations into the indefinite future. Intentionally deciding not to get paid as the owner of a company seems silly.

  • by Entropius (188861) on Sunday February 26, 2012 @11:04AM (#39163951)

    The day that Apple makes things cheaper I will eat my hat.

  • Greater fool (Score:5, Insightful)

    by gr8_phk (621180) on Sunday February 26, 2012 @11:10AM (#39163989)
    The problem is you're playing the greater fool game. If you intend to make money by selling a stock at a later date, then what you're saying is that you think you can find someone willing to buy AFTER you got the value out of it. Your buying strategy is also then based on inside information, "intuition" or some other divine insight, otherwise people would have already known and driven the price up. Another downside is that you have to actually SELL your assets to get any money from them.

    The old school way which is now gaining popularity again is to buy companies that pay dividends. This gives you a return without finding a fool to sell to or cashing out. It's how it's supposed to work. If the stock goes down, it's not even relevant unless they cut the dividend (there is eventually a correlation there). Now a few words about yield. A company can only pay (long term, at most) a dividend of 1/PE where PE is the price/earnings ratio. So a PE of 20 means they can potentially pay a 5% dividend if they pay out all the earnings. A PE of 10 is potentially "undervalued" in this regard. Apple with a PE around 15 isn't actually bad, they should probably just start paying a dividend based on earnings and keep the pile of cash for a rainy day. Then the dividend could be kept up during tough times.
  • Re:Poor timing (Score:3, Insightful)

    by UnknowingFool (672806) on Sunday February 26, 2012 @11:14AM (#39164019)

    Apple is of course being exploitive, but I think the local population would rather be exploited than nothing. If Apple funded a wage that wouldn't repulse a United States Citizen, then they'd probably be paying US citizens for an even bigger PR boost of 'made in america'' and those 'lucky' Foxconn employees would then get nothing.

    The problem is that you're defining the wage to what someone in the US makes in nominal values. The cost of living is different in different parts of the world and you have to use relative values. Where I live my salary is decent; if I move to New York City and make the same amount, I'd be living in squalor.

  • Re:Greater fool (Score:5, Insightful)

    by fafaforza (248976) on Sunday February 26, 2012 @11:22AM (#39164057)

    But you don't have to find a "fool" because market makers are always there to facilitate liquidity. And if there's a good amount of volume, you won't have trouble selling at the price you want.

  • by dkf (304284) <donal.k.fellows@manchester.ac.uk> on Sunday February 26, 2012 @11:27AM (#39164079) Homepage

    Remember, buy low, sell high. You may have to wait for the high and resist selling in a panic.

    Yes, but markets can be irrational for much longer than you have the money to keep up.

  • They should not, under any circumstance, reduce cash reserves at this point. Re-establishing a dividend might make sense, but not an excessive one, and not as a means of managing capital.

    Do you know why it took a year for competitors to bring out a real iPad competitor? It wasn't because Apple had much better tech, or because the others didn't have the prototypes - it was because no one could order parts. Before Apple launched the iPad, they bought up so much of the manufacturing capacity for key components - screens, especially - there was no way that Samsung could contract enough suppliers to bring a competitor to market.

    Doing this takes a lot of capital. If they're talking about reducing operating capital, that tells me they don't have a "Next Big Thing" that they're planning on launching like they did the iPhone and iPad. That means drastically lower long-term growth.

  • Re:Diversify (Score:3, Insightful)

    by roman_mir (125474) on Sunday February 26, 2012 @11:37AM (#39164141) Homepage Journal

    I am talking about real inflation, the real money printing that causes it and the increase of prices that is coming to USA due to it, though it was able to severely delay that by exporting all of that inflation (specifically because the printed money leaves the country to buy foreign goods, where it is accumulated).

    Real inflation, the kind of inflation that should have been used as deflater to the fake GDP numbers (GDP has been shrinking in USA for over 20 years, not growing, and in all cases, GDP is 70% spending of imported goods, and there are bail outs and military spending there too). Real inflation, which is the real tax on everybody holding US denominated assets.

    Real inflation, the way it was calculated during Nixon [shadowstats.com], when simple 4% was enough for the gov't to set wage and price controls (misguidedly, as all economic and fiscal things gov'ts do). It was calculated without substitutions and hedonics, without reverse engineering the numbers to fit the narrative.

    Or real inflation as calculated from rise of commodity [slashdot.org] prices (and no, it's not 'speculation', that's a cop out for the gov't inflating its money, buying its own debt, there are always 2 people in each transaction - one buy, one selling).

    Real inflation, which does not need to see increase in wages, that's Keynesian nonsense. Wages don't increase because there is nothing manufactured.

  • by fuzzyfuzzyfungus (1223518) on Sunday February 26, 2012 @11:38AM (#39164147) Journal

    And ignoring sensible dividends and going hell for leather for growth is what did for the likes of Enron.

    The 'fraud on a massive scale' thing probably had something to do with that one...

  • by VortexCortex (1117377) <VortexCortexNO@S ... t-retrograde.com> on Sunday February 26, 2012 @11:51AM (#39164215) Homepage

    Missing option.

    Another missing option: Don't gamble, or try to make money from literally nothing. -- What, pray tell, social benefit does moving numbers around actually do? You shift them around smartly and the numbers get bigger? Oh I see...

    It gives companies something to borrow against when people think highly of them at the cost of having the rug ripped out from under them (and their shareholders) at any given moment by mere rumors... Companies that don't borrow against their stock price can survive even terrible market conditions by PROVIDING BENEFIT to their customers alone.

    Don't get me wrong, I understand investments. It's just that the stock market isn't the only way to invest. When I invest in something, it's because I actually believe in the company based on something more than just erratic market trends. The value of my investment doesn't fluctuate with the moronic whims of a fickle market -- My returns actually reflect the company's profits. If they don't seem to be performing well, then that's my fault for not doing my research, or just bad luck. "Shit Happens."(tm)

    Now if I can sell my failing investment to someone else, then I've just made some poor fool a sucker. The stock market is full to the brim with suckers... I may have dodged that bullet, but I actually don't do this unless absolutely necessary -- Instead I try to see if there's some way to fix the issue instead of bailing out at the first sign of trouble (unlike a stock marketeer). I sleep better at night, and make better investments, because I have a vested interest in actual, not momentary, success and don't play in the stock cesspool.

  • Re:Greater fool (Score:3, Insightful)

    by cforciea (1926392) on Sunday February 26, 2012 @12:28PM (#39164383)
    Nope, they provide fake liquidity. There still has to be a fool on the other end, the "market makers" just take a cut between when I sell it and the other chump buys it.
  • Re:cure cancer (Score:4, Insightful)

    by the_humeister (922869) on Sunday February 26, 2012 @12:49PM (#39164499)

    I guess you don't know this but cancer is a collection of heterogeneous diseases whereby cells grow out of control. They range from the benign (eg basal cell carcinoma) to the guaranteed death sentence (eg grade 4 astrocytoma). And they all have different genetic causes. So being able to identify the cause, preventing it, and then curing one particular cancer may not help for other types (eg just cut out basal cell carcinoma and you're cured, but there is no true cure for chronic melogenous leukemia other than stem cell transplant or gene therapy to correct the genetic mutation).

    Anyway, finding a "cure for cancer" leads to the question: which one?

  • Re:Greater fool (Score:3, Insightful)

    by pepty (1976012) on Sunday February 26, 2012 @02:04PM (#39165161)

    Apple is neither an investment bank nor a venture capital firm. That is not their field of expertise, and it's likely that they won't make the most optimal decisions with the money. (It also creates a principal-agent problem where company executives have the incentive to invest in what they know and understand rather than what is most economically efficient.)

    Anyone with 98 billion dollars can afford better expertise than they can get from hiring investment banks or VC firms, which come with their own principal-agent and conflict of interest problems. They can afford to buy Goldman Sachs outright (Twofer: Apple's lobbyists would become largely redundant) or to partner up 50:50 with, well, most of the VC firms. They'd still have plenty left over for a massive stock buyback.

    I think the only way dividends will become popular again is if:

    1. legislation passes that forces compensation plans in public companies to be tied to dividends instead of stock options or grants

    2. capital gains taxes are brought in line with income taxes.

    neither of which is going to happen.

  • Re:Diversify (Score:4, Insightful)

    by roman_mir (125474) on Sunday February 26, 2012 @03:55PM (#39165997) Homepage Journal

    Keynesian ideas to economics are what foreskin is to a Hasidic Jew.

    However I am very well versed in relative value of things - did you know that in gold and silver oil prices are not only staying steady, but are falling somewhat? All that while paper currencies of the world are being destroyed, I might add.

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