Tim Cook: We Have More Cash Than We Need to Run Apple

| Analysis

Goldman SachsApple CEO Tim Cook told analysts that Apple has more money than it needs to run the company on a daily basis, and asked for patience from analysts and shareholders alike in giving the company time to figure out the best use for all that dough. At the Goldman Sachs Technology and Internet Conference, Mr. Cook said that the company’s board has been in very active discussions about what to do with it.

The comments came when Goldman Sachs analyst Bill Shope asked Mr. Cook about its cash holdings, which stood at more than US$97 billion at the end of the December quarter. He said that Apple had been sparing in its use of that money and noted that there has been a lot of talk about an AAPL dividend, asking point blank, “Should we expect a dividend?”

Mr. Cook argued that his company has not been sparing with its use of cash and said that Apple has spent billions of dollars on its supply chain, developing its retail presence, and building up its data center capabilities. Still, he acknowledged that, “Yes, we still have a lot [of cash],” a line that elicited laughter from the audience.

“I’d say we’re judicious, we’re deliberate,” he said. “We spend our money like it’s our last penny. I think shareholders want us to do that. I don’t think they want us to act like we’re rich.”

He also repeated a line he originally ventured in his first conference call with analysts as CEO of Apple in late 2011, saying, “I said since becoming CEO that I’m not religious about this. I’m not religious about holding it, or not holding it.”

Mr. Cook then went on to say, “We’re in very active discussions in the board about what we’ll do with it, but I think people want us to be deliberate.”

Mr. Shope reacted to this by noting that the comment about Apple’s board of directors being in “very active discussions” about what to do with its money helped the audience understand. This was oblique acknowledgment of the reality that tech execs, especially Apple’s, often speak in code to convey a point without actually saying it.

Coming in the wake of the direct question, “Will we see a dividend?” a fair reading of Mr. Cook’s comment and Mr. Shope’s reaction is that the board has been discussing a dividend and is seriously considering it. It’s a far cry from a commitment, and we will be watching what analysts make of the comments in the next few days.

Mr. Cook also added another comment that could add even more color on the possibility of an AAPL dividend when he said, “We have more cash than we need to run the business on a daily basis, so we’re actively discussing it. I only ask for a bit of patience so we can do it in a very deliberate way and do the best for the shareholders.”

This is likely to be the big takeaway line for Wall Street from the speech.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

Comments

cb50dc

The headline stunned me. I had no idea. This is NEWS.

cranium

Bill Shope, not Schulz. Hogan!!!

CityGuide

I would say investors who are long APPL will hear these comments from Tim and nod in agreement. Maintaining product development and supply for Apple is his cynosure and handing off matters of Apple’s exchequer should be left to the board.

Bryan Chaffin

Thanks, cranium! Article fixed. smile

Nom

That said, what is the purpose of providing a dividend? It’s an incentive to invest.  Apple doesn’t exactly need to provide anyone with an incentive to invest. Currently, Apple is doing quite well without needing to specifically court its shareholder.

Bryan Chaffin

The headline stunned me. I had no idea. This is NEWS.

What’s news is that Apple is saying it. The company line has been, “We want to keep our powder dry.” Moving to “We have more than we need” is a strong policy shift for the company.

jfbiii

At a certain point, cash is it’s own profit center.

davebarnes

“At a certain point,” you could purchase a small country.
For example, the GDP of Andorra is $4G USD.
Are you trying to tell me that you could not buy the entire country for ? $100G USD?

iJack
iJack

?At a certain point,? you could purchase a small country.
For example, the GDP of Andorra is $4G USD.
Are you trying to tell me that you could not buy the entire country for ? $100G USD?

2 1/2 times earnings, Barnes.  2 1/2 times.

Constable Odo

I would say investors who are long APPL will hear these comments from Tim and nod in agreement.

I’m a individual long-term holder since 2004 and I agree with Tim Cook.  I think it’s those greedy hedge fund and institutional managers that are constantly crying for the dividend.  The only decent reason I see for a dividend if it’s good for the company to get more intitutional investors that only buy shares of a company offering dividends.  But that’s it.  I’ve made plenty of money from Apple and I’d rather Apple strengthen its position against rivals in the cellphone and computer industry.  No dividend necessary for me.

Bryan Chaffin

Constable Odo, you agree with Tim Cook on what?

In my mind, he is making it clear?as clear as can possibly be?that he and the board are working out how to pay a dividend, but that doesn’t seem to be your take.

I am flabbergasted, though, that you would turn down more money from your holdings. That’s highly irrational. In fact, Apple paying a dividend will have the double benefit of putting money in your pocket and help the stock climb higher still.

I?d rather Apple strengthen its position against rivals in the cellphone and computer industry.?

I do, too, but what you (and many others) seem to be missing is that Apple long ago passed the point at which it needs more money to do so. Being obscenely conservative, anything over $80 billion is overkill to an absurd level, and then some.

Even if you want to make the floor $100 billion, Apple could pay out $20 billion a year going forward and STILL add to its cash hoard.

That money is doing Apple absolutely zero good. As such, it needs to be returned to its shareholders. Tim Cook and the board of directors know this, and that’s why we will see a dividend this year. smile

skipaq

Apple will not keep growing its’ cash balance endlessly. To do so would hurt them in the long run. The suggestions made that they should just buy some company or companies goes completely against their long held practice. Even worse, simply buying up companies would likely hurt their business and bring all kinds of regulatory scrutiny.

They could do a stock buy back; but that would not stop the pile of cash from growing. On the other hand, a dividend rewards those who own the company. Plus it has the added benefit of creating more demand for Apple’s stock. That is a win win win strategy.

craigf

One hundred bi-l-l-l-l-l-ion dollars is a nice round number. I can see the board considering dividends once that number is achieved. As others have pointed out, this will only help the share price rise because of increased institutional demand from funds that only buy stocks that offer dividends.

I suspect we’re seeing the market’s reaction this morning, both to Tim’s heartfelt presentation and the hint of dividends to come.

Wow.

jfbiii

Even if you want to make the floor $100 billion, Apple could pay out $20 billion a year going forward and STILL add to its cash hoard.

There’s still the domestic/foreign split to consider. If it pays a dividend, that’s out of the domestic cash, no? Otherwise the dividend would come with a tax bill. Given the way that people are spinning the crap out of labor conditions, despite Apple’s demonstrable commitment to improving same, I think it’s only a matter of time before some asstivist tries to force them to repatriate a large chunk of cash and take the tax hit.

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