Apple’s Cash: What should it do, part two?

  • Posted: 29 December 2008 03:21 PM

    In a recent post I asked, should Apple buy RIMM or issue a dividend or just let money pile up in Treasuries.

    Well, many said Treasuries, but I must remind them: Treasuries can sell off, and Apple can lose money on its cash. Yup.  The Fed wants companies to invest the money and is doing all it can to force money out of Treasuries.  And if things continue as they are, it will do more.  As it should do. 

    So again we must ask the question: isn’t there anything better Apple can do with all that money? 

    Some ideas: 1.  Get into the printing business.  Letting Hewlitt dominate printers without any effort at all is a competitive disadvantage, as it also allows HP to take less margins on computers:  2.  Get into the TV business;  3. How about an Apple Camera?  4.  Buy Research in Motion and put the screws to MSFT;  5.  Buy Yahoo; 6.  Build more retail stores around the world and especially in Asia; 7.  Buy Adobe; 8.  Buy Autodesk. 

    Seriously—if this is not the 30s, there must be something better to do with the cash than risk negative returns. 

    What do you think???

         
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    Posted: 29 December 2008 03:39 PM #1

    daniel,

    Holding Treasuries to maturity, you would earn interest + get your principal back.  Hence, you can’t lose money holding them to maturity.

    Stay focus, my friend.  Many successful businesses collapse when they’re too eager to diversify and maintain their growth rates.  For Apple, it should stay focus on growing its business in the mobility arena.  For the immediate future, top priority is to grow iPhone and iPod touch platform.

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  • Posted: 29 December 2008 03:50 PM #2

    daniel - 29 December 2008 07:21 PM

    Some ideas: 1.  Get into the printing business.  Letting Hewlitt dominate printers without any effort at all is a competitive disadvantage, as it also allows HP to take less margins on computers:  2.  Get into the TV business;  3. How about an Apple Camera?  4.  Buy Research in Motion and put the screws to MSFT;  5.  Buy Yahoo; 6.  Build more retail stores around the world and especially in Asia; 7.  Buy Adobe; 8.  Buy Autodesk. 

    ...

    What do you think???

    Do a search on old postings for those very things and you will find they have been touched on in some depth already.

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  • Posted: 30 December 2008 05:31 AM #3

    Mace - 29 December 2008 07:39 PM

    daniel,

    Holding Treasuries to maturity, you would earn interest + get your principal back.  Hence, you can’t lose money holding them to maturity.

    Stay focus, my friend.  Many successful businesses collapse when they’re too eager to diversify and maintain their growth rates.  For Apple, it should stay focus on growing its business in the mobility arena.  For the immediate future, top priority is to grow iPhone and iPod touch platform.

    agreed.

    if you wanted to invest in fallen companies and ideas after a recession, you would do it in the twilight hours. most americans believe we are headed into a multi-year recession. if so, i don’t expect apple to spend cash until final months of those years.

    mace/dt- remember the gallup poll i showed where americans were always on the opposite side of when to invest? i’m watching these polls carefully now.

         
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    Posted: 30 December 2008 07:32 AM #4

    superbaka - 30 December 2008 09:31 AM

    ... if you wanted to invest in fallen companies and ideas after a recession, you would do it in the twilight hours ...  i don’t expect apple to spend cash until final months of those years ...

    Clever thinking.  Biggest bang for the buck.  Those who want Apple to spend its cash now are investors who want to sell into any M&A, share-buyback and dividend-paying rally.

    superbaka - 30 December 2008 09:31 AM

    ... mace/dt- remember the gallup poll i showed where americans were always on the opposite side of when to invest? i’m watching these polls carefully now.

    I recall those polls.  Worse case scenario from EW perspective is one more dive to $60s before a multi-month rally.  However, weekly MACD shows a promising picture, refer to this weekly chart.  With cash representing 56% of stock market networth and zero interest rate, it won’t take much good news to lure those cash hoarders into the market.  I’ve not studied what happen during the great depression ... who are the last few dominoes to fall?  Are commercial properties amongst the last few since impact won’t be visible till the lease expired?

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  • Posted: 30 December 2008 11:28 AM #5

    daniel - 29 December 2008 07:21 PM

    ISome ideas: 1.  Get into the printing business.  Letting Hewlitt dominate printers without any effort at all is a competitive disadvantage, as it also allows HP to take less margins on computers:  2.  Get into the TV business;  3. How about an Apple Camera?  4.  Buy Research in Motion and put the screws to MSFT;  5.  Buy Yahoo; 6.  Build more retail stores around the world and especially in Asia; 7.  Buy Adobe; 8.  Buy Autodesk.
    What do you think???

    Apple deliberately left the printer business years ago. There’s no reason for Apple to compete with existing and profitable accessory and peripheral makers. The best way to expand one’s business it to get as many other enterprises as possible selling products that complement your business.

    In the PC market what helps to drive sales is enlarging one’s economic environment (developers, peripheral maker’s, etc.). There’s no reason for Apple to compete with HP, Epson, etc. in areas in which they have expertise and established brand names. There’s no shortage of printers for Mac products and thus no economic justification for such a move. Apple used to market printers but smartly chose to exit that business.

    Apple was one of the original makers (or at least marketers) of a digital camera. Again, Apple chose to exit that business. Canon is a well-established maker of cameras that work well with the Mac.

    Buying Adobe would not provide an attractive return on investment. Apple would necessarily have to sell-off the video products (Final Cut is better) and would put Apple in the unattractive position of being a major Windows software maker with all of its headaches. Discontinuing the Windows products would not make economic sense with regard to the revenue and profit stream needed to finance the costs of the acquisition. A few anti-trust issues might be raised as well.

    Apple carefully chooses its retail store locations and for good reason. Yahoo! as MSFT discovered is a stupid acquisition. There’s no viable (and growing)  profit stream to justify the high cost.

         
  • Posted: 30 December 2008 02:53 PM #6

    These are excellent answers. 

    Just before reading them, I read the Gizmodo bit about Jobs.  What an incredible bummer.  I know some people didn’t like him personally, but wow, he was an incredible entrepreneur.

         
  • Posted: 30 December 2008 04:19 PM #7

    daniel - 30 December 2008 06:53 PM

    These are excellent answers. 

    Just before reading them, I read the Gizmodo bit about Jobs.  What an incredible bummer.  I know some people didn’t like him personally, but wow, he was an incredible entrepreneur.

    Yeah, he sure was. Too bad he’s dead now, right, Daniel?

    [ sarcasm mode disabled ] : What, exactly, do you consider the bummer to be, Daniel? I hope it’s the spreading of malicious rumors that you find distasteful…

         
  • Posted: 30 December 2008 04:26 PM #8

    These rumors are just awful. Don’t people have other things to do than write smug gossip?

         
  • Posted: 30 December 2008 05:03 PM #9

    Hey, hey, hey, I was long Apple at the time the Gizmodo thing hit.  I didn’t write it; I didn’t spread it, and I sure as heck didn’t like it.  I knew it was a risk when I bought the stock, but he was on the last conference call. 

    Now before we blame rumor mongers 100%, let’s admit that Apple’s handling of this hasn’t been the best.  Sure he’s entitled to some privacy, yet the value of the stock is 76 billion with a b, and people are entitled to be concerned and even frightened.  We remember where Apple was when Steve came back. 

    The Madoff affair might have people extra skittish.  Yet is it too much to ask Steve to get in front of a tv camera and tell investors, who as a group have experienced a horrendous year, that he’s still able to run the company? 

    No, it isn’t. 

    Anyway…as to the pt of my initial post, that Apple and other cash rich companies can’t find a better use for cash than treasuries, is itself a sign of a problematic economy…and this sign has been there for years.  Earning 1% annually on short term treasuries, plus roll over trading fees, isn’t great.

         
  • Posted: 30 December 2008 05:19 PM #10

    While SJ won’t be giving the keynote at Apple’s last MacWorld, I still expect we will see him at some point. For example, he may open the event and welcome the crowd and then turn things over to Peter or whoever. Apple has never said he won’t be at the event. But we’ll know for sure next week.

         
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    Posted: 30 December 2008 06:15 PM #11

    I hope Apple employs some of their cash hoard to employ ex-SAS / Delta contractors to hunt down the ‘sources’ of these rumours.

    Am I bitter that I panicked and sold half of my shares today for a loss?  No, sir, I’m not bitter…  :drool:

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  • Posted: 30 December 2008 09:04 PM #12

    daniel - 30 December 2008 09:03 PM

    Anyway…as to the pt of my initial post, that Apple and other cash rich companies can’t find a better use for cash than treasuries, is itself a sign of a problematic economy…and this sign has been there for years.  Earning 1% annually on short term treasuries, plus roll over trading fees, isn’t great.

    We don’t know Apple’s acquisition plans. There may be some good companies and good technologies available on the cheap. Besides, interest rates won’t remain this low for long.

         
  • Posted: 30 December 2008 10:11 PM #13

    daniel - 30 December 2008 09:03 PM

    Yet is it too much to ask Steve to get in front of a tv camera and tell investors, who as a group have experienced a horrendous year, that he’s still able to run the company?

    Yes, it is.

    First, should he do that every week or so every time some rumormonger decides to repeat this nonsense? Second, the company will get along just fine with or without SJ.

         
  • Posted: 30 December 2008 11:28 PM #14

    Agreed. The man isn’t stupid and he has surrounded himself with a team of very smart and capable people.

    Pandering to what what is now an obscene level of rumor-mongering would be counter-productive. Being treated like a marionette on a string to come public with his personal health news every time someone writes up a rumor is not a way someone should be expected to live or respond.

         
  • Posted: 02 January 2009 03:33 PM #15

    My admittedly offhand answer to the cash question is to invest in CIA.

    Content for iTunes & app store.
    Intellectual property.
    Asia.

    I concur with Mace that it is now a buyers market.  I concur with DT regarding the SJ health issue.