What will Apple do with $28B?

  • Posted: 22 January 2009 02:56 PM

    1. A monster dividend, or a series of smaller dividends over time (a dividend flow)?
    2. A huge stock buyback?
    3. A company acquisition?

    In the case of (2), if they were to do this, they would be doing it now. And since Oppie said in no uncertain terms that the money is to remain in Apple’s coffers, that pretty much precludes that option.

    So will it be (1) or (3)?

    Or none of the above?

         
  • Posted: 22 January 2009 03:03 PM #1

    Dividends are an inefficient way to return value to shareholders due to double taxation issues. By the time corporate taxes are paid and then personal incomes taxes paid on the dividends received, the shareholder is left with only a fraction of the original profit value.

    I’d rather see Apple at this time use funds for small, medium and large acquisitions than a dividend or series of dividends.

         
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    Posted: 22 January 2009 03:07 PM #2

    None of the above.

    Now and then, traders want Apple to do 1. to 3. so they can profit from the rally.  I dislike giving $ back to investors since getting them back is hard.  Hoarding cash is golden since it allows Apple to negotiate good contracts with suppliers by paying them some upfront cash and maintain an aggressive acquisitive poise (always ready to acquire a good company at fire sale price should there be one).  Having tons of cash is one of the reason why Apple could maintain a good profit margin.

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    Posted: 22 January 2009 03:17 PM #3

    Don’t forget that the cash supports the stock without a buyback.  We keep talking about how $30 of the share price is cash.  It just adds to valuation.

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  • Posted: 22 January 2009 03:36 PM #4

    Mace - 22 January 2009 07:07 PM

    None of the above.


    I agree - for now.

    But when the economy picks up and that $28B grows to $35B and then $40B and even more than that…there comes a time when a mountain of cash must be put to use, at least some fraction thereof.

    Personally, I would like to see Apple acquire new, cutting-edge technologies a la Imagination. Going forward, this will be one of the ways to sustain Apple’s enhanced growth.

         
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    Posted: 22 January 2009 03:40 PM #5

    What will Apple do with its 28.1 Billion war chest? If you listened to the earnings call then you’d know that Apple will use the 28.1B the same way they used their 15B, and then 18B, and then 21B, and then 25B.

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  • Posted: 22 January 2009 03:59 PM #6

    Eric Landstrom - 22 January 2009 07:40 PM

    What will Apple do with its 28.1 Billion war chest? If you listened to the earnings call then you’d know that Apple will use the 28.1B the same way they used their 15B, and then 18B, and then 21B, and then 25B.


    That money doesn’t belong just to Steve Jobs. It belongs to the millions of other shareholders out there. And if Apple stops growing its revenues and starts settling into a steady-state cash cow company like MSFT or CSCO, those shareholders are going to be mighty tough to convince that THEIR money is best kept in Steve Jobs’ war chest.

    Either they’ll use it to grow, or they’ll be forced to give it up in one fashion or another. There are no free lunches.

         
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    Posted: 22 January 2009 04:15 PM #7

    If you have read Jobs’ history and how close he has been on several occasions to going busted and then having to go hat in hand to Gates to raise capital, it should not surprising that he wants to keep hard cash on hand for a rainy day…...he’s seen a few.

    Things keep going in the present direction, he’ll be able to buy MS in a few years and not even worry about competing with them…..... although for the life of me I don’t why, other than seeing the look on Ballmer’s face.

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    Posted: 22 January 2009 05:16 PM #8

    nrabinov,

    Have you been checking how many “shareholders” hold AAPL beyond one year?  That’s the minimum I would consider as a shareholder.  To me, if you didn’t hold AAPL for at least 5 years, you’re not qualified to have a say on how Apple should manage its cash.  I’m a shareholder since 1997.

    I agree with Apple need to acquire IP but not spending billions to do so.  In fact, Apple has been acquiring many smallish IP companies.  I hate billion dollar acquisition because most of the valuation is excessive premium for optimistic future potential without adequately discounting for the difficulties in integration and unknown marketplace.

    Some interesting facts:  Apple have sufficient cash to takeover 2xC or 1xBAC.  No need to apply for banking license LOL.  Also, 1.5xDELL.

    I, shareholder of AAPL for 11+ years, don’t want Apple to do any of the 1. to 3.  For 3., I mean those billion dollar acquisition.

    [ Edited: 22 January 2009 05:18 PM by Mace ]

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  • Posted: 22 January 2009 11:40 PM #9

    I choose ‘do nothing’. In these times with so many investors looking for companies that are rich in cash, it supports the stock in itself.

    For an acquisition, what was the reason everyone hated the idea of buying TiVo and incorporating it into Apple TV? That would be less than a billion?

         
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    Posted: 23 January 2009 12:49 AM #10

    cranium - 23 January 2009 03:40 AM

    I choose ‘do nothing’. In these times with so many investors looking for companies that are rich in cash, it supports the stock in itself ...

    ATM, cash is king because recession, possibly depression, is in progress.  However, because of Uncle Sam pumping of excessive liquidity into the economy, the probability of hyperinflation is very high.  Apple has to consider this hyperinflation scenario and make appropriate hedging.  May be buy TIPS or enter into a currency basket.  As investors, once there is such an evidence, we should actively monitor Apple’s decision and if necessary, beseech Apple for action.  For now, cash is king.

    cranium - 23 January 2009 03:40 AM

    For an acquisition, what was the reason everyone hated the idea of buying TiVo and incorporating it into Apple TV? That would be less than a billion?

    Recording is fading together with baby boomers.  Gen X and Y watch shows via iTunes, YouTube, and other streaming sites.  My impression is Apple did approach TiVo for certain IP but the negotiation fell apart.  I believe Apple has since developed the necessary technology.

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  • Posted: 23 January 2009 03:16 AM #11

    Mace - 23 January 2009 04:49 AM

    However, because of Uncle Sam pumping of excessive liquidity into the economy, the probability of hyperinflation is very high.

    Hyperinflation is the preferred method of the new administration to revive housing values. My guess is that it will occur very intentionally.

         
  • Posted: 23 January 2009 12:26 PM #12

    Apple already indicated at earnings that the bulk
    of investments in Q02 will be in Apple stores.

    A buy back seems an obvious play considering current share price
    and the additional boost the signal of confidence would bring.

    Product research and development.

    Public Relations Strategy.

    an ipancreas.

         
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    Posted: 23 January 2009 12:43 PM #13

    nrabinov - 22 January 2009 07:59 PM
    Eric Landstrom - 22 January 2009 07:40 PM

    What will Apple do with its 28.1 Billion war chest? If you listened to the earnings call then you’d know that Apple will use the 28.1B the same way they used their 15B, and then 18B, and then 21B, and then 25B.


    That money doesn’t belong just to Steve Jobs. It belongs to the millions of other shareholders out there. And if Apple stops growing its revenues and starts settling into a steady-state cash cow company like MSFT or CSCO, those shareholders are going to be mighty tough to convince that THEIR money is best kept in Steve Jobs’ war chest.

    Either they’ll use it to grow, or they’ll be forced to give it up in one fashion or another. There are no free lunches.

    Nobody said the money belongs to Job’s but the earnings call stated that the money will continue to be conservatively invested.

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    Black Swan Counter: 9 (Banks need money, Jobs needs a break, Geithner has no plan, Cuomo’s grandstanding, .Gov needs a hobby, GS works for money, flash crash, is that bubbling crude?).

    For those who look, a flash allows one to see farther.

         
  • Posted: 23 January 2009 03:00 PM #14

    cranium - 23 January 2009 03:40 AM

    For an acquisition, what was the reason everyone hated the idea of buying TiVo and incorporating it into Apple TV? That would be less than a billion?

    Apple must not tie itself to broadcast TV. Better to grow quietly and wait for the future of disintermediated delivery direct from content creator to viewer. When Apple captures a customer, it should be for life. Therefore attracting new customers with obsolescent technology, however popular it might be at first, is undesirable.

         
  • Posted: 24 January 2009 01:12 AM #15

    None of the above. Apple will do what it has always done in the following order. First, it will keep most of the cash for rainy times. The company could not sell a thing and possibly make a profit. That is comforting in hard times. Second, it will focus on strategic investments in small largely unheard of companies (e.g. Fingerworks). That is where Apple gets the most bang for it’s buck. ONce somebody has heard of the company, you will pay big bucks for it. Third, it will use the money like it did with Samsung recently: pay out large amounts of initial capital to insure good prices and future supply of supplies.

    Apple will not pay a dividend because in hard times that depletes the cash pile. Apple will not buy large companies because any value there is risky.