Advertisement

Blog

Apple Fumbles the Cash Question

With every quarter of another phenomenal success, {complink 379|Apple Inc.} is compounding the problem of what to do with its growing cash pile. It's time for the company's board of directors to seriously consider practical steps for what to do with the money, including the possible acquisition of businesses in adjacent or even non-competing sectors and spinning this out to shareholders.

What a story: The company that dramatically overwhelmed rivals in the consumer electronics market doesn't know what to do with the fruits of its success! Apple now has $97.6 billion in cash, and according to CFO Peter Oppenheimer, management and the board of directors are “actively discussing the best uses of our cash balance.” They haven't found a resolution yet, and due to the legacy of how the funds were built up and the lack of a roadmap from the beginning, I think this is a problem that will continue to gestate, feeding on the company's continuing success to double each quarter.

Pressed repeatedly for clarification during a conference call yesterday about the potential “uses” of the huge funds the company has in cash, short-term, and long-term marketable securities, Oppenheimer insisted the discussions at the management level were ongoing, but that no firm decision had been taken.

If Apple manages its business the same way it is managing the issue of its cash, it wouldn't be the world's most successful consumer electronics company. The cash itself is not the problem (it's a mind-blowing windfall), but not having a plan year after year for its use is even as the mountain of money continues to grow.

Here are the stats from the latest results: Cash flow from operations in the December quarter was a prodigious $17.5 billion; net income rose to $13.1 billion, more than double the $6 billion it had in the comparable 2010 quarter; sales jumped a staggering 73 percent, to $46.3 billion, from $26.7 billion; and unit shipments of both the iPad and the iPhone more than doubled during the same period.

The company is generating cash at an extraordinary pace. It closed the September quarter with approximately $82 billion in cash, short–term, and long-term marketable securities and added more than $15 billion to this in a single quarter. That is simply phenomenal and unprecedented. At this pace, Apple could close its fiscal 2012 with as much as $200 billion in cash if it still cannot figure out what to do with it or how to distribute it to shareholders.

Apple created this nightmare and must find a resolution quickly. The company at one time kept the cash it generated because its growth, while rapid, was also initially tentative at the beginning of this century. It had branched by the middle of the last decade into the consumer electronics market first with the iPod and then the iPhone and was unsure what the future held. At the time, it made sense to keep a large cash reserve to fund R&D as well as any other acquisition and supply chain initiatives.

Apple has successfully done all this, and it has more than enough money to maintain this. Plus, the free cashflow it generates quarterly from many high-margin businesses for the foreseeable future ensures it is unlikely to run out of funds anytime soon. So, it's time to whittle down the pile.

31 comments on “Apple Fumbles the Cash Question

  1. Taimoor Zubar
    January 25, 2012

    Bolaji, what do you think are some of the ways Apple can utitlize the surplus pile of cash effectively? Would you suggest an option which involves pumping the cash back into business, or would it be better to acquire a company and look to diversify?

  2. rohscompliant
    January 25, 2012

    Yes they should diversify ……….and buy my company………..shameless plug …sorry!

  3. bolaji ojo
    January 25, 2012

    TaimoorZ, My next blog is going to be on possible uses for Apple's huge cash.

  4. bolaji ojo
    January 25, 2012

    rohscompliant, They are looking already at your company. 🙂

  5. Barbara Jorgensen
    January 25, 2012

    I wonder if Apple, true to form, is trying to buck the trend that cash on hand is risky. I'm not a finance expert, but hasn't the idea been that too much cash makes you a takeover target? Although there are companies out there that could buy Apple, I don't see happening. What are the risks from the purely financial standpoint from cash on hand?

  6. Houngbo_Hospice
    January 25, 2012

    “My next blog is going to be on possible uses for Apple's huge cash.”

    @Bolaji:

    You should send them your proposal/ideas and get paid for that. LOL!

  7. Houngbo_Hospice
    January 25, 2012

    “What are the risks from the purely financial standpoint from cash on hand?”

    Apple has more cash on hand than they can handle? Does it mean that they are ripping their customers off by selling their products at a higher price? They may consider lowering their pricing a little bit.

  8. JADEN
    January 25, 2012

    If Apple don't know what to do with their huge piled cash, may be they should think of another invention and called it iWorld, since they have iPad, iPhone, etc. Or on a lighter mood, the acquire Microsoft Corporation or Google.

  9. JADEN
    January 25, 2012

    @ Hospice_Houngbo,

    I think you are right, they must have ripped off customers by selling their products at higher price.  For having such huge cash, they can easily sell at cheaper price.

  10. Damilare
    January 25, 2012

    I disagree that they are ripping off customers by selling high priced goods, afterall, they do not coerce people to buy their goods

  11. Damilare
    January 25, 2012

    @ Hospice “Apple has more cash on hand than they can handle? Does it mean that they are ripping their customers off by selling their products at a higher price? They may consider lowering their pricing a little bit.”

    I doubt that Apple will ever reduce their products prices because they have excess cash. The pricing regime itself serves a purpose in attracting consumers and making them believe the 'supposed' value of the gadgets. 

  12. _hm
    January 25, 2012

    Apple should diversify for auto electronics. This is huge market and there is lot to contribute to make real smart cars.

     

    Perhaps, Apple can think of making innovative cars too. It may run for 10hrs on single charge and cover up to 1000 kms!

     

     

     

  13. bolaji ojo
    January 26, 2012

    _hm, That would make the company the magician of the electronics/automotive world. Perhaps what you envision is possible but I doubt any company is focussed on that at the moment.

    Apple's challenge is that it is in a good market position and for now, the money is “not burning a hole” in the company's pocket as Peter Oppenheimer, the CFO puts it. So, what's the hurry? Right? Keep making great products, lifting the stock value and winning market share — so what if the result is a bucketload of cash? The money is being properly invested right now.

    That logic is good, up to a point. The company is not a bank or an investment firm and unless it wants to become either, it needs to distribute the cash one way or the other and keep building winning products.

  14. Ariella
    January 26, 2012

    If what the author contend in this article is true, a good use for Apple's cash would be improving the situation for its suppliers' workers and not squeezing them beyond the point of safety. 

  15. Anne
    January 26, 2012

    I think the logical thing to do with the pile up cash is to make some strategic purchases or expanding its infrastructure in order to maintain their growth.

  16. t.alex
    January 26, 2012

    Probably it's time for Apple to do some charity work:)

  17. bolaji ojo
    January 26, 2012

    I could suggest some outrageous things Apple could do in addition to the philantrophy you mentioned. It may distribute some of the money to employees — turn them into instant millionnaires! It's not going to happen and I don't expect it.

  18. Mr. Roques
    January 26, 2012

    1) Buy all the glass companies in the World and have control over that.

    2) Vertically integrate, buying another companies from their supply chain.

    3) Invest in green energy, etc. (technologies that help reduce their costs).

  19. dalexander
    January 26, 2012

    Ariella,

    HERE HERE! Apple has such a potential to alter the “evil” big corporation image by deliberate investment in quality of life concerns for anyone that is behind the scenes making it happen. The only thing worse than empire building on the backs of the poor, is adding more ibricks to the same backs. I really like the idea of Apple taking a proactive stance and seeking out and amending any injustices or enequities suffered by their back-end manufacturing and supply support. 

  20. Ariella
    January 27, 2012

    @Douglas yes. The usual rationalization for driving a hard bargain on the backs of workers is necessity. But if the company has such a surplus of cash, it really does not have that justification.

  21. bolaji ojo
    January 27, 2012

    All nice suggestions but Apple will most likely distribute the money to shareholders. This is why many companies are pushing for a tax holiday to repatriate money kept outside the U.S.

  22. bolaji ojo
    January 27, 2012

    Ariella, That “necessity” to drive a hard bargain with suppliers and workers can come to be a problem for the company later. The negative press Apple is getting now is not in its overall interest in the long term.

  23. Ariella
    January 27, 2012

    @Bolaji, I would think so. But I do know that there are people who are such fans of Apple that they will stick by the brand, no matter what.

  24. ahdand
    January 27, 2012

    Why not because Apple has always invented something for their customers and becasue of that only other companies made money. Steve Jobs may be gone but still I feel his ideas do work and they will keep on working for Apple for a longer period.

  25. Anna Young
    January 29, 2012

    @Ariella, I agree, at least some of Apple's cash can be used to make amends at these factories. That is to ensure safer working practices and other related issues are adhered at the supplier's factories.

  26. Ashu001
    January 29, 2012

    Mr.Roques,

    Name one Green Energy company that is doing extremely well(and has done so for last 5 years).

    Green energy companies have been proven to be an absolute disaster for Shareholders,Taxypayers and employees.

    Here's the latest company to bite the dust.

    http://thehill.com/blogs/e2-wire/e2-wire/206777-doe-backed-battery-company-files-for-bankruptcy

    The Biggest Losers??

    Ordinary Taxpayers like you and me.

    Regards

    Ashish.

    Ashish.

  27. t.alex
    February 1, 2012

    Bolaji, i would think that is a great suggestion. Highly motivated employees can really push the company forward.

  28. Mr. Roques
    February 29, 2012

    What percentage of the cash they hold do you think they will give back to shareholders? 30%? 60%? They would still have plenty of cash to go buy a few things.

  29. Mr. Roques
    February 29, 2012

    Well, they have the luxury that they can test out several technologies. 

  30. Ashu001
    February 29, 2012

    Mr.Roques,

    Which is probably why Ordinary shareholders in Apple have now won more say in deciding the Board.

    Before you decide on(what could be ) foolish acquisitions-Ask what Mr.Shareholder thinks.

    This is the way that all companies should function,unfortunately most S&P 500 companies (Tech companies in particular),tend to consider Cash on their Balance sheet as personal assets of the Company CEOs/Board's which they can spend wherever and however they like.

    Corporate Governance? Whats that?

    Ashish.

  31. Mr. Roques
    May 30, 2012

    Well… They are the Executives for a reason. Who says te stakeholders are right? Or know better?

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.