A question for the financial wizards out there... how much investment income does Apple get from all this?
Not sure...as always, it depends on the interest. The longer term stuff obviously gets a better return, but even if they only made 3% on the average of $30 billion they had around last quarter, that's $900 million. But its probably not nearly that much in this market with the T-bill rate of return so depressed.
BTW, it was the investment income that kept Apple alive long enough during the dark times of the mid-1990s. The $4 billion in cash/securities on hand at the time was keeping the company afloat, but the danger was that they were getting ready to start dipping into the principal to maintain operations, which is a death spiral in any finance class.
$31.1 billion is a pile o' cash. At some point Apple is going to have to address the issue seriously. I suspect the drumbeat from investors will get louder as time goes on, but right now, they are probably just happy that Apple seems to be a safe harbor in the financial storm. Apple may have to declare a dividend (they were a dividend company in the 80s-early 90s). I can't see them spending a lot of money on another company...it's just not their style. They make smaller, targeted investments in companies they feel have long upside value in terms of multiples. Witness the P A Semi purchase last year, or even Soundjam (iTunes) a decade ago. Buying Adobe would cost a bundle (upwards of $20 billion) and only raise cash flow, not as much overall profits.
Buying Adobe would cost a bundle (upwards of $20 billion) and only raise cash flow, not as much overall profits.
That's a good point. Software-only companies have a higher operating cost in general, since software is becoming more commoditized but even more expensive to create. People just in general don't want to pay more than $20-$30 for software but they're still willing to shell out for hardware (good for Apple, bad for software only companies). The largest software only firms out there aside from Microsoft--Symantec, SEP and Oracle--all make more than 60% of their revenue and profits from enterprise customers, who may only spend $20-$30 a seat but buy in 250,000+ volume licenses.
Eventually investors are going to scream for something to be done with the pile of cash. Microsoft's stockpile reached $50 billion before they ended up giving investors a dividend, but I'm not sure if that's Apple's style either. I could see Apple putting a significant stake into a company they see as important or serves as a partner--ironically much like Microsoft did with Apple in the late 90s. But with $30+ billion, they'd have to do that a couple of times over.
I think it would be very interesting if Apple were to buy ARM, and take over chip development for the iPhone completely. But aside from conspiracy theories like pissing of Intel, it's just not Apple's style as pointed out before.
That's a good point. Software-only companies have a higher operating cost in general, since software is becoming more commoditized but even more expensive to create. People just in general don't want to pay more than $20-$30 for software but they're still willing to shell out for hardware (good for Apple, bad for software only companies). The largest software only firms out there aside from Microsoft--Symantec, SEP and Oracle--all make more than 60% of their revenue and profits from enterprise customers, who may only spend $20-$30 a seat but buy in 250,000+ volume licenses.
Eventually investors are going to scream for something to be done with the pile of cash. Microsoft's stockpile reached $50 billion before they ended up giving investors a dividend, but I'm not sure if that's Apple's style either. I could see Apple putting a significant stake into a company they see as important or serves as a partner--ironically much like Microsoft did with Apple in the late 90s. But with $30+ billion, they'd have to do that a couple of times over.
I think it would be very interesting if Apple were to buy ARM, and take over chip development for the iPhone completely. But aside from conspiracy theories like pissing of Intel, it's just not Apple's style as pointed out before.
Actually, the companies doing enterprise software get at least half of their revenue these days from the support contracts on their software licenses. New license sales is great because that's where you grow the business. But year-after-year support contracts is where many of those companies you stated make their money.
And again, I would be extremely surprised if Apple spent more than a few billion on anyone. And buying ARM I'm sure was examined but ultimately rejected. Why? Well ARM still makes the technology that dominates the smartphone industry which means if Apple bought them, they'd have to serve all their competitors. A purchase attempt like that would also raise the attention of anti-trust regulators. Buying P A Risc on the other hand gives Apple a clear competitive advantage. ARM doesn't make their own chips but licenses their designs to others to make (like Samsung). P A Risc technology allows Apple to use ARM designs with P A Risc's "secret sauce" to make their chips far more efficient for power consumption than anyone else. For developers, the code they compile is still code compatible with a CPU they understand and is binary (but not API) compatible with other smartphone platforms. But their code will run far more efficiently on Apple designs. Apple ends up separating themselves further from the pack. And all for a fairly modest investment in P A Risc.
Consistent with past history and the perversity of Wall Street, Apple will be rewarded for its great performance by having its stock price dive precipitously. What is it with that anyway?
Ah, so far tonight, it's up almost $7 per share in post-announcement, after-hours trades. But who knows what tomorrow will bring.....
... it depends on the interest. The longer term stuff obviously gets a better return, but even if they only made 3% on the average of $30 billion they had around last quarter, that's $900 million.
In FY2008, they made about $620M in non-operating income. Assuming all of that was financial income, on a cash+MS balance of $24.5B, it's about 2.5%. So your estimate is quite in the ballpark....
Buying Adobe would cost a bundle (upwards of $20 billion) and only raise cash flow, not as much overall profits.
I don't follow what you're saying here, and perhaps you could explain: independent of whether buying Adobe makes strategic sense, it's surely an increase in cash flow (relative to price paid) that you want, not just reported accounting earnings (which is what I assume you mean by 'overall profits')?
I think you have it in reverse. The housing market failure is a result of a lack of government meddling. The reality is that companies were selling mortgages to just about anybody. I bought a house a few years ago, and the bank did a drive by appraisal and came up with the same number as my offer. Further, as a Bankruptcy attorney, I see people who were making little more then minimum wage getting approved for $200, 000 mortgages. There are very few state or federal regulations governing this area. On top of that, there was little government over sight on selling mortgage securities.
The automobile companies have made some questionable decisions over the years, but government regulations favor foreign companies coming into the US and those relocating manufacturing out of the US. If you stay in the US you get taxed more then companies moving overseas, and if you move to the US you get Tax breaks not available to those already situated. About five years ago, American companies couldn't build enough SUVs. If the automobile industry went belly up unemployment would be much higher and the government would be paying unemployment benefits for a much higher amount of people. Further, less manufacturing based in the US is a security threat. Keeping big auto companies alive is a good thing for all.
The mortgage crisis caused everybody else to fail. If anybody should have been forced to close shop it should have been those banks buying and selling mortgage securities. The Country would be stronger for it. No bailout would have been needed, and a lesson would have been taught to those reckless people in the banking world who destroyed many people's lives.
Quote:
Originally Posted by wizard69
The recession as the government calls it is focused on primarily two industries, housing and automobiles. Both deserve exactly what they are getting. In the case of the auto industry they really should have been forced into failure. The housing industry is as much a result of government mandates and medling as anything.
It was both and more in an unholy, politically and economically corrupt climate created by the same forces that have always driven economic bubbles - bubbles that always burst and crash the game.
Nothing's changed in human nature since before the beginnings of economies.
That's a good point. Software-only companies have a higher operating cost in general, since software is becoming more commoditized but even more expensive to create. People just in general don't want to pay more than $20-$30 for software but they're still willing to shell out for hardware (good for Apple, bad for software only companies). The largest software only firms out there aside from Microsoft--Symantec, SEP and Oracle--all make more than 60% of their revenue and profits from enterprise customers, who may only spend $20-$30 a seat but buy in 250,000+ volume licenses.
Eventually investors are going to scream for something to be done with the pile of cash. Microsoft's stockpile reached $50 billion before they ended up giving investors a dividend, but I'm not sure if that's Apple's style either. I could see Apple putting a significant stake into a company they see as important or serves as a partner--ironically much like Microsoft did with Apple in the late 90s. But with $30+ billion, they'd have to do that a couple of times over.
I think it would be very interesting if Apple were to buy ARM, and take over chip development for the iPhone completely. But aside from conspiracy theories like pissing of Intel, it's just not Apple's style as pointed out before.
Software has always been a higher margin business than hardware.
The Microsoft numbers are interesting because they are compared to the software industry as a whole, and the S&P 500, which should give a good idea of how software companies perform as a group compared to everyone else.
You can see that software companies are much more profitable than others.
MS would be even more profitable if its other businesses and investments didn't turn out to be so poor.
Why would Apple buy ARM? What purpose would that serve that can't be served by what they are doing now?
In addition, Apple would have to honor many contracts around the world, many long term, to continue developing the processor design at a good pace. Why would they want to do that?
I think you misunderstood mcarling's question. Given that a Mac is either a portable or a desktop, it is impossible for sales of desktop Macs and laptop Macs to both be down, but sales of Macs overall to be up. The correct answer to the question is that there was an error in the original article which has now been fixed.
My apologies. Of course I didn't read the official stats from the call here and assumed others went elsewhere as well.
I thought that one of the more interesting points in the call was when Cook referred to iPod, iPod touch and iPhone as "pocket" products.
To me, this suggests that there is some segmentation/re-classification of their various products planned that is probably timed to the tablet device rollout, something that I blogged about in:
I think it would be very interesting if Apple were to buy ARM, and take over chip development for the iPhone completely. But aside from conspiracy theories like pissing of Intel, it's just not Apple's style as pointed out before.
Apple sold off their ARM holdings in the late nineties, at a huge profit at a time when they needed the cash and had given up building anything with an ARM chip in it (i.e. Newton). I'm sure ARM's worth a lot more now, though.
>> I think you have it in reverse. The housing market failure is a result of a lack of government meddling. The reality is that companies were selling mortgages to just about anybody. I bought a house a few years ago, and the bank did a drive by appraisal and came up with the same number as my offer. Further, as a Bankruptcy attorney, I see people who were making little more then minimum wage getting approved for $200, 000 mortgages. There are very few state or federal regulations governing this area. On top of that, there was little government over sight on selling mortgage securities.
Interest rates in America are set by our central economic planners. This planning committee is staffed by representatives of our private sector banks. The ensuing situation was low interest rates and infinite cash available for banks to lend, which necessarily resulted in poor lending decisions being made.
$31.1 billion is a pile o' cash. At some point Apple is going to have to address the issue seriously. I suspect the drumbeat from investors will get louder as time goes on, but right now, they are probably just happy that Apple seems to be a safe harbor in the financial storm. Apple may have to declare a dividend (they were a dividend company in the 80s-early 90s). I can't see them spending a lot of money on another company...it's just not their style. They make smaller, targeted investments in companies they feel have long upside value in terms of multiples. Witness the P A Semi purchase last year, or even Soundjam (iTunes) a decade ago. Buying Adobe would cost a bundle (upwards of $20 billion) and only raise cash flow, not as much overall profits.
True story. I can see the value of large cash reserves, if they are used to leverage supplies of components for instance. There's some evidence that Apple is doing this. But simply holding a huge and ever-growing bankroll is not good business -- they couldn't spend it wisely if they tried. Apple really should declare a dividend. It doesn't need to be a huge one. Even if the dividend was a extremely generous $4.00/share, that would still not be large enough to cut the cash accumulation rate in half.
I could see Apple putting a significant stake into a company they see as important or serves as a partner--ironically much like Microsoft did with Apple in the late 90s.
Except that it didn't happen that way. Microsoft's $150 million "investment" in Apple was a part a lawsuit settlement, which involved a whole host of other arrangements, which in total had nothing really to do with business partnerships, and everything to do with avoiding a long court battle.
As for large acquisitions, these carry huge risks. They typically fail to produce the "synergy" cited as their rationale, and they often fail outright.
True story. I can see the value of large cash reserves, if they are used to leverage supplies of components for instance. There's some evidence that Apple is doing this. But simply holding a huge and ever-growing bankroll is not good business -- they couldn't spend it wisely if they tried. Apple really should declare a dividend. It doesn't need to be a huge one. Even if the dividend was a extremely generous $4.00/share, that would still not be large enough to cut the cash accumulation rate in half.
I don't think the dividend is required. Dividends are for stocks that are not growth stocks. As long as Apple is a growth company, and its stock grows in value, then a dividend serves no purpose. The recession, which started in the forth quarter of 2007 has hurt Apple's stock (as well as everyone else's), but other than that, it was growing, and is again.
I'd rather Apple keep making profits on the stash, which they won't if they give a big chunk away. I'd also like to think that they have some long term plans for it rather than just giving a big portion of it away. And this is coming from someone who has a fair amount of stock.
Comments
A question for the financial wizards out there... how much investment income does Apple get from all this?
Not sure...as always, it depends on the interest. The longer term stuff obviously gets a better return, but even if they only made 3% on the average of $30 billion they had around last quarter, that's $900 million. But its probably not nearly that much in this market with the T-bill rate of return so depressed.
BTW, it was the investment income that kept Apple alive long enough during the dark times of the mid-1990s. The $4 billion in cash/securities on hand at the time was keeping the company afloat, but the danger was that they were getting ready to start dipping into the principal to maintain operations, which is a death spiral in any finance class.
$31.1 billion is a pile o' cash. At some point Apple is going to have to address the issue seriously. I suspect the drumbeat from investors will get louder as time goes on, but right now, they are probably just happy that Apple seems to be a safe harbor in the financial storm. Apple may have to declare a dividend (they were a dividend company in the 80s-early 90s). I can't see them spending a lot of money on another company...it's just not their style. They make smaller, targeted investments in companies they feel have long upside value in terms of multiples. Witness the P A Semi purchase last year, or even Soundjam (iTunes) a decade ago. Buying Adobe would cost a bundle (upwards of $20 billion) and only raise cash flow, not as much overall profits.
Buying Adobe would cost a bundle (upwards of $20 billion) and only raise cash flow, not as much overall profits.
That's a good point. Software-only companies have a higher operating cost in general, since software is becoming more commoditized but even more expensive to create. People just in general don't want to pay more than $20-$30 for software but they're still willing to shell out for hardware (good for Apple, bad for software only companies). The largest software only firms out there aside from Microsoft--Symantec, SEP and Oracle--all make more than 60% of their revenue and profits from enterprise customers, who may only spend $20-$30 a seat but buy in 250,000+ volume licenses.
Eventually investors are going to scream for something to be done with the pile of cash. Microsoft's stockpile reached $50 billion before they ended up giving investors a dividend, but I'm not sure if that's Apple's style either. I could see Apple putting a significant stake into a company they see as important or serves as a partner--ironically much like Microsoft did with Apple in the late 90s. But with $30+ billion, they'd have to do that a couple of times over.
I think it would be very interesting if Apple were to buy ARM, and take over chip development for the iPhone completely. But aside from conspiracy theories like pissing of Intel, it's just not Apple's style as pointed out before.
That's a good point. Software-only companies have a higher operating cost in general, since software is becoming more commoditized but even more expensive to create. People just in general don't want to pay more than $20-$30 for software but they're still willing to shell out for hardware (good for Apple, bad for software only companies). The largest software only firms out there aside from Microsoft--Symantec, SEP and Oracle--all make more than 60% of their revenue and profits from enterprise customers, who may only spend $20-$30 a seat but buy in 250,000+ volume licenses.
Eventually investors are going to scream for something to be done with the pile of cash. Microsoft's stockpile reached $50 billion before they ended up giving investors a dividend, but I'm not sure if that's Apple's style either. I could see Apple putting a significant stake into a company they see as important or serves as a partner--ironically much like Microsoft did with Apple in the late 90s. But with $30+ billion, they'd have to do that a couple of times over.
I think it would be very interesting if Apple were to buy ARM, and take over chip development for the iPhone completely. But aside from conspiracy theories like pissing of Intel, it's just not Apple's style as pointed out before.
Actually, the companies doing enterprise software get at least half of their revenue these days from the support contracts on their software licenses. New license sales is great because that's where you grow the business. But year-after-year support contracts is where many of those companies you stated make their money.
And again, I would be extremely surprised if Apple spent more than a few billion on anyone. And buying ARM I'm sure was examined but ultimately rejected. Why? Well ARM still makes the technology that dominates the smartphone industry which means if Apple bought them, they'd have to serve all their competitors. A purchase attempt like that would also raise the attention of anti-trust regulators. Buying P A Risc on the other hand gives Apple a clear competitive advantage. ARM doesn't make their own chips but licenses their designs to others to make (like Samsung). P A Risc technology allows Apple to use ARM designs with P A Risc's "secret sauce" to make their chips far more efficient for power consumption than anyone else. For developers, the code they compile is still code compatible with a CPU they understand and is binary (but not API) compatible with other smartphone platforms. But their code will run far more efficiently on Apple designs. Apple ends up separating themselves further from the pack. And all for a fairly modest investment in P A Risc.
As I've been saying for a while now, it's obvious that they're saving up to buy Microsoft
Bite your tongue!
Consistent with past history and the perversity of Wall Street, Apple will be rewarded for its great performance by having its stock price dive precipitously. What is it with that anyway?
Ah, so far tonight, it's up almost $7 per share in post-announcement, after-hours trades. But who knows what tomorrow will bring.....
... it depends on the interest. The longer term stuff obviously gets a better return, but even if they only made 3% on the average of $30 billion they had around last quarter, that's $900 million.
In FY2008, they made about $620M in non-operating income. Assuming all of that was financial income, on a cash+MS balance of $24.5B, it's about 2.5%. So your estimate is quite in the ballpark....
Buying Adobe would cost a bundle (upwards of $20 billion) and only raise cash flow, not as much overall profits.
I don't follow what you're saying here, and perhaps you could explain: independent of whether buying Adobe makes strategic sense, it's surely an increase in cash flow (relative to price paid) that you want, not just reported accounting earnings (which is what I assume you mean by 'overall profits')?
I think you have it in reverse. The housing market failure is a result of a lack of government meddling. The reality is that companies were selling mortgages to just about anybody. I bought a house a few years ago, and the bank did a drive by appraisal and came up with the same number as my offer. Further, as a Bankruptcy attorney, I see people who were making little more then minimum wage getting approved for $200, 000 mortgages. There are very few state or federal regulations governing this area. On top of that, there was little government over sight on selling mortgage securities.
The automobile companies have made some questionable decisions over the years, but government regulations favor foreign companies coming into the US and those relocating manufacturing out of the US. If you stay in the US you get taxed more then companies moving overseas, and if you move to the US you get Tax breaks not available to those already situated. About five years ago, American companies couldn't build enough SUVs. If the automobile industry went belly up unemployment would be much higher and the government would be paying unemployment benefits for a much higher amount of people. Further, less manufacturing based in the US is a security threat. Keeping big auto companies alive is a good thing for all.
The mortgage crisis caused everybody else to fail. If anybody should have been forced to close shop it should have been those banks buying and selling mortgage securities. The Country would be stronger for it. No bailout would have been needed, and a lesson would have been taught to those reckless people in the banking world who destroyed many people's lives.
Originally Posted by wizard69
The recession as the government calls it is focused on primarily two industries, housing and automobiles. Both deserve exactly what they are getting. In the case of the auto industry they really should have been forced into failure. The housing industry is as much a result of government mandates and medling as anything.
It was both and more in an unholy, politically and economically corrupt climate created by the same forces that have always driven economic bubbles - bubbles that always burst and crash the game.
Nothing's changed in human nature since before the beginnings of economies.
Based only on the balance sheet, it looks like Apple used cash to buy about $4.5B worth of longer-term securities during the quarter.
And on the conference call, they just said they paid Toshiba $500M on a long-term flash memory deal.
So cash is a bit lower than it could've been based on revenue.
I have to say that they've been very good at conserving their investments.
That's a good point. Software-only companies have a higher operating cost in general, since software is becoming more commoditized but even more expensive to create. People just in general don't want to pay more than $20-$30 for software but they're still willing to shell out for hardware (good for Apple, bad for software only companies). The largest software only firms out there aside from Microsoft--Symantec, SEP and Oracle--all make more than 60% of their revenue and profits from enterprise customers, who may only spend $20-$30 a seat but buy in 250,000+ volume licenses.
Eventually investors are going to scream for something to be done with the pile of cash. Microsoft's stockpile reached $50 billion before they ended up giving investors a dividend, but I'm not sure if that's Apple's style either. I could see Apple putting a significant stake into a company they see as important or serves as a partner--ironically much like Microsoft did with Apple in the late 90s. But with $30+ billion, they'd have to do that a couple of times over.
I think it would be very interesting if Apple were to buy ARM, and take over chip development for the iPhone completely. But aside from conspiracy theories like pissing of Intel, it's just not Apple's style as pointed out before.
Software has always been a higher margin business than hardware.
Of course, you have to be successful at it.
Adobe:
http://www.marketwatch.com/investing/stock/ADBE/profile
Oracle
http://money.cnn.com/quote/snapshot/...html?symb=ORCL
The Microsoft numbers are interesting because they are compared to the software industry as a whole, and the S&P 500, which should give a good idea of how software companies perform as a group compared to everyone else.
You can see that software companies are much more profitable than others.
MS would be even more profitable if its other businesses and investments didn't turn out to be so poor.
http://moneycentral.msn.com/investor...ns&Symbol=MSFT
MS had over $60 billion.
Why would Apple buy ARM? What purpose would that serve that can't be served by what they are doing now?
In addition, Apple would have to honor many contracts around the world, many long term, to continue developing the processor design at a good pace. Why would they want to do that?
My apologies. Of course I didn't read the official stats from the call here and assumed others went elsewhere as well.
To me, this suggests that there is some segmentation/re-classification of their various products planned that is probably timed to the tablet device rollout, something that I blogged about in:
Analysis: Apple June Quarter Earnings Call
http://bit.ly/vbi9q
Check it out, if interested.
Mark
I think it would be very interesting if Apple were to buy ARM, and take over chip development for the iPhone completely. But aside from conspiracy theories like pissing of Intel, it's just not Apple's style as pointed out before.
Apple sold off their ARM holdings in the late nineties, at a huge profit at a time when they needed the cash and had given up building anything with an ARM chip in it (i.e. Newton). I'm sure ARM's worth a lot more now, though.
Interest rates in America are set by our central economic planners. This planning committee is staffed by representatives of our private sector banks. The ensuing situation was low interest rates and infinite cash available for banks to lend, which necessarily resulted in poor lending decisions being made.
Shipments of the iPod touch should "grow significantly" in the next quarter.
to me, this means:
- a new ipod touch model will be released in the next quarter (jul, aug, sep)
- the new model will NOT be a minor refresh, but a significant upgrade
what do you think?$31.1 billion is a pile o' cash. At some point Apple is going to have to address the issue seriously. I suspect the drumbeat from investors will get louder as time goes on, but right now, they are probably just happy that Apple seems to be a safe harbor in the financial storm. Apple may have to declare a dividend (they were a dividend company in the 80s-early 90s). I can't see them spending a lot of money on another company...it's just not their style. They make smaller, targeted investments in companies they feel have long upside value in terms of multiples. Witness the P A Semi purchase last year, or even Soundjam (iTunes) a decade ago. Buying Adobe would cost a bundle (upwards of $20 billion) and only raise cash flow, not as much overall profits.
True story. I can see the value of large cash reserves, if they are used to leverage supplies of components for instance. There's some evidence that Apple is doing this. But simply holding a huge and ever-growing bankroll is not good business -- they couldn't spend it wisely if they tried. Apple really should declare a dividend. It doesn't need to be a huge one. Even if the dividend was a extremely generous $4.00/share, that would still not be large enough to cut the cash accumulation rate in half.
I could see Apple putting a significant stake into a company they see as important or serves as a partner--ironically much like Microsoft did with Apple in the late 90s.
Except that it didn't happen that way. Microsoft's $150 million "investment" in Apple was a part a lawsuit settlement, which involved a whole host of other arrangements, which in total had nothing really to do with business partnerships, and everything to do with avoiding a long court battle.
As for large acquisitions, these carry huge risks. They typically fail to produce the "synergy" cited as their rationale, and they often fail outright.
to me, this means:
- a new ipod touch model will be released in the next quarter (jul, aug, sep)
- the new model will NOT be a minor refresh, but a significant upgrade
what do you think?The rumors are that Apple is already producing models with a camera and a mic for release whenever.
True story. I can see the value of large cash reserves, if they are used to leverage supplies of components for instance. There's some evidence that Apple is doing this. But simply holding a huge and ever-growing bankroll is not good business -- they couldn't spend it wisely if they tried. Apple really should declare a dividend. It doesn't need to be a huge one. Even if the dividend was a extremely generous $4.00/share, that would still not be large enough to cut the cash accumulation rate in half.
I don't think the dividend is required. Dividends are for stocks that are not growth stocks. As long as Apple is a growth company, and its stock grows in value, then a dividend serves no purpose. The recession, which started in the forth quarter of 2007 has hurt Apple's stock (as well as everyone else's), but other than that, it was growing, and is again.
I'd rather Apple keep making profits on the stash, which they won't if they give a big chunk away. I'd also like to think that they have some long term plans for it rather than just giving a big portion of it away. And this is coming from someone who has a fair amount of stock.