Apple may need $137B cash hoard to weather 'very rough' next two years, analyst says

Posted:
in AAPL Investors edited January 2014
With Apple's shareholders meeting a wrap, buzz returns to the company's growing $137 billion cash hoard, which one analyst believes will play a vital role in what could be a trying two-year period for the tech giant.

In a note to investors on Wednesday, Jefferies analyst Peter Misek said the push into developing mobile markets, necessary technology development spending, and financial factors could put Apple in a tough place over the next two years.

AAPL
AAPL stock performance over the past six months. | Source: Bloomberg


The analyst pointed to four main concerns: capital expenditure requirements, a move into prepaid cellphone markets like India, slowing international iPhone sales, and "white box smartphones."

As for Apple's Capex requirements, Misek expects costs to double in the next two years, adding an additional $10 billion a year to the bottom line. High on the list of responsibilities is the possibility that Apple may have to finance the build-out of chip fabrication facilities as its current suppliers, specifically TSMC, are lacking the capital to expand production to nominal levels. It was reported in January that TSMC had been contracted to manufacture the A6X SoC used in the fourth-generation iPad, and is rumored to be spearheading production of next-generation A-series chips for future iOS products.

Also of concern in regard to a rise in capex spending are display manufacturing and costs related to iCloud data centers.

A6


Apple is also forecast to make an aggressive push into burgeoning wireless markets like India and China, the former being a largely prepaid subscribership. CEO Tim Cook called the India initiative a "multi-layer distribution" model where carrier subsidies are replaced by installment plans. The company recently introduced payment plans to boost iPhone sales in the region, a move that is part of a larger "more aggressive" strategy for the developing market. The tactic appears to have gained traction as sales grew 400 percent over the last three months.

While Apple may be making inroads in India, Misek said International iPhone sales are "slowing dramatically, particularly in lower GDP per capita markets." The analyst believes alternative distribution models like those used in India could generate higher turnover, though the installments are less flexible than carrier subsidies, making it difficult to change tack if sales falter.

Finally, addressing so-called "white box smartphones," or low-cost handsets made by smaller manufacturers that are targeted at developing markets, Misek said that high-quality products are forcing Apple to invest in next-generation technology.

Konka Expose
The Konka Expose, an example of a "white box" smartphone.


In regard to the hot button topic of Apple's $137 billion cash hoard, the analyst noted that it could be used for traditional dividends and stock buybacks to increase "strategic flexibility" and return value to shareholders. The view contrasts that of hedge fund manager and AAPL holder David Einhorn, who floated the idea of issuing preferred shares, dubbed "iPrefs," in conjunction with common stock, to mete out some of the cash to investors.

iPrefs


Misek expects Apple to double its current dividend and repurchasing commitment, which stands at $45 billion over the next three years, to $90 billion over an extended period of time. Another option would be to decrease the schedule to 18 months, but in either case he sees an acceleration of traditional returns rather than the issuance of preferred stock.

The analyst has given AAPL a "Hold" rating with a price target of $500.
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Comments

  • Reply 1 of 63


    At this point Apple could sell an iPhone to every last Chinese citizen, and analysts would still shrug. Idiots.

  • Reply 2 of 63
    sflocalsflocal Posts: 4,429member


    I'm getting fed up with these a$$hats.  They are totally trying to seed FUD to manipulate AAPL.  Apple is making boatloads of cash, will have even more in the bank in two years, yet these clowns keep thinking that Apple's best years are behind it.



    Shame the SEC doesn't clamp down on this.

  • Reply 3 of 63


    I would like to opt out of all articles that contain the word "analyst". Is there a way to filter the RSS stream from this site?


     


    I'm not trying to only hear the good news, but this isn't even news. Nobody can predict the next two years in tech.

  • Reply 4 of 63
    A fairy tale. A silly one at that.
  • Reply 5 of 63
    jungmarkjungmark Posts: 6,647member
    Is this moron serious? Apple just had the most profitable calendar year in human history and yet they will hit the Mariana's trench within two years?
  • Reply 6 of 63
    The good thing is that it is now on the record that Peter Misek believes that Apple will have less cash in 24 months than it does today. This is quantifiable and we can use it to evaluate the his predictive accuracy.
  • Reply 7 of 63
    What a complete crock of s***.
  • Reply 8 of 63


    Are all of these analysts colluding/conspiring to push the price of AAPL down as far as possible to create the greatest rubberband effect possible?


     


    I mean, talk about everyone jumping on the bandwagon.....all at the same time.

  • Reply 9 of 63
    What's there about Apple that makes so many analysts and reporters behave like fools? Every other tech company executive on the planet would love to have the sorts of problems that Apple will face over the next few years. These idiots think every little blip down spells the end of the world.

  • Reply 10 of 63

    Quote:


    the possibility that Apple may have to finance the build-out of chip fabrication facilities



     


     


    I remember posting this a while back and catching hell for it :) 


     


    I still think they should do this. Lots of cash upfront, but the control and secrecy you get are huge! 


     


     


     


     


    Quote:


    The company recently introduced payment plans to boost iPhone sales


    The tactic appears to have gained traction as sales grew 400 percent over the last three months.



     


    Looks like they needed not a cheaper phone, but this payment plan. 


     


     


     


    Quote:


     high-quality products are forcing Apple to invest in next-generation technology.



     


    Because they stopped doing that and now they might have to start again? Really? 

  • Reply 11 of 63
    slurpyslurpy Posts: 5,107member


    Apple made what, $55 BILLION in revenue last quarter? $13+ BILLION in profit? Significantly more than any other technology company on the planet. If Apple is facing a "rough" couple years and needs it's $137 Billion cash hoard to "weather it", God help every other company on the planet. 


     


    Food for thought: In the last quarter, in less than a period of 3 months, Apple increased it's cash hoard by about 10%- a cash hoard it has been collecting for the past 36 years, or roughly 432 months. It's adding to it's cash at an alarming rate, something fucking serious would need to happen for that cash to decrease in any significant matter. Apple could cease all operations, have zero sales, and send all their employees to vacation wherever the **** they want for the next few years, all expenses payed, and they wouldn't  go through that cash. 


     


    Damn these analysts are schizophrenic. Yesterday, everyone is shrieking that Apple has way too much cash and it needs to give it away. Today, suddenly it may not be enough, or barely enough to survive. It's why Apple shouldn't give an atom of concern to these analysts and their bullshit. It needs to do what it thinks is right, and ignore all this asinine noise. The problem is that these people have no acountability- there should be major consequences if they're wrong, yet their never is. The stock has now become this ridiculous self fulfilling prophecy, where bullshit stories like this damage the stock, then more stories come out about how Apple is in trouble because of the stock, and on and on- while the stock is havig absolutely nothing to do with their performance. How transparent. 

  • Reply 12 of 63


    So why do I keep seeing this "Apple just had the most profitable calendar year in human history" phrase everywhere? Will I ever see any proof of this claim or is it just one of those memes I'll keep hearing ad infinitum?


    Is "human history" a euphemism for "in a good long while?"


    Has someone scoured the financial history of ancient Sumeria, Babelonia, Greece and Rome to confirm this claim? How did they do the inflation adjustment calculations?

  • Reply 13 of 63


    AppleInsider: Do us all a favour and refrain from giving us these bullshit analyst articles!

  • Reply 14 of 63
    galbigalbi Posts: 968member


    I love it how people on here think they know more than what the analysts know and easily dismiss them ass "a$$hats", "idiots", "morons" or "crock of s***" just because their opinions differ with the biased opinions people in here.


     


    I'm afraid this is reality sinking in for the Apple camp.


     


    Apple's advantage with a relationship with Samsung was that they did'nt have to spend capital expenditure to churn out components in mass quantities and in high qualities because Samsung had the capital, infrastructure and know-how to do it all for them. With that blanket of safety net gone, now Apple is in a dire position of doing that same thing Samsung was doing, but instead, financing it through third party members like TSMC, all the while incorporating opportunity costs like nobodies business.

     


    Apple's business strategy will have to take a hard reality chill pill revamp as they face increasing competition from all side of the marketplace and further saturation of the market in developed countries. Focusing only on the high end market will not be enough. They will have to force themselves to reduce profit margins. And that will further cause the stock price to go down as the investors starts pulling away from the AAPL.


     


     


    Quote:

    Originally Posted by monstrosity View Post


    AppleInsider: Do us all a favour and refrain from giving us these bullshit analyst articles!



     


    AI is a business and it needs to survive too. Mouse clicks helps run the website.


    It needs controversy and opposing view points to make a vibrant community.


    A gathering of yes-mans (womens too) are boring and lame.


     


     


    Quote:

    Originally Posted by Slurpy View Post


    Apple made what, $55 BILLION in revenue last quarter? $13+ BILLION in profit? Significantly more than any other technology company on the planet. If Apple is facing a "rough" couple years and needs it's $137 Billion cash hoard to "weather it", God help every other company on the planet. 


     


    Food for thought: In the last quarter, in less than a period of 3 months, Apple increased it's cash hoard by about 10%- a cash hoard it has been collecting for the past 36 years, or roughly 432 months. It's adding to it's cash at an alarming rate, something fucking serious would need to happen for that cash to decrease in any significant matter. Apple could cease all operations, have zero sales, and send all their employees to vacation wherever the **** they want for the next few years, all expenses payed, and they wouldn't  go through that cash. 


     


    Damn these analysts are schizophrenic. Yesterday, everyone is shrieking that Apple has way too much cash and it needs to give it away. Today, suddenly it may not be enough, or barely enough to survive. It's why Apple shouldn't give an atom of concern to these analysts and their bullshit. It needs to do what it thinks is right, and ignore all this asinine noise. The problem is that these people have no acountability- there should be major consequences if they're wrong, yet their never is. The stock has now become this ridiculous self fulfilling prophecy, where bullshit stories like this damage the stock, then more stories come out about how Apple is in trouble because of the stock, and on and on- while the stock is havig absolutely nothing to do with their performance. How transparent. 



     


    Earth to Slurpy, analysts are about the future, not of the past. Those figures are past numbers.


    Fortunes for a company can change over night. This is especially true in the high tech industry.

  • Reply 15 of 63
    Dear Apple Insider,

    If not previously, market analysts have, for the past year, demonstrated that they are broadly clueless individuals with compromised intelligence, integrity, and vision %u2014 not to mention huge, misplaced egos.

    Would it be possible for you to change your policy of trumpeting in your headlines the bleatings of such a low level of consciousness, as if they were the voice of God being channeled to your website? Give them your attention, if you must. But, please keep such drivel in proper perspective. Elevating these 'comments' to 'headlines' is making me question the competence of those who publish them. And it gives analysts far more credence than they deserve. Lose, lose.

    I have more confidence in you than that.

    Thanks!

  • Reply 16 of 63
    slurpyslurpy Posts: 5,107member

    Quote:

    Originally Posted by DESuserIGN View Post


    So why do I keep seeing this "Apple just had the most profitable calendar year in human history" phrase everywhere? Will I ever see any proof of this claim or is it just one of those memes I'll keep hearing ad infinitum?


    Is "human history" a euphemism for "in a good long while?"


    Has someone scoured the financial history of ancient Sumeria, Babelonia, Greece and Rome to confirm this claim? How did they do the inflation adjustment calculations?



     


    Ok, how about "most profitable calendar year in history since companies kept records of their financials"? Would that be good enough for you? Do we really need to go back to babylonian times to make the obvious point, which is that Apple is more successful than it's ever been, than any company in recent history has been, and that predicting doom is based on absolutely nothing?

  • Reply 17 of 63


    "Hmm, Apple's stock was only down by $4.40 today. BETTER LIE THROUGH MY TEETH SO HARD THAT HALF OF THEM SHATTER."






    "white box smartphones,"



     


    Spectacular. More pointless buzzwords defining nebulous markets that result in even less revenue than traditional ones.

  • Reply 18 of 63
    galbi wrote: »
    I love it how people on here think they know more than what the analysts know and easily dismiss them ... just because their opinions differ with the biased opinions people in here. ....

    Actually, it's just because, like you, these analysts are consistently wrong. If they, or you, had any sort of history of being correct, we might give what they, or you, say some credence. But, seriously, we'd definitely listen to the analysts before we'd listen to you.
  • Reply 19 of 63
    So are these analysts going to lower their revenue/profit estimates for Apple over the next few years then? When Apple reports flat but still record-breaking profits over the next two years, are they still going to be looked at as plateauing or will they be seen as blowing expectations out of the water with their profits? All of this fear-mongering going on about Apple's expansion into emerging markets and them not having a new ground-breaking product should go along with lower earnings expectations as well if these analysts are that confident in knowing Apple's difficulties. Of course only Apple really knows about its expansion efforts and its new products in the pipeline, and I trust them more than these "experts" as Apple has a proven track record in the last decade. It just kills them that Apple does not need investor money like other companies and their influence over the stock price does not effect Apple like other companies.
  • Reply 20 of 63
    slurpy wrote: »
    Ok, how about "most profitable calendar year in history since companies kept records of their financials"? ...

    So, 'in history' as opposed to all those prehistoric wildy profitable companies.

    Although, it might be interesting to see an inflation adjusted comparison of Apple's recent profits to, say, the East India Company in its best years.
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