This has been covered several times before, including the original article.
BORROWING RATES FOR EUROS ARE AT A HISTORIC LOW.
Sure, Apple has cash here and cash elsewhere, including Europe, but that cash is the result of sales, and therefore subject to U.S. capital gains tax if re-patrioted into the USA. Cash generated from bonds would not be taxed at the same rate as capital gains.
Maybe I didn't explain my question well enough. Or maybe I'm just thick.
Apple's cash in Europe can't be repatriated to the U.S. without paying a lot in tax. Got that.
But why would Apple borrow Euros, presumably to invest in the Eurozone somewhere, when they already have more stored there than they know what to do with? Or is the plan to borrow Euros, convert to dollars and move them to the U.S.? If so, why borrow Euros? Why not borrow dollars directly, in Europe?
Good question. I think it's balance sheet hedging, with the possibility that there's a repatriation deal in the works at some point in the next year or two.
while Apple can't figure out how exactly to avoid paying taxes and what to do with their cash, the AAPL sucks and its investors pay the price. At this point BABA, has been growing like crazy, it's much better option for most people
Means dividends will rise, share price will increase, value of Apple will increase with no increase in productivity. Apple is simply unable to figure out what to do with the cash it earns.
It probably should be buying up content providers, broadcasters, tv manufacturers.
All three of your entities there are dying, or endangered by a new medium: the communicator in your pocket. Canned entertainment is going the way of the Victorian novel.
Meanwhile, Apple will continue building its dedicated worldwide instantaneous video communication network. It's going to take some big barrels of that dry powder they've been storing.
while Apple can't figure out how exactly to avoid paying taxes and what to do with their cash, the AAPL sucks and its investors pay the price. At this point BABA, has been growing like crazy, it's much better option for most people
I don't trust China-based businesses or their accounting and reporting...at all. I have several China stocks (not small companies, by the way) and all have underperformed. Never again.
Maybe I didn't explain my question well enough. Or maybe I'm just thick.
Apple's cash in Europe can't be repatriated to the U.S. without paying a lot in tax. Got that.
But why would Apple borrow Euros, presumably to invest in the Eurozone somewhere, when they already have more stored there than they know what to do with? Or is the plan to borrow Euros, convert to dollars and move them to the U.S.? If so, why borrow Euros? Why not borrow dollars directly, in Europe?
The bond and the coupon must be in the same currency. The bond must be denominated in the legal currency of the country/region of issuance.
The plan is to borrow euros and convert at least some to US dollars and repatriate them to the United States to help fund the share buyback program at a lower tax rate than the money earned from sales.
Remember, any cash that Apple has in Europe right now is in eurodollars, so currency exchange would have to happen anyhow.
This is potentially misleading: as I understand it, Apple cannot use its non-US debt (instead of cash held abroad) to fund a capital return program in the US. The IRS will come down hard on a tax-avoidance strategy like that.
I doubt very much that Apple will want to push that envelope in the current environment.
I'm betting the U.S. corporation, not one of Apple's foreign subsidiaries, is the one issuing the bonds and therefore the borrowed money will be available to the U.S. corporation to use as it pleases. I'm sure Apple headquarters and accountants are well on top of this. No worries.
I think this makes sense. While I am not entirely sure the suggested list of investments makes sense, the reality that $150B in cash is hard to imagine productive investments. Certainly buying Apple stock (given low P/E) and paying dividends is good use. At the rates currently spent it will just slow down the growth of cash.
I find it amazing that there are so few real investment options for Apple at the scale of its annual profit not counting the existing hoard. This is really unprecedented and the investment suggestions I've seen are either puny, weak ROI, areas beyond Apple's competencies, etc.
It almost seems that Apple needs to create become two companies, that is, current Tech innovator and then something entirely different e.g., solar energy company, pharmaceutical, or bioengineering. Not that these are the right ones, but explores the degree of departure needed.
If these became very successful, then at some point they would become two or more companies. This demands huge resources and if properly chosen huge payoffs. So why not give the money back to stockholders (step up the pace)? My view is that Apple has developed processes and competencies and value systems so different from all other companies, this would be a great way to extend these deep characteristics to a much wider business, customer, and social communities.
Stockholders investing rarely rewards or recognizes this and so Apple has the opportunity to really turn the business world and MBA paradigms on their much needed head. ,
I think this makes sense. While I am not entirely sure the suggested list of investments makes sense, the reality that $150B in cash is hard to imagine productive investments. Certainly buying Apple stock (given low P/E) and paying dividends is good use. At the rates currently spent it will just slow down the growth of cash.
I find it amazing that there are so few real investment options for Apple at the scale of its annual profit not counting the existing hoard. This is really unprecedented and the investment suggestions I've seen are either puny, weak ROI, areas beyond Apple's competencies, etc.
It almost seems that Apple needs to create become two companies, that is, current Tech innovator and then something entirely different e.g., solar energy company, pharmaceutical, or bioengineering. Not that these are the right ones, but explores the degree of departure needed.
If these became very successful, then at some point they would become two or more companies. This demands huge resources and if properly chosen huge payoffs. So why not give the money back to stockholders (step up the pace)? My view is that Apple has developed processes and competencies and value systems so different from all other companies, this would be a great way to extend these deep characteristics to a much wider business, customer, and social communities.
Stockholders investing rarely rewards or recognizes this and so Apple has the opportunity to really turn the business world and MBA paradigms on their much needed head. ,
I still say Apple needs to own their ecosystem end-to-end. They need to phase out credit cards and banks in favor of their own solutions, in addition to acquiring a telecom/wireless service. The wireless phone companies are the biggest weak spot in all customer dealings with the iPhone. They should still offer the iPhone on competing networks, but there should be Apple Wireless as an alternative.
while Apple can't figure out how exactly to avoid paying taxes and what to do with their cash, the AAPL sucks and its investors pay the price. At this point BABA, has been growing like crazy, it's much better option for most people
BABA has about $10 billion in revenue, trading at 26 times revenues at its $260 billion market cap. That's a little less than half Apple's market cap, but about 1/18th the revenues. BABA's earnings are strong and growing (well, they were growing strongly until this quarter), but BABA is a speculative bet that the company can continue to grow revenues and earnings at outsize rates for a long time in order to grow into its enormous market cap. Apple, in contrast, is not a speculative bet but an investment; Apple needs only continue doing about as well as it is currently doing to provide good returns to shareholders in the years ahead. So BABA is an option for those who wish to have some of their money placed on a speculative bet, but not for most people. Apple is for most people.
I still say Apple needs to own their ecosystem end-to-end. They need to phase out credit cards and banks in favor of their own solutions, in addition to acquiring a telecom/wireless service. The wireless phone companies are the biggest weak spot in all customer dealings with the iPhone. They should still offer the iPhone on competing networks, but there should be Apple Wireless as an alternative.
But there are approximately 800 carriers covering the globe. Apple adding one, presumably in the U.S., has exactly how much impact? Even Apple doesn't have the resources to build out a global carrier to offer service in all the markets/geographies it now reaches by partnering with the 300+ carriers that resell iKit. (Samsung sells through approximately 800 carriers and that's where I get my 800 number from; there well could be more total carriers). In addition to the enormous costs of either building out or acquiring its way to any meaningful geographic coverage, Apple would place itself squarely in competition with existing carriers it currently depends upon for distribution of its products. I think you need to go back to the drawing board on the idea.
But there are approximately 800 carriers covering the globe. Apple adding one, presumably in the U.S., has exactly how much impact? Even Apple doesn't have the resources to build out a global carrier to offer service in all the markets/geographies it now reaches by partnering with the 300+ carriers that resell iKit. (Samsung sells through approximately 800 carriers and that's where I get my 800 number from; there well could be more total carriers). In addition to the enormous costs of either building out or acquiring its way to any meaningful geographic coverage, Apple would place itself squarely in competition with existing carriers it currently depends upon for distribution of it's products. I think you need to go back to the drawing board on the idea.
I'm guessing it would make sense for Apple to buy wireless companies wherever regulatory environments are looser and where they can make an impact. In the US, there are any number of potential political issues that could be raised by Apple's competitors. Maybe Apple could focus on Hong Kong, Singapore and wherever it would make sense in India, Africa, the Middle East..?
I still say Apple needs to own their ecosystem end-to-end. They need to phase out credit cards and banks in favor of their own solutions, in addition to acquiring a telecom/wireless service. The wireless phone companies are the biggest weak spot in all customer dealings with the iPhone. They should still offer the iPhone on competing networks, but there should be Apple Wireless as an alternative.
I can't agree with you on this one. Running such a business is not Apple's strength and it would detract and distract Apple from what it does do well.
I remember the signs that would occasionally appear in stores: "We have a deal with the bank. We don't give credit and they don't sell groceries".
Apple has often said that there are a thousand "no"s for every "yes". This principle has served them well.
I can't agree with you on this one. Running such a business is not Apple's strength and it would detract and distract Apple from what it does do well.
I remember the signs that would occasionally appear in stores: "We have a deal with the bank. We don't give credit and they don't sell groceries".
Apple has often said that there are a thousand "no"s for every "yes". This principle has served them well.
Just my opinion, of course, but what prevents Apple from starting a spin-off company, "Apple Wireless" or "Apple Communications"? Apple arguably had no reason to buy Beats, but now that's where Apple is today. Why not buy a company that would take away the extortionate pricing and lousy services we get from current providers? Maybe Apple Wireless wouldn't be cheaper, but there's a 100% likelihood it would be better.
While all of you are talking about how best to spend Apple's money, I'm sitting here wondering if Apple will ever pay the taxes on all that money they refuse to repatriate and bring back to the US economy. I know the sales were made in Europe, but the company lives in the USA. Show some loyalty to your country of origin and put that damn money into the system. That's the problem with corporate America: no loyalty to the nation itself, just to shareholder value.
I was wondering that myself. Why does Apple need even more money overseas? Maybe they just figured 1.1% was just too good to pass up.
This.
If you don't take advantage of a low interest rate when it's available, you may end up paying more later.
But the entire "taking on debt to give away money at the other side to shareholders" bit seems insane. That's plucking the golden goose while still expecting it to give golden eggs.
While all of you are talking about how best to spend Apple's money, I'm sitting here wondering if Apple will ever pay the taxes on all that money they refuse to repatriate and bring back to the US economy. I know the sales were made in Europe, but the company lives in the USA. Show some loyalty to your country of origin and put that damn money into the system. That's the problem with corporate America: no loyalty to the nation itself, just to shareholder value.
You should do the same by immediately pulling all the money out of your 401(k) and paying the taxes on that money. How dare you defer taxes, which is all Apple is doing by holding that money offshore, along with hundreds of other U.S. companies using the same tax deferral strategy.
If you don't take advantage of a low interest rate when it's available, you may end up paying more later.
But the entire "taking on debt to give away money at the other side to shareholders" bit seems insane. That's plucking the golden goose while still expecting it to give golden eggs.
Apple pays close to 2% in dividends. So any money the company can borrow at less than 2% to buy back shares saves the company more money on the dividends it no longer has to pay on those repurchased/retired shares than it costs the company to finance the loan. Quite sane, actually.
Just my opinion, of course, but what prevents Apple from starting a spin-off company, "Apple Wireless" or "Apple Communications"? Apple arguably had no reason to buy Beats, but now that's where Apple is today. Why not buy a company that would take away the extortionate pricing and lousy services we get from current providers? Maybe Apple Wireless wouldn't be cheaper, but there's a 100% likelihood it would be better.
I can't even begin to explain how much that is a bad idea.
You've seen all these MVNO's right? Virgin Mobile, 7-11 Speakout, etc All that is is buying time on a carrier and reselling it. That doesn't remove any of the customer service requirements.
The entire problem with the wireless industry is that they aren't independent. AT&T is the former AT&T Wireless that merged with the former the former Cingular, which was formerly a joint venture between SBC and Bell South. 3 and EE in Europe are similar. None of these carriers are purely wireless or purely wireline. That lack of of independence is why they aren't competing with each other to lower the cost of wireless or lower the cost of wirelines. When AT&T Wireless was independant, it made it's cost savings by not relying on third party backhaul. Now that the carriers are so much larger, they own the backhaul too, so nobody else can get "free backhaul" and compete with them.
Someone quite literately needs to roll out a new set of fiber (be it Google,Amazon, Microsoft or Apple or whoever else can afford it) before we see lower costs anywhere in the US or Canada, to cut out all the backhaul owners like AT&T, Sprint, Verizon, Comcast, Cogent, and such. It would be to Apple's advantage to build such a fiber network to support their own iCloud. Europe is a much wider set of patchwork networks and thus the competition in Europe is more favorable. Trans-atlantic and Trans-pacific links, not at all. Poor Australians keep getting the worst service when new services roll out in the US. Asia (eg Korea/Japan/Singapore/Taiwan, HK, but not mainland China) is very expensive to establish links to but they have some of the cheapest internet costs in the world? Why is that? Population Densitiy. It's much cheaper to roll out fiber to everyone when there is much less area to run it to.
Another point to mention is that in Japan you pay one cost to get the Fiber, and a pay a separate company for the bandwidth. That's competition in action that we sorely lack everywhere else.
While all of you are talking about how best to spend Apple's money, I'm sitting here wondering if Apple will ever pay the taxes on all that money they refuse to repatriate and bring back to the US economy. I know the sales were made in Europe, but the company lives in the USA. Show some loyalty to your country of origin and put that damn money into the system. That's the problem with corporate America: no loyalty to the nation itself, just to shareholder value.
Look at it in a slightly different way. Apple International pays a share of the R&D costs - in proportion to the sales in America vs. rest-of-world. But all those people are in the U.S. So ASI is in fact sending a large chunk of that money back - paying salaries etc in Cupertino and elsewhere. I'm glad that Apple has not done what many others have and moved some of that offshore.
That said, I agree with your position. I just don't hold it as strongly as you.
Comments
This has been covered several times before, including the original article.
BORROWING RATES FOR EUROS ARE AT A HISTORIC LOW.
Sure, Apple has cash here and cash elsewhere, including Europe, but that cash is the result of sales, and therefore subject to U.S. capital gains tax if re-patrioted into the USA. Cash generated from bonds would not be taxed at the same rate as capital gains.
Maybe I didn't explain my question well enough. Or maybe I'm just thick.
Apple's cash in Europe can't be repatriated to the U.S. without paying a lot in tax. Got that.
But why would Apple borrow Euros, presumably to invest in the Eurozone somewhere, when they already have more stored there than they know what to do with? Or is the plan to borrow Euros, convert to dollars and move them to the U.S.? If so, why borrow Euros? Why not borrow dollars directly, in Europe?
Good question. I think it's balance sheet hedging, with the possibility that there's a repatriation deal in the works at some point in the next year or two.
All three of your entities there are dying, or endangered by a new medium: the communicator in your pocket. Canned entertainment is going the way of the Victorian novel.
Meanwhile, Apple will continue building its dedicated worldwide instantaneous video communication network. It's going to take some big barrels of that dry powder they've been storing.
I don't trust China-based businesses or their accounting and reporting...at all. I have several China stocks (not small companies, by the way) and all have underperformed. Never again.
Maybe I didn't explain my question well enough. Or maybe I'm just thick.
Apple's cash in Europe can't be repatriated to the U.S. without paying a lot in tax. Got that.
But why would Apple borrow Euros, presumably to invest in the Eurozone somewhere, when they already have more stored there than they know what to do with? Or is the plan to borrow Euros, convert to dollars and move them to the U.S.? If so, why borrow Euros? Why not borrow dollars directly, in Europe?
The bond and the coupon must be in the same currency. The bond must be denominated in the legal currency of the country/region of issuance.
The plan is to borrow euros and convert at least some to US dollars and repatriate them to the United States to help fund the share buyback program at a lower tax rate than the money earned from sales.
Remember, any cash that Apple has in Europe right now is in eurodollars, so currency exchange would have to happen anyhow.
This is potentially misleading: as I understand it, Apple cannot use its non-US debt (instead of cash held abroad) to fund a capital return program in the US. The IRS will come down hard on a tax-avoidance strategy like that.
I doubt very much that Apple will want to push that envelope in the current environment.
I'm betting the U.S. corporation, not one of Apple's foreign subsidiaries, is the one issuing the bonds and therefore the borrowed money will be available to the U.S. corporation to use as it pleases. I'm sure Apple headquarters and accountants are well on top of this. No worries.
I find it amazing that there are so few real investment options for Apple at the scale of its annual profit not counting the existing hoard. This is really unprecedented and the investment suggestions I've seen are either puny, weak ROI, areas beyond Apple's competencies, etc.
It almost seems that Apple needs to create become two companies, that is, current Tech innovator and then something entirely different e.g., solar energy company, pharmaceutical, or bioengineering. Not that these are the right ones, but explores the degree of departure needed.
If these became very successful, then at some point they would become two or more companies. This demands huge resources and if properly chosen huge payoffs. So why not give the money back to stockholders (step up the pace)? My view is that Apple has developed processes and competencies and value systems so different from all other companies, this would be a great way to extend these deep characteristics to a much wider business, customer, and social communities.
Stockholders investing rarely rewards or recognizes this and so Apple has the opportunity to really turn the business world and MBA paradigms on their much needed head. ,
I still say Apple needs to own their ecosystem end-to-end. They need to phase out credit cards and banks in favor of their own solutions, in addition to acquiring a telecom/wireless service. The wireless phone companies are the biggest weak spot in all customer dealings with the iPhone. They should still offer the iPhone on competing networks, but there should be Apple Wireless as an alternative.
while Apple can't figure out how exactly to avoid paying taxes and what to do with their cash, the AAPL sucks and its investors pay the price. At this point BABA, has been growing like crazy, it's much better option for most people
BABA has about $10 billion in revenue, trading at 26 times revenues at its $260 billion market cap. That's a little less than half Apple's market cap, but about 1/18th the revenues. BABA's earnings are strong and growing (well, they were growing strongly until this quarter), but BABA is a speculative bet that the company can continue to grow revenues and earnings at outsize rates for a long time in order to grow into its enormous market cap. Apple, in contrast, is not a speculative bet but an investment; Apple needs only continue doing about as well as it is currently doing to provide good returns to shareholders in the years ahead. So BABA is an option for those who wish to have some of their money placed on a speculative bet, but not for most people. Apple is for most people.
I still say Apple needs to own their ecosystem end-to-end. They need to phase out credit cards and banks in favor of their own solutions, in addition to acquiring a telecom/wireless service. The wireless phone companies are the biggest weak spot in all customer dealings with the iPhone. They should still offer the iPhone on competing networks, but there should be Apple Wireless as an alternative.
But there are approximately 800 carriers covering the globe. Apple adding one, presumably in the U.S., has exactly how much impact? Even Apple doesn't have the resources to build out a global carrier to offer service in all the markets/geographies it now reaches by partnering with the 300+ carriers that resell iKit. (Samsung sells through approximately 800 carriers and that's where I get my 800 number from; there well could be more total carriers). In addition to the enormous costs of either building out or acquiring its way to any meaningful geographic coverage, Apple would place itself squarely in competition with existing carriers it currently depends upon for distribution of its products. I think you need to go back to the drawing board on the idea.
I'm guessing it would make sense for Apple to buy wireless companies wherever regulatory environments are looser and where they can make an impact. In the US, there are any number of potential political issues that could be raised by Apple's competitors. Maybe Apple could focus on Hong Kong, Singapore and wherever it would make sense in India, Africa, the Middle East..?
I still say Apple needs to own their ecosystem end-to-end. They need to phase out credit cards and banks in favor of their own solutions, in addition to acquiring a telecom/wireless service. The wireless phone companies are the biggest weak spot in all customer dealings with the iPhone. They should still offer the iPhone on competing networks, but there should be Apple Wireless as an alternative.
I can't agree with you on this one. Running such a business is not Apple's strength and it would detract and distract Apple from what it does do well.
I remember the signs that would occasionally appear in stores: "We have a deal with the bank. We don't give credit and they don't sell groceries".
Apple has often said that there are a thousand "no"s for every "yes". This principle has served them well.
I can't agree with you on this one. Running such a business is not Apple's strength and it would detract and distract Apple from what it does do well.
I remember the signs that would occasionally appear in stores: "We have a deal with the bank. We don't give credit and they don't sell groceries".
Apple has often said that there are a thousand "no"s for every "yes". This principle has served them well.
Just my opinion, of course, but what prevents Apple from starting a spin-off company, "Apple Wireless" or "Apple Communications"? Apple arguably had no reason to buy Beats, but now that's where Apple is today. Why not buy a company that would take away the extortionate pricing and lousy services we get from current providers? Maybe Apple Wireless wouldn't be cheaper, but there's a 100% likelihood it would be better.
This.
If you don't take advantage of a low interest rate when it's available, you may end up paying more later.
But the entire "taking on debt to give away money at the other side to shareholders" bit seems insane. That's plucking the golden goose while still expecting it to give golden eggs.
While all of you are talking about how best to spend Apple's money, I'm sitting here wondering if Apple will ever pay the taxes on all that money they refuse to repatriate and bring back to the US economy. I know the sales were made in Europe, but the company lives in the USA. Show some loyalty to your country of origin and put that damn money into the system. That's the problem with corporate America: no loyalty to the nation itself, just to shareholder value.
You should do the same by immediately pulling all the money out of your 401(k) and paying the taxes on that money. How dare you defer taxes, which is all Apple is doing by holding that money offshore, along with hundreds of other U.S. companies using the same tax deferral strategy.
This.
If you don't take advantage of a low interest rate when it's available, you may end up paying more later.
But the entire "taking on debt to give away money at the other side to shareholders" bit seems insane. That's plucking the golden goose while still expecting it to give golden eggs.
Apple pays close to 2% in dividends. So any money the company can borrow at less than 2% to buy back shares saves the company more money on the dividends it no longer has to pay on those repurchased/retired shares than it costs the company to finance the loan. Quite sane, actually.
I can't even begin to explain how much that is a bad idea.
You've seen all these MVNO's right? Virgin Mobile, 7-11 Speakout, etc All that is is buying time on a carrier and reselling it. That doesn't remove any of the customer service requirements.
The entire problem with the wireless industry is that they aren't independent. AT&T is the former AT&T Wireless that merged with the former the former Cingular, which was formerly a joint venture between SBC and Bell South. 3 and EE in Europe are similar. None of these carriers are purely wireless or purely wireline. That lack of of independence is why they aren't competing with each other to lower the cost of wireless or lower the cost of wirelines. When AT&T Wireless was independant, it made it's cost savings by not relying on third party backhaul. Now that the carriers are so much larger, they own the backhaul too, so nobody else can get "free backhaul" and compete with them.
Someone quite literately needs to roll out a new set of fiber (be it Google,Amazon, Microsoft or Apple or whoever else can afford it) before we see lower costs anywhere in the US or Canada, to cut out all the backhaul owners like AT&T, Sprint, Verizon, Comcast, Cogent, and such. It would be to Apple's advantage to build such a fiber network to support their own iCloud. Europe is a much wider set of patchwork networks and thus the competition in Europe is more favorable. Trans-atlantic and Trans-pacific links, not at all. Poor Australians keep getting the worst service when new services roll out in the US. Asia (eg Korea/Japan/Singapore/Taiwan, HK, but not mainland China) is very expensive to establish links to but they have some of the cheapest internet costs in the world? Why is that? Population Densitiy. It's much cheaper to roll out fiber to everyone when there is much less area to run it to.
Another point to mention is that in Japan you pay one cost to get the Fiber, and a pay a separate company for the bandwidth. That's competition in action that we sorely lack everywhere else.
While all of you are talking about how best to spend Apple's money, I'm sitting here wondering if Apple will ever pay the taxes on all that money they refuse to repatriate and bring back to the US economy. I know the sales were made in Europe, but the company lives in the USA. Show some loyalty to your country of origin and put that damn money into the system. That's the problem with corporate America: no loyalty to the nation itself, just to shareholder value.
Look at it in a slightly different way. Apple International pays a share of the R&D costs - in proportion to the sales in America vs. rest-of-world. But all those people are in the U.S. So ASI is in fact sending a large chunk of that money back - paying salaries etc in Cupertino and elsewhere. I'm glad that Apple has not done what many others have and moved some of that offshore.
That said, I agree with your position. I just don't hold it as strongly as you.