Apple Inc's cash war chest

Posted:
in General Discussion edited January 2014
Does anyone have any thoughts on why Apple is building up such a huge cash surplus?



They could use this for a rapid expansion of their retail presence, but they are not. Nor are they spending it on R & D. Nor marketing or advertising (they are spending billions on these, but they are all accounted for under recurrent expenditure, not one off investments).



So what is it for?



It stands now at nearly 12bn USD, and at present reates will reach 15bn by the end of the year.



They are not buying back shares, or paying dividends. So what is left for the crock of gold? A reserve to fight off hostile takeovers (but would this cash make them more prone to takeovers)? Or a fund to make takeovers themselves? Or do they just have the cash because they can't think of anything better to do with it?



Would be interested to hear what people think!

Comments

  • Reply 1 of 16
    Maybe it's time for Apple to reinstate dividend payments.
  • Reply 2 of 16
    hardeeharharhardeeharhar Posts: 4,841member
    They use their cash to secure their future - a major part of the reason apple is still around is because they had a significant amount of cash on hand in 1997.



    This includes buying smaller companies with interesting IP and buying back stocks when they think they are undervalued...
  • Reply 3 of 16
    Quote:
    Originally Posted by hardeeharhar View Post


    They use their cash to secure their future - a major part of the reason apple is still around is because they had a significant amount of cash on hand in 1997.



    If I remember correctly, Apple just about ran out of cash back then and it was Microsoft's cash that helped keep Apple alive.
  • Reply 4 of 16
    hardeeharharhardeeharhar Posts: 4,841member
    Nope. They had ~$1 Billion on hand...



    Microsoft bought non-voting shares to make it appear they were above board with regard to antitrust allegations...
  • Reply 5 of 16
    hirohiro Posts: 2,663member
    Yeah, the 1 billion on hand was projected as enough to sustain another 1.5 quarters operation before creditors cut them off. Not much of as cushion.
  • Reply 6 of 16
    they are going to use it to fund Bono's peace keeping missions
  • Reply 7 of 16
    SpamSandwichSpamSandwich Posts: 30,558member
    They've been grilled on this by analysts also. Could they really be that paranoid? Short answer... yes.
  • Reply 8 of 16
    Quote:
    Originally Posted by Hiro View Post


    Yeah, the 1 billion on hand was projected as enough to sustain another 1.5 quarters operation before creditors cut them off. Not much of as cushion.



    But it was much much greater than the 150 M microsoft gave them...
  • Reply 9 of 16
    sdw2001sdw2001 Posts: 16,918member
    Quote:
    Originally Posted by hardeeharhar View Post


    But it was much much greater than the 150 M microsoft gave them...



    True, and that was after they were losing up to $700 million a quarter at times. The cash kept them alive.



    cutemartin:



    Quote:

    They could use this for a rapid expansion of their retail presence, but they are not. Nor are they spending it on R & D.



    They will use some to fund retail expansion, true. However, they spend quite a bit on R&D...almost three times as much as Dell, for example. That's still only about 3-4% of revenue, which some analysts take issue with, but it seems that budget covers development quite well.
  • Reply 10 of 16
    cosmonutcosmonut Posts: 4,872member
    Several billion cash in the bank makes them a lot less purchaseable. Anyone that buys Apple would have to pay for that $12b too.
  • Reply 11 of 16
    hirohiro Posts: 2,663member
    Quote:
    Originally Posted by hardeeharhar View Post


    But it was much much greater than the 150 M microsoft gave them...



    Quote:
    Originally Posted by SDW2001 View Post


    True, and that was after they were losing up to $700 million a quarter at times. The cash kept them alive.



    The cash wasn't the thing that helped, although it didn't hurt. It was the contractual commitment that MS would continue to develop and ship OfficeMac for a minimum of 5 years. That was peace of mind to buyers that MS wasn't leaving and putting the final nail in the Apple coffin.
  • Reply 12 of 16
    hirohiro Posts: 2,663member
    Quote:
    Originally Posted by CosmoNut View Post


    Several billion cash in the bank makes them a lot less purchaseable. Anyone that buys Apple would have to pay for that $12b too.



    Just the opposite. Many companies with large cash reserves get bought when their stock is undervalued because the cash is real while stock value is just numbers on paper. So they pay a paper discount for the stock and then get the windfall cash.



    For awhile Apple was very vulnerable to that with about 5 billion of cash and a 7 billion market cap. The 2 billion the company looked worth at that time (on paper only) was ridiculously undervalued since they had about a billion a quarter in sales, the PE ratio was close to 5, 20 is considered healthy, when you considered the cash hoard. It's amazing they weren't bought out then.
  • Reply 13 of 16
    backtomacbacktomac Posts: 4,579member
    I bet Michael Dell wishes he would have bought them out back then, Hiro.
  • Reply 14 of 16
    shawnjshawnj Posts: 6,656member
    Quote:
    Originally Posted by hardeeharhar View Post


    This includes buying smaller companies with interesting IP



    + buying companies for talent.
  • Reply 15 of 16
    hirohiro Posts: 2,663member
    Quote:
    Originally Posted by backtomac View Post


    I bet Michael Dell wishes he would have bought them out back then, Hiro.



    Probably, but he was too busy being in a pissing contest with Steve. He was responsible for the [paraphrased quote] "If I were the CEO, the best thing to do would be shut down the company, sell the equipment and return the war chest to the shareholders"
  • Reply 16 of 16
    backtomacbacktomac Posts: 4,579member
    Quote:
    Originally Posted by Hiro View Post


    Probably, but he was too busy being in a pissing contest with Steve. He was responsible for the [paraphrased quote] "If I were the CEO, the best thing to do would be shut down the company, sell the equipment and return the war chest to the shareholders"



    Yeah, I know. I bit ironic really.
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