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Ability to invest big in R&D;all the way through economic downturns.

Feb 25, 08 - 10:39 am Comment from: shen

wow that is a sad comment on MS. what on earth do they do with that R&D;money? burn it to keep the building warm?

a thought for the curious.

Apple and MSFT have nearly the same amount of cash on hand. Apple could buy Yahoo the same way MSFT is trying to buy yahoo, with cash and stock.

Of course Apple is smart enough to know that Yahoo is better off by itself, and a merger would be counter productive. MSFT isn't that smart.

apple‘s cash pile is obscene high. apple give the money back to us shareholders! (it is ours, did you forget mr. jobs?) or DO something with it. Buy something. having it on the bank or in short term investments is not an option. that means wasting money. make your strategic investments and/or acquisitions for god's sake. buy nintendo, adobe, sony (half in cash, half in shares as microsoft wants to do on yahoo). do something or give it back! probably 23 dollars a share in cash at the end of this quarter. apple are you crazy?

Feb 25, 08 - 10:46 am Comment from: pastrychef

The only acquisition I want to see is Adobe. Otherwise, I don't mind having a large stock pile of cash.

that they do nothing to stimulate the economy. The current tax cuts amount to less than $1000 per tax payer, and there are far fewer than 300 million tax payers in the US. That means that less than $1 Billion dollars is expected to boost the economy.

Imagine what would happen if companies like Apple, Microsoft, HP, etc., were to invest $1 billion each in their employees by giving bonuses or pay raises to the average workers and skipping upper management. The recession would be just a memory.

Feb 25, 08 - 10:49 am Comment from: ron

@ralph from berlin. It's ours! It's ours! Ve Brrritish must stick togezzer. (Clicks heels).

Feb 25, 08 - 10:50 am Comment from: Jay-Z

Keeping cash on hand prevents the need to sell out to Microsoft like AAPL had to 10 years ago.

Feb 25, 08 - 10:51 am Comment from: Maginary

How much is Nintendo worth right now? Maybe there is a possibility for acquisition or at least strategic partnering that would give credibility to the rumored gaming suspect for AppleTV, iPhone, and iPod Touch.

Why does Johnston compare only Apple to Microsoft. Isn't comparing a hardware and software like comparing Apple's to oranges? LOL.

@ron - your comment is idiotic or what?

Feb 25, 08 - 10:53 am Comment from: Maginary

Sorry ralph from berlin, I missed your earlier conjecture and was not trying to steal your thunder.

Feb 25, 08 - 11:00 am Comment from: silverhawk

Why does Gene Munster and the rest of Wall Street care why Apple has money in the vault? Why exactly should they care? Do they want access to it or dividends?

ralph from berlin,

The U.S. economy is about to go through either a short sharp or a prolonged recession. As well, Apple derives most of it's income from consumer purchases. One would expect some kind of sales hit from declining consumer expenditure. The reason for this is that in a recession the expenditure that takes a hit are discretionary expenditures. That means that people will defer purchases such as computers, ipods and cell phones.

So ralph, the last thing Apple needs is to start spending money willy nilly. Besides, I reckon by the time this downturn is over (and it may yet spread to other countries) there'll be some very attractive buyouts. For the time being Apple to needs to keep it's purse well and truly buttoned.

Feb 25, 08 - 11:05 am Comment from: Tommy Boy

Apple shouldn't let that cash pile get much larger than $20 bn. There doesn't come a point in time when a cash pile just gets too big to be of much use, unless your plan is to get to the point where you can buy Adobe in cash. And as much as I see certain cheerleaders here applaud that move, it would be hyper-anti-competitive and should be rejected by our monopoly regulators.

Stock buybacks are stupid, they help a small handful of shareholders who want to cash out.

Once that cash pile hits $20 bn, a dividend is the most reasonable thing to do with the money. They help all shareholders equally and over time.

So I'm like, Um, excuse me, lady, now I'll be the first to admit that I'm not an MBA and I was never very good at math since I'm totally right-brain and artsy, hence the black turtlenecks, but I have been around business most of my life and I've always understood that it was a good thing to have loads of money and no debt. But what do I know?

Like missing the opportunity to split Apple stock when it was above $150, Apple managment can´t figure out what to do with it´s profits.

What is the purpose of making a profit if Apple doesn´t invest it in it´s business or reward faithful stock holders? If Apple does not need profits I would suggest lowering the prices on all products so profits do not occur.
Lots of consumers would like that.

Feb 25, 08 - 11:15 am Comment from: ron

@Bill in Britain. Yes - sucks thumb. Up ManU.

The cash pile enables Apple to make strategic acquisitions during the upcoming recession, when share prices will be down and there will be bargains galore to be had. This will position Apple well for the recovery.

It will be smart technology purchases in emerging markets, not old dinosaurs like Sony or Adobe.

They should keep accumulating the cash, and use it do what they do best, and start doing it worldwide !!!

iPhones, Apple TV, iTunes movie rentals, Apple stores, SDK, the upcoming iTablet, etc... all that needs to happen all across the planet.

Apple don't need anything else, nobody else, but executing their vision worldwide.

tommy, i agree. the point is not if apple should have enough cash on hand (they should) to make all their small strategic acquicisions (fingerworks, logic, final cut) but they won't do a major acquicision on the scale of nintendo or adobe (as much i wish they would) this is not the companie's culture. so what do they need the money for? starting to pay a dividend after 7 years in a row of earning money every quarter is a must. why the big stockholders like the mutual funds mentioned in the article don't force apple to do just that is beyond me.

@silverhawk

it's simple, the analysts often give lectures to university students studying accounting or finance. they are well recognised and cheered as they walk in a lecture...and likewise in society

they analyse everything using flawed formulas, to predict the behaviour of a successful company...

Apple's isn't microsoft. Microsoft worked in the 90s, but not now.

The analysts don't want to be in a position, where they're wrong... for example, they rock up to uni, provide a theoritical explanation about why, companies need to use their excess fund for high risk investment to have a higher rate of return, as part of their survival and to maximise shareholders wealth...
and then little tommy stand up and says, what about apple...

And they'll be pulling their hair out...

... paying a dividend (starting with a bigger bonus dividend) would also help the stock price ... 117, 41 % down from the last high. when you think the stock is going down for no reason, think again.

Cash is a Current Asset on a company's Balance Sheet. While there are obvious benefits to having cash on hand such as a better solvency position, better ratios such as the current ratio, quick ratio, and working capital there are some DISADVANTAGES.

While proper cash management requires that enough is available to meet the needs of a firm's operations, too much idle cash can be a net disadvantage as it provides a non-optimal return and loses purchasing power during periods of inflation (which we are in right now).

An example. Let's say a firm has $1,000,000 of cash and could earn 10% in an investment. That would mean that at the end of the year the 1 million would be worth $1,100,000 (a gain of $100,0000). On the flip side the economic environment is inflationary (let's assume it's 5%). So if the cash is left idle, the firm would need to $1.05 million at the end of the year to buy goods and services that could have been bought for $1 million at the beginning of the year.

So the above demonstrates that cash by itself is not a productive asset. Cash over and above the levels needed for operations should be either invested (in income-producing areas such as short-term investments, long-term investments, or intangible assets) or returned to shareholders via a dividend.

Apple is demonstrating through its large cash balance that it is not operating at its full potential because it has more cash than necessary for day-to-day operations. There fact that the cash balance is growing at such high levels demonstrates that Apple's management is either being too cautious or is mis-managing the firm's assets.

My fellow MBA's will understand what I've just described.

Unlike you guys, I'm not an expert in world finance, so I'm not qualified to have an opinion. It's an interesting situation, however.

Apple doesn't aim to accumulate cash. They've been growing both R&D;and the retail stores at a manageable pace, so that the quality doesn't get diluted. They made a key investment in NAND memory that has been paying back big-time.

The real problem is people won't stop throwing money at Apple. $599 for an Exchange-deprived smartphone? Yay! $3099 for a crippled MBA? Yay! $129 for an OS point upgrade? Yay! $49 for a screenless MP3 player. Yay!

Now that should make the analysts, er, MS fanboys, really angry.

](please note the sarcasm)

I agree. !! PS, its not really cash, just easy to make into cash investments. And Please note that those investment MAKE MONEY all by them selves.!!!

MS is spending its money on foolish investments. Apple looks at critical need companies and is able to buy them with the interest it makes on its money.

PS, buying a company in a downturn is always cheaper than buying it while on top.

Just a thought,

en

PS, let Apple stock dip to 116 one more time before the rise. I missed it last time and want a few more shares.

I say Apple should put a cap on cash on hand to no more than $28.6 billion. Any more than that is just silly.

At least spend a few more bucks on advertising. Apple TV is great, right? So why can't you find one ad for it on TV?

The idea that Apple is 'swimming in cash' gave me the humorous mental image of Steve Jobs doing the backstroke in an olympic sized pool filled with $100 bills.

Seriously though, with the USD being weak, how many acquisitions would be feasible at the moment?

Feb 25, 08 - 12:09 pm Comment from: alansky

All I have to say is that Apple's shareholders have been richly rewarded several times over and should keep their big mouths shut.

Feb 25, 08 - 12:12 pm Comment from: Gandalf

Keep the cash, grow the pile, spend it wisely.

A decent sized stash of cash, which is little different in proportion to the value of the business than over the last several years, helps to keep the bankers at bay. Imagine what the bankers' shills on The Street would have done to the share price without that cushion. They make a profit per transaction, up, down makes no difference to them, they just want more transactions. So what if it diverts the companies' attention from doing their business, more transactions = more profit, there's always another business to mess around with.

Call it insulation, or independence.

It will be interesting to see what Apple does with the stash, maybe some sort of media company, a decade's time maybe.

It's a little too early to be criticizing Apple for their cash hoard. (BTW, it's not really cash, it's "cash"--i.e., it is invested in bonds and T-bills.) As several have pointed out, Apple should see where their cash hoard is after the next recession before making any decisions to reduce it. Or, they can revisit the issue after their pile hits 40 billion, whichever comes first.

Taking heat on this position must mean even further that Apple is doing extremely well despite the potential recession.
I do wish Apple would buy the Wii, but I can't think of anyone else who is doing anything revolutionary or what Apple can't already do themselves.
I think a kick butt next generation iPhone will do the most for them in the longterm and allow them to truly expand exponentially into a futuristic market that just is not going to go away. I would also try to distance myself further from Vista by yes, still coming out with the next big cat operating system. Make Redmond OS writers bang their heads against the wall even more.
Number one goal at Apple if I was Steve Jobs...make an iPhone that will meet the high standards of Japanese consumers. There are millions waiting to be sold just on that island...satisfy Japan, and China will follow.

What's interesting is that if Apple was a person and not a company, these analysts would be praising Apple for not being in debt, for being self-insured, independently wealthy, and set for life.

I think it's another example of analysts who don't like the fact that Apple is secretive and won't tell people what its plans are, so they have to find something "wrong" with $16 billion in cash.

Once you start paying dividends, investors expect them to continue in perpetuity. Why buy back stock? Apple does just fine. That's just spending money for nothing in return. It's not like Apple has a few major shareholders out there who can control the company.

Apple makes M&As;when it makes sense. Apple also doesn't make huge, blockbuster, AOL-type acquisitions (many of which are mistakes anyway).

some of the 18 billion should be pooled with other Silicon Valley tech companies to create a Tech industry backed wireless broad band provider

Apple 18 billion
Google 14 billion
Intel 15 billion

So then we'll have Telcos vs Cable vs Silicon Valley....pricing will drop like a rock

A significant amount of it has been widely reported to be in commercial Real Estate and will be less subject to the ongoing decline in he US Dollar. Long term, it will produce even more money for the bottom line.

Apple had a near death experience in the late 1990's and INVESTED in R&D;during the time after the Tech Bubble went bust and the 2001 recession and competitors cut back on development. That set the table for much of today's success. Otherwise, going with a contrarian model worked for Apple. Call it Thinking Different.

The people clamoring for a buy-back are short-sighted, short-term market players looking for a quick hit to offset the losses they have had in the recent market downturns. They do not care about Apple or it's long-term prospects.

The long-term track record for buyback schemes is not impressive. In a down market the short term bump in value can be wiped out in a market downdraft- pissing away truckloads of money with little to show for it. Having real cash (not debt) and solid assets in a tight credit market is a phenomenal plus to a growing company and gives the company options it might not otherwise be able to afford.

As to acquisitions, many never pan out. Differences in corporate culture kill many in a very short time. Companies heavily valued on intellectual capital can also experience a huge brain drain after a buy out. Many of Apple's best and brightest followed Steve Jobs out the door in the 1980's, contributing to the decline of Apple over Sculey's tenure. The same could happen with any company Apple might buy.

Feb 25, 08 - 12:38 pm Comment from: Mr. Peabody

Speaking of acquisitions, look out Adobe...

Feb 25, 08 - 12:39 pm Comment from: Hg Wells

The decline in stock price should be addressed by Apple. Using some of the cash would seem reasonable. Buying Adobe has been mentioned before. Keeping good reserves is important. Apple correctly learned its lesson from the past. But near $20 billion would appear to be adequate. Another look at this by Apple may be a good thing.

Microsoft has had as much as $75 B in cash. Intel, Oracle, Cisco, and others have around 20B in cash each. Apple is now finally joining this group of Silicon Valley companies in this regard. Future ventures (in and out of Apple's core field), speeding up production, purchasing companies, spreading worldwide, etc. are uses for the cash. Also, just accumulating it as the SV companies above (and many others do) as protection against the future, for investor dividends, etc. Al l this cash (without debt) is a product of, almost unique to the computer-internet revolution of the last several decades, especially these Silicon Valley players. (Google and other are also joining.) It’s almost a new phenomenon for an industry and the possibilities (and questions about its non-use) are endless. Perhaps a deep study of the phenomenon of huge cash/no debt in SV is worth undertaking. (E.g., one person I know says that it is a product of a relatively new phenomenon of self-multiplication of money now occurring in the world now.)

Feb 25, 08 - 01:33 pm Comment from: BC Kelly

Reference Goople's post above, and I repeat:

Apple - team up with Google, et al

Spend $10,000,000,000 if need

Win this 700mhz spectrum auction going now

Set up a wireless network across USA/Planet

That will be worth $1,000,000,000,000's

Plus - we'll Change the World™


BC

Feb 25, 08 - 02:42 pm Comment from: DogGone

Apple have made plenty of acquisitions in the past and will continue to make them. The cash they have makes it easy to invest when they want to.

Just remember only Jobs and the board know what their long-term plans are. This war chest will come in handy when they need to make a big move into some new arena.

Whilst it is annoying the stock has dropped so much in the past month, it will bounce back soon enough. Those who cashed out can buy new stock. Those like me who stayed in will bide our time. All my stock is in a rollover IRA and since I have another 20 years to retire I can wait.

1. Hire more software developers.
2. Hire more quality control staff.
3. Buy Steve Jobs another turtleneck seater other than black.
4. Reduce prices on hardware across the board.

Acquiring Adobe would be interesting. Current market cap is $20B.

What you bois been smoking??? I agree Apple fortunes have been good and I can agree the do seem to have a good model when it comes to their future fortunes and investment. However ot attack MSFT again for doing more than approaching ideas with a good healthy cash infusion for their R & D is truly pathetic. Dont you fanbois get it. MSFT is so big and growing because they do look at oppurtunities and are not afraid to inject the necessary capital to see how far a new tech idea goes. That is why they do lead in software, and had the #1 game console, and had the biggest game franchise ever, and in a year and half sold 4 million Zunes, and the list goes on and on.
You see fanboise Apple only has the Mac, Ipod, Iphone and of course der Fuerher famous hobby Apple TV.
Keep trying though, you bois just might get it right.

Feb 25, 08 - 06:30 pm Comment from: Denny

Their stores are huge cash generators as well as the iPhone royalties from the wireless carriers. This will continue to grow quarter to quarter.

Seriously though, with the USD being weak, how many acquisitions would be feasible at the moment?

NONE.

If Apple has to spend cash, either pay dividends or buy hard assets (like the spectrum mentioned above).

Apple doesn't need more people on board (except maybe for QA). Recent QA snafus show they're already getting a bit top-heavy.

“How much is Nintendo worth right now?”

Around $65B, a little out of reach for Apple. I’m not sure they’d want Apple shares either, they don’t seem to be such a good investment recently.

A large cash pile drags down financial ratios, as earnings on cash, money market rates, typically don't match the earnings on Apple' other investments, ie its own products. Of course, throwing money into buying things, for the sake of buying things isn't any good either.

Three things to keep in mind. One, Apple is building a new campus in Cupertino. That's a large investment. Two, if there is a recession, and it looks increasingly likely, it doesn't hurt to have lots of cash on-hand, to help tide things over, and to perhaps, make some strategic acquisitions. Three, we don't know but if Apple is working with Google on the 700Mhz spectrum auction, their financial input would be in the billions.

More IMPORTANTLY, did these analysts, even note, that Apple added only $1.6B in net income, but added $3.1B in cash? Why the difference? Primarily DEFERRED REVENUES from the iPhone to the tune of $1B!!! That's the bigger story, that the analysts seem to have missed.

Feb 25, 08 - 08:53 pm Comment from: ken1w

> apple give the money back to us shareholders! (it is ours, did you forget mr. jobs?) or DO something with it.

Dumb comment. The cash Apple has is reflected in the stock price. If Apple didn't have 18 billion, and had debt instead, the stock price would be much lower.

Frankly, as an Apple customer and investor, I take comfort in knowing Apple has the resources to weather economic turmoil and come out the other end with a stronger position. Apple should not "DO something with it" for the sake of satisfying people who illogically complain that Apple has TOO MUCH money.