Apple's $250 Billion Cash Pile Enlivens Hopes, Fuels Expectations
April 30 2017 - 12:52PM
Dow Jones News
By Tripp Mickle
In its quarterly results on Tuesday, Apple Inc. likely will
report that its cash hoard has topped a quarter of a trillion
dollars, an unrivaled milestone for a private corporation that
raises a question: Why would any company want to hold that much
money?
Apple has added to its pile at a blistering pace, doubling it in
just over four-and-a-half years. In the last three months of 2016
it wracked up new cash at a rate of about $3.6 million an hour. Its
current total, not accounting for debt, exceeds the market values
of Wal-Mart Stores Inc. and that of Procter & Gamble Co., and
outstrips the foreign-currency reserves of the U.K. and Canada
combined.
The stash has drawn fresh attention recently as President Donald
Trump tries to revamp the U.S. tax regime. Apple, like many big
companies, keeps most of its cash offshore -- some 93% of its
$246.09 billion total cash, cash equivalents, and securities as of
December -- to avoid U.S. corporate taxes that executives consider
too high.
The Trump administration this week proposed a one-time tax
holiday to encourage companies to bring that cash home, and said it
wants to slash the U.S. corporate-income-tax rate to 15% from 35%
and largely exempt future foreign profits. That could make it
easier for Apple to put its money to use, through acquisitions or
by doling out more to shareholders. The latter prospect has
propelled Apple's stock to record highs.
Apple Chief Executive Tim Cook early this year said he was eager
to bring cash home if tax changes enable it, and Chief Financial
Officer Luca Maestri said such a move would give Apple flexibility
to do more capital returns. Neither has given detailed plans.
One possible approach would be a special dividend. Apple could
deliver such a windfall, benefitting investors including Warren
Buffett's Berkshire Hathaway Inc., which more than doubled its
Apple position in January.
Wall Street analysts tend to focus more on companies' net cash
position than the headline number. Apple has racked up some $88
billion in debt to fund payouts to shareholders. But even
subtracting that, Apple would be left with more cash than the total
stockpile of Microsoft, the next richest tech company, which boasts
$126 billion in cash, not accounting for debt.
With the exception of financial companies, Apple's stash exceeds
that of any other U.S. company in recent history, said Jennifer
Blouin, an accounting professor at University of Pennsylvania's
Wharton School. "I have never seen a company in this kind of
extreme position, barring a winding-down," she said. "Apple's a
cash box right now."
Former executives say Apple's thrift has deep roots, inspired in
part by a brush with bankruptcy in the late 1990s. That forced
Chief Executive Steve Jobs to arrange a cash infusion from
Microsoft Corp. and set his resolve to keep reserves for future
emergencies. Mr. Jobs also believed Apple could better boost its
stock price by using its money to develop new products than through
buybacks or dividends.
His biggest product, the iPhone, has only supercharged the cash
machine. Apple has sold more than 1 billion of the devices in the
decade since it was introduced, and today claims 91% of all the
profits in the smartphone sector.
Mr. Cook has been somewhat more accommodating of shareholder
desires than his predecessor. He started a
dividend-and-stock-buyback program in 2012 that has since sent more
than $200 billion to shareholders. And he has invested more in some
areas, such as R&D.
But the CEO also stared down Carl Icahn in 2013 and 2014 when
the activist investor bought a stake in Apple and demanded it
increase buybacks. And Apple remains frugal in other realms, such
as marketing. It spent less than $1.8 billion on advertising last
year -- not even half the amounts laid out by smaller rivals
Alphabet Inc. and Amazon.com Inc., according to company
filings.
Apple also avoids large acquisitions. It bought at a rate of 15
to 20 companies a year over the past four years, generally spending
several hundred million dollars on companies it can easily
assimilate. Its biggest deal was the $3 billion it spent to buy
Beats Electronics LLC in 2014.
The swelling war chest has fueled hopes for bigger deals to
vault Apple in new directions such as self-driving cars and
entertainment. At Apple's 2015 shareholder meeting, one investor
asked Mr. Cook about buying Tesla Inc., which today is valued
around $51 billion. The CEO didn't directly respond.
Robert Nichols of Windward Capital Management Co., an Apple
shareholder, says it should buy Netflix Inc., valued around $65
billion, to jumpstart its video-streaming business and bolster its
position against Amazon. "You can either build [content and
distribution] or you can buy it," and buying would help Apple gain
ground where it is behind, he said.
With $250 billion, Apple could buy both Tesla and Netflix and
still have plenty left over. It also might want to use some cash to
pay down some of its debt or look to boost U.S. manufacturing after
facing calls last year from then-President-elect Trump to build a
plant in the U.S.
Either way, there is a growing sense that Apple's cash hoard has
far outstripped its needs. "If this a rainy day fund, they're
saving for a millennial flood," said Lee Pinkowitz, a Georgetown
University professor of finance.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
April 30, 2017 12:37 ET (16:37 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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