By Tripp Mickle
Apple Inc. is expected to report Tuesday that its stockpile of
cash has topped a quarter of a trillion dollars, an unrivaled
corporate hoard that is greater than the market value of both
Wal-Mart Stores Inc. and Procter & Gamble Co. and exceeds the
combined foreign-currency reserves held by the U.K. and Canada
combined.
The money, more than 90% of which is stockpiled outside of the
U.S., has drawn fresh attention as President Donald Trump has
proposed slashing business taxes and a one-time tax holiday on
corporate cash brought home. That could ratchet up pressure on the
tech giant to make splashy acquisitions or dole out more money to
shareholders.
Apple's quarterly results will show the company has doubled its
cash pile in just over 4 1/2 years. In the last three months of
2016, it racked up new cash at a rate of about $3.6 million an
hour.
As of December, the company had $246.09 billion total cash, cash
equivalents, and securities. Apple, like many big American
companies, parks most of that cash offshore rather than paying U.S.
taxes on its overseas profits.
Apple Chief Executive Tim Cook early this year said he was eager
to bring cash home if tax changes enabled it. 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, benefiting 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. Since 2012, Apple has gathered
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 Corp., the next richest tech company, which
has $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."
Apple cash and cash equivalents are spread across short- and
long-term securities, including corporate securities, U.S. Treasury
securities and money-market funds.
When Apple had its 1990s bankruptcy scare, then CEO Steve Jobs
arranged a cash infusion from Microsoft, setting 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 program of dividends and
stock buybacks in 2012 that has since sent more than $200 billion
to shareholders. And he has invested more in some areas, such as
research and development.
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, however, 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 jump-start 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, a sense is growing 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
May 01, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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