Apple is now Debt Free

[billyboy]

$4.8bn and no nagging debt is a shed load of money for Apple, ie about 9 months' worth of total income. That has to be good for morale.

In normal circumstances, the stock market would like to see Apple buying up more shares with their own money, as a sign of self confidence. But this is Apple. Think Different. Steve Jobs must be fairly sure the business plan as it stands is basically financially safe, so why do what everyone expects in that position? The way things are panning out, Apple have been slowly but surely securing the video editing market with an aquisition here and there. But if you think about the "AAC v WMA format war" they find themselves involved with, Apple are being extremely ballsy taking on the fight themselves. They have a neat deal with HP, but that is only one angle and they could do with some serious muscle behind them from different angles. I wouldnt be surprised to see them putting their money to good use with a completely out the blue acquisition. If debt is good, how much could $4.8bn leverage? Loads.

 

[wrldwzrd89]

This is good news for Apple's public image, because it gives them bragging rights, but mixed news for the company. Apple loses the tax benefits of interest payments on their debt (which is bad), but also loses the bad debt that drains corporate profits (which is good). Apple ridding itself of debt may also be an attempt to make its public image even more favorable and at the same time change the kind of company people think of Apple as being. I see this as one of many steps Apple will take in 2004 to change their direction. This could mean, for example, a better-coordinated supply chain and faster updates (which we all like).

 

[nexus810]

i fnaything Apple saying they are out of debt is good because it tells investors that they can go into debt again for further progress of the company.

Investors like seeing debt because it shows that the company is doing things to attempt to earn mre profits and such.

So having no debts means that Apple can invest a bit more with their cash and make some money on interest and then in a short while go back into debt to further progress the company.

 

[eric_n_dfw]

Not to get too far off subject, but David Every (formerly of www.mackido.com) recently posted, IMO, an excellent article about what "Apple Needs To Do": http://www.igeek.com/articles/Apple/AppleDell.txt

 

[dongmin]

it makes you wonder if Apple is ever gonna use that cash reserve to make a bolder move for marketshare. Maybe offer a trade-in program, say $400 credit towards a new Mac purchase when you trade in a Dell (less than 2 years old). A move like that could really impact the stock price.

 

[jamilecrire]

Originally posted by gwuMACaddict
this has to help

Not really. ROI is a bigger deal. Apple is a very up and down company. I would stay away since there are so many better potential investments. However, the next 2-3 years could be very good to Apple, with IBM supplying chips.

 

[rdowns]

Originally posted by morkintosh
debt to equity ratio is just one of many factors that impact the value of stock. while its true that this can't hurt, that doesn't imply that it will help. in order to see a surge in stock value apple will need to hold on to the strong position they have in online music (possibly movie) distribution, maybe even aquire a record label. granted if they did that the beatles would be sure to have a negative impact on their stock.

bottom line: apple stock is not a major preformer because apple represents a very successful but niche company.

I don't see it helping their stock. As you said, they are a niche player. They have had billions in cash for a long time now and could have been debt free anytime they want. I view this as a non event.

 

[FlamDrag]

Just another sign that we'll have new powerbooks on Tuesday.

 

[ccuilla]

Originally posted by Mudbug
Holy crap that's a lot of money. Nice to see a corporation, regardless of who it is, stand up for itself and get in the black. Bleeding red ink is not a good way to be. This should help squelch the "Apple Death Knell" as it's come to be known.

Let's be careful here. Just because Apple had some debt did NOT mean they were "bleeding red ink" (they were not). Still this is, I think, good news. This should free up a bit more cash flow...which is ALWAYS good.

 

[Backtothemac]

I just have to know who are the dip **** morons that said this is a negative on the main page.

That is why I hate the rating system of stories.

 

[ccuilla]

Originally posted by dongmin
it makes you wonder if Aplle is ever gonna use that cash reserve to make a bolder move for marketshare. Maybe offer a trade-in program, say $400 credit towards a new Mac purchase when you trade in a Dell (less than 2 years old). A move like that could really impact the stock price.

"Buying marketshare" is not likely to work as you suggest. Apple's marketshare problem has less to do with machine prices (as so many have falsely suggested) and more to do with some perceptive problems in the buying public. Those kinds of problems are much harder (and take much more time) to overcome.

More and more people ARE beginning to notice the "new Apple"...and the "new Mac" (OS X).

Apple is not about to go anywhere (except bankrupt) by "selling at a loss and making it up in volume".

Apple has been very carefully stitching together a great platform (w/ OS X) over the past few years. I think they have a very compelling "story" for many potential customers. They are also positioned well if MS/Dell/Intel make any major snafu's. Plus they are still quite strong in some core markets.

 

[CmdrLaForge]

Congrats Apple. Even so I don't believe that the stock market will react on this.

 

[JJTiger1]

Daytraders

... gosh.

All of these day-trading wannabe millionaires giving advice to multi-billion dollar, international corporations on how to run their companies...

Makes me wish I too graduated from a few ivy league colleges, and I wish I too had a wall full of diplomas.
=-=
My experience is that I really did hit the Progressive Jackpot on a 25-cent slot machine at a casino, and then I paid off all of my credit cards.

Then I really won the Grand Prize on a raffle ticket, and then I paid off the Jeep note.

Other than the mortgage on the house, and the routine monthly utilities: I am debt free.

I really need to win tonight's PowerBall lottery so that I can pay off the mortgage.

The only thing guaranteed about any lottery is:
If you do not have a ticket, you will not win.

... I've got two tickets. Wish me luck.

 

[jocknerd]

This means they are ripe for takeover!

Keep up the good work Apple. How about bringout out some new PowerMacs and iMacs in March?

 

[nexus810]

Give me 140k for my NYU Stern tuition please? That is if you win. I dont ask for much just school payment.

 

[ccuilla]

Originally posted by eric_n_dfw
Not to get too far off subject, but David Every (formerly of www.mackido.com) recently posted, IMO, an excellent article about what "Apple Needs To Do": http://www.igeek.com/articles/Apple/AppleDell.txt

Interesting article. Not sure I agree with all of it, but I do love this one:

"Apple has a more modest and less aggressive approach."

I would suggest a better way to say this:

"Apple has a more honest approach."

 

[pcharles]

Re: Apple is now Debt Free

Originally posted by Macrumors
Also noted in the memo is that Apple currently has $4.8 billion in the bank at this time.

Why would a company keep a running debt when they have 4.8 billion in the bank? Is this for tax purposes?

 

[sethypoo]

Originally posted by russed
lets hope they spend even more money on R&D now and churn out even more products!

Let's hope they SAVE the money.

 

[nexus810]

Re: Re: Apple is now Debt Free

Originally posted by pcharles
Why would a company keep a running debt when they have 4.8 billion in the bank? Is this for tax purposes?

its to show investors that the company is taking risks in order to better the company. Investors dont like to see zero debt (or lots of debt -- too much risk) as well as various other things that show the company is looking to perform better by taking risks.

 

[sparks9]

A big reason for this is the iPod. What would Apple have done without it?

 

[MacsRgr8]

No more debt?

Easier to shut down the comany......

 

[JW Pepper]

This is just non-news. it is totally irrelevant that a company has 4.8billion in one account and -300m in the other. Cash assets are 4.5billion. it has no implications of any kind to anything, stock price earnings it is a completely neutral move. the only think it will have is the marginal difference between investment and loan rates and the spread will be pretty thin.

 

[wrldwzrd89]

Originally posted by JW Pepper
This is just non-news. it is totally irrelevant that a company has 4.8billion in one account and -300m in the other. Cash assets are 4.5billion. it has no implications of any kind to anything, stock price earnings it is a completely neutral move. the only think it will have is the marginal difference between investment and loan rates and the spread will be pretty thin.

You've got it wrong. Apple's cash reserves were 5.1 billion before paying off the debt, and 4.8 billion after.

 

[The Cheat]

To those who have pointed out that it can be beneficial for a company to have debt in order to write it off for tax purposes, you are correct. However, there is nothing stopping Apple from lending and borrowing, in essence, from itself by setting up subsidiaries within the company that in turn lend it back to Apple. In this way they get the tax benefit, while in reality they only "owe" money to themselves. I would interpret this announcement to mean they now no longer have external debt - to outside banks or institutions, etc. I'm sure that if it didn't help the bottom line in some way, Apple's accountants never would have okayed it.

 

[macidiot]

I just have to know who are the dip **** morons that said this is a negative on the main page.

The same morons that actually know something about finance. As its been said in other postings, being debt-free for a business isn't really all that good of a thing. Its a little thing called leverage. Simply put its making money off of someone else's money. Most companies should be leveraged to a certain degree. Of course, too much debt is bad. But only if the company is unable to service the debt. If the company is firing on all cylinders, the best possible thing is for the company to be heavily leveraged, in order to maximize its profit.

Example:

Company A spends $1000 of its own money and makes $1100. Its profit is $100. It just made a 10% return on its money.

Company B spends $100 of its own money and borrows the other $900(extreme, but easy to figure out the percentages ). It makes $1100. It just made a 100% return on its money.

The downside, of course, is if the company runs into problems with cashflow or is unable to cover its debt service.

Oh, and from an investing pov, in a bull market with a recovering economy, you always want the more highly leveraged company in a sector(assuming other factors are equal). This bit of news is essentially a non-issue. The market is more interested in how Apple intends to increase sales and revenue. Actually, I'd like to know too. How about a headless g5 imac with a real graphics gpu(as in something better than what is oem on sub-$600 pc's) for $900? Or use the g4 and sell it for $700. Just make the damn thing without an extraneous, expensive, display. Is that so freakin' hard to do???

Personally, I am thinking this is positive if they cleared off some high interest debt. But they should be borrowing now considering money is essentially free to borrow right now.

Getting back to your posting about morons, it seems that you should actually know something about the subject matter before you judge others on their intelligence.