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Apple's $15 Billion Cash Reserve

OK, as a long-time AAPL stockholder, which makes up the overwhelming majority of my holdings, here's what I think Apple should do with it:

1. Buy TiVo. It's super-cheap, and it can save the Apple TV. iTunes video store isn't working so well (see main page posting), with content providers like NBC balking, so integrating DVR functionality into the ATV will make it a must-have device. When the iTunes store first started offering video for sale, it was important for Apple to assuage the fears of the content providers by excluding DVR functionality. But in this new hostile environment, let people record their own content instead of buying it. They can of course keep the video store around for people who would like to buy content they don't have access to over the air/cable (or hate commercials), and perhaps keep the current TiVo/Amazon partnership for even more content (NBC). Think about how awesome it would be to have your Apple TiVo record shows for you and automatically transfer them into iTunes to put on your iPod. Apple and TiVo are a natural fit, with rabidly devoted fans, and they both have a commitment to gorgeous, intuitive interfaces. For a billion dollars, Apple could buy TiVo and retool the existing boxes and software. Instead of being a "hobby", the ATV could be Apple's iPod for the TV, as it was meant to be.

2. Pay a dividend. I know everyone (who isn't holding AAPL) thinks this is "greed" on the part of shareholders, but it's not. It will make Apple a genuine blue-chip, and attract many more investment dollars both from institutional investors who will have more incentive to hold Apple (as it is generating income even without selling the shares), as well as individual investors who will view the stock as less risky, as it will pay a guaranteed amount like a CD or other interest-bearing security. It will raise the share price dramatically, as well as the perceived value of the company and its stability.

I don't think the time is right for a buy-back. The shares are pretty highly-priced as it is, and are in no need of shoring up with a display of confidence like a buy back. If AAPL were to dip dramatically for some reason, a buy back would be appropriate.
 
bryanc said:
Beaten to it. This is what strikes me as their best investment. Even if it means having to partner with Google to build it out after they buy it.

Although I wouldn't mind seeing Apple making a major (i.e. controlling) investment in Adobe either.

Cheers
Click to expand...

I disagree. It's a very large investment that would eat up all their cash reserves. They would still have to invest tens of billions to build the actual infrastructure. Google could help, but it's still too pricey. And the wireless-provider business is cut-throat and Apple is in no way guaranteed success. How long would it be before Apple would generate enough profit to cover the initial investment, and would that money have been better spent in other areas?
 
IJ Reilly said:
Apple needs to do something with this cash hoard other than continue to hoard it. A dividend would be an appropriate start.
Click to expand...

Agreed, and I'll provide an analogy: Imagine your local government begins to generate tremendous surpluses year after year. Voters will demand either major capital projects, or a significant tax decrease. It's important to have a cushion against hard times, but if it's too big you have to consider where the money is better spent.
 
How about buying Dell? Wouldn't that ruffle feathers?

Seriously though, I think Adobe or Tivo make the most sense.

Yes, Adobe is more than 15B, but they could cover the remainder with stock or loans. Having Photoshop under their control gives them enormous leverage in the computer business. Imagine if the PC version of Photoshop was always 1 year behind the Mac version? There's a pretty big incentive to leave windows for anyone in the creative industry.

Imagine if Acrobat was fast like Preview and not a dog like Reader?

Snapping up Tivo and turning :apple:TV into :apple:Tivo would be a huge coup too. Work out partnerships with Time Warner, Comcast, Verizon and DirecTV to include it as their default DVR. Give them a cut of iTunes Movie & TV sales and watch that market explode.

It's fun to daydream...
 
Apple doesn't need to buy TiVO. They could just buy Elgato if they wanted to and have the exact same value, and that wouldn't make the front page of anything (except MacRumors).
 
chameleon said:
How about buying Dell? Wouldn't that ruffle feathers?
Click to expand...

I know you aren't being serious, but Dell is still too expensive, and to what gain? Apple would be the proud owner of a horrible computer company which will likely lose vast sums of money. All just to stick it to Dell?

And while Adobe would be a nice theoretical acquisition, it's too expensive, and a partnership would accomplish very similar things.
 
IJ Reilly said:
For sure I agree with the article. Apple needs to do something with this cash hoard other than continue to hoard it. A dividend would be an appropriate start.
Click to expand...

The article and you are both wrong.

Apple does "use" the $15B. It uses it to capitalize large projects WITHOUT THE ADDED EXPENSE OF OUTSIDE DEBT. That means every time they prepay a memory supplier $250m to get preferential deliveries, they do so without paying out 12% to some bank for the priveledge of the use of the money. That goes right to the bottom line on the other end of the transaction. They have done this repeatedly with several memory, display, chip, and storage manufacturers.

They invest in things that accelerate the velocity or turnover of high margin products thus increasing gross margins and company growth rate. Financing a growing company requires a lot of forward leaning capital expenses. They are recouped by sales, but avoiding paying 12% per annum to a bank is a direct profit margin add.

Then there are long term capital expenses like buying the former Worldcom telco facility so software update capacity is sufficient, and buying a large tract of land in their expensive home town so they can build a new campus, again with debt-free cash. The long term benefits of which will reverberate for decades. Further, should Apple change directions, they can resell those assets at a capital gain with NO DEBT HOLDING COSTS.

The savings from a debt-free strategy translate directly to the bottom line.

Rocketman
 
DTphonehome said:
2. Pay a dividend. I know everyone (who isn't holding AAPL) thinks this is "greed" on the part of shareholders, but it's not. It will make Apple a genuine blue-chip, and attract many more investment dollars both from institutional investors who will have more incentive to hold Apple (as it is generating income even without selling the shares), as well as individual investors who will view the stock as less risky, as it will pay a guaranteed amount like a CD or other interest-bearing security. It will raise the share price dramatically, as well as the perceived value of the company and its stability.
Click to expand...

Exactly. Dividends, even small ones, are considered a sign of maturity in a company, and confidence. They can also reduce the stock's volatility.

As the article correctly notes, though, companies with soaring stock prices rarely feel pressured to offer a dividend. Microsoft only did it because their stock price was virtually flat for five years.
 
SthrnCmfrtr said:
Apple doesn't need to buy TiVO. They could just buy Elgato if they wanted to and have the exact same value, and that wouldn't make the front page of anything (except MacRumors).
Click to expand...

I could be wrong, but I don't think Elgato has any cablecard compatible products, which means you are really limited to over-the-air broadcasts. I don't know how their software compares to Tivo, but I'll wager Tivo wins. If Apple bought Tivo, they would have all the hardware and most of the software in place for an AppleTV relaunch in months.
 
shov said:
or buy up the wireless spectrum so they don't have to deal with phone companies...
Click to expand...

Actually, I still suspect Apple will go the service provider route at some point. Like Dot Mac on steroids or something. I suppose it would have to be after their contract with AT&T... unless, of course, there is a strategically placed loop hole.

Regardless, there has to be something to that data center acquisition last year. Right?
 
Rocketman said:
The article and you are both wrong.

Apple does "use" the $15B. It uses it to capitalize large projects WITHOUT THE ADDED EXPENSE OF OUTSIDE DEBT. That means every time they prepay a memory supplier $250m to get preferential deliveries, they do so without paying out 12% to some bank for the priveledge of the use of the money. That goes right to the bottom line on the other end of the transaction. They have done this repeatedly with several memory, display, chip, and storage manufacturers.

They invest in things that accelerate the velocity or turnover of high margin products thus increasing gross margins and company growth rate. Financing a growing company requires a lot of forward leaning capital expenses. They are recouped by sales, but avoiding paying 12% per annum to a bank is a direct profit margin add.

Then there are long term capital expenses like buying the former Worldcom telco facility so software update capacity is sufficient, and buying a large tract of land in their expensive home town so they can build a new campus, again with debt-free cash. The long term benefits of which will reverberate for decades. Further, should Apple change directions, they can resell those assets at a capital gain with NO DEBT HOLDING COSTS.

The savings from a debt-free strategy translate directly to the bottom line.

Rocketman
Click to expand...


Who says they have to blow all $15B? They can easily afford a dividend AND a large capital project and still finance it out of pocket with plenty left over.
 
Kaspers said:
buy those apple shares that microsoft has back.. thats 49% or so..
Click to expand...

Shyeah, brilliant.

Lets see, what could possibly go wrong by pissing off Microsoft. Oh yeah! They make the only Office suite that most people think they need to have on a PC, and they do it for a tiny sliver of the market when it comes to MacOS. Yeah, lets poke them with a stick, very smart.
 
chameleon said:
How about buying Dell? Wouldn't that ruffle feathers?

Seriously though, I think Adobe or Tivo make the most sense.

Yes, Adobe is more than 15B, but they could cover the remainder with stock or loans. Having Photoshop under their control gives them enormous leverage in the computer business. Imagine if the PC version of Photoshop was always 1 year behind the Mac version? There's a pretty big incentive to leave windows for anyone in the creative industry.
Click to expand...

Smacks of AMD buying ATi and thus removing ATi from the Intel integrated market. You don't spend a lot of money on a company and immediately put in place policies that will cause that company to be worth LESS than when you bought it. Duh!

Do you not realize that Adobe makes more money selling a copy of Photoshop than Apple makes selling it's PCs?
 
ross.32 said:
They could just buy both?
Click to expand...

Yes, why not buy Tivo and Elgato and Dell and Adobe?

:rolleyes:

I really don't understand some of the suggestions being made here. Just because you have $15 billion in cash doesn't mean you have to start a hostile takeover a $25 billion company!

Clearly, some of you need to brush up on how the business world works...
 
SthrnCmfrtr said:
Apple doesn't need to buy TiVO. They could just buy Elgato if they wanted to and have the exact same value, and that wouldn't make the front page of anything (except MacRumors).
Click to expand...

Eeeuuhhhwww.... I hope that doesn't happen. I don't think Apple likes DVR because it competes with iTunes. If Apple bought Elgato, they'd surely kill eyeTV. While I think adding DVR functionality to :apple:TV would give it an enormously higher value, Apple is way to stubborn to do it. Have you noticed how none of the product lines overlap at all? DVR would stomp all over iTunes.

It's also the reason we don't have mid-towers...

-Clive
 
DTphonehome said:
I could be wrong, but I don't think Elgato has any cablecard compatible products, which means you are really limited to over-the-air broadcasts. I don't know how their software compares to Tivo, but I'll wager Tivo wins. If Apple bought Tivo, they would have all the hardware and most of the software in place for an AppleTV relaunch in months.
Click to expand...

If Apple brought Tivo would they have to change the existing UI?
 
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