Apple's $15 Billion Cash Reserve

[dopplerd]

Buy Netflix or Joost

A netflix "watch instantly" function on Apple TV would make me $400 poorer. The issue with Tivo is it's basis on broadcast. In 5 -10 years EVERYTHING we watch will be IP on demand based. There will be no need for a HD based DVR because you will just stream your movies and tv shows. Comcast on-demand, netflix's Watch Instantly, and Joost are already there. Netflix would give Apple a good company with the ability to leverage its market position in the industry.

 

[DTphonehome]

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 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

Like I said before, they had to woo the content providers (who HATE DVRs) in the beginning, but now that iTunes has not succeeded in video as it has in audio, it would be better for them to just let users generate their own content via DVR.

 

[DTphonehome]

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

Probably not too much. Make it more Apple-y, but otherwise leave it intact...it works incredibly well. Best consumer-electronics interface of any non-Apple device, in my opinion.

Obviously to shut it down and give the money back to the shareholders

Well played sir, well played

 

[cameronjpu]

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.

Whoa there - not sure what country you're in, but here in the USA you can borrow money at around 5% if you a company like Apple.

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

Yikes.

Running a business debt free is not always wise. It's called leverage - use someone else's cheap money (again, I don't know where you are getting 12% from, but a large company with good credit can borrow at 5.5% right now) to earn more for yourself at higher rates of return.

If the best Apple can do with its cash is earn the 6% savings rate, it should be given back to me (an owner) so I can invest it in another company giving me higher returns.

 

[IJ Reilly]

The article and you are both wrong.

You misconstrue. I realize the Apple spends some of this money on capital projects, and I'm certainly aware that they are debt-free (actually, they've held no long-term debt for many years now). I am also aware that they derive some income from their cash reserves. But if this mountain of cash continues to grow as rapidly as it has, the clear implication is that Apple hasn't found as many opportunities to invest in their own future growth as they could. A company is supposed to leverage profits into more growth -- that's why the game is called capitalism. In business, holding oversized cash reserves is the equivalent of lost opportunities.

 

[FoxyKaye]

Apple could buy MacRumors! Oh wait, that wouldn't probably work out so well - though I bet Arn would make out OK.

It strikes me as a rare thing for a company to be that far in the black. I'd personally love some serious reinvestment in R&D, especially after the Leopard/iPhone debacle this year. It's a mixed blessing for a company to have that much cash on hand, although it does, as others have pointed out, mean that Apple can literally throw money at certain problems and make them go away or leverage its cash on hand to corner parts of the processor market.

Wow, we've come a long way from OS 7 and $2.95 share prices.

Edit:

...But if this mountain of cash continues to grow as rapidly as it has, the clear implication is that Apple hasn't found as many opportunities to invest in their own future growth as they could. A company is supposed to leverage profits into more growth -- that's why the game is called capitalism. In business, holding oversized cash reserves is the equivalent of lost opportunities.

Exactly. Which is why that much cash really is a mixed blessing.

 

[edcrosay]

I wish...Nintendo has a HUGE market cap these days...10 years ago was a different story, but Apple didn't have the money then, and was still stinging from the Pippin fiasco.

Nintendo is gigantic right now. They are the third most valuable company in Japan. In ALL of Japan. That is ginormous. They have a market cap of $78.8 Billion right now.
They are bigger than Sony. And Sony makes a hell of a lot more than just video games.

EDIT: The only japanese companies bigger right now are Toyota at $181.7 B and the Mitsubishi Financial Group at $112B

 

[DTphonehome]

Wow, we've come a long way from OS 7 and $2.95 share prices.

Ohhh to go back in time.... (not that I'm complaining too loudly...AAPL has done pretty well since 2003 when I got on board).

 

[phgreer]

Hmm... their was a rumor going around yesterday that CompUSA was going out of business. Apple could buy them out, convert them all to Apple Stores. Apple is about the only reason I go into my local CompUSA anyway unless it's an item like an external hard drive, blank CD/DVD's or networking gear. At least they could buy out the top performing CompUSA's with Apple Shops.

 

[bankshot]

I know this goes against the prime motivation of any company (make as much profit as possible) so it'll never happen. But how about selling an inexpensive minitower that's priced to compete with lower end PCs and destroy the myth that Macs are too expensive? One without the typical ridiculous 20% profit margin that Apple normally enjoys (which helped build that massive cash stockpile) but maybe only has 1 or 2% profit margin like the rest of the industry?

Steve Jobs has argued that Apple doesn't compete in this segment because it would be impossible to make a good computer at that price point:

There's some stuff in our industry that we wouldn't be proud to ship. And we just can't do it. We can't ship junk. There are thresholds we can't cross because of who we are.

I dunno. I think the real reason is the razor thin profit margins in that market segment - Apple wants more profit per machine. Too bad. I'll bet they could even take a slight loss and still come out ahead by dramatically increasing market share and enjoying the resulting "halo effect" as new Mac users get into other Apple products. But it seems like they're stuck in the mindset that they are a premium brand (true) that requires premium prices (doesn't have to be that way).

Besides, if the recent Mac Pro rumors are true, having all 8-core machines only widens the vast gap in headless machines between the Mac mini and the Pro. I know the iMac is supposed to fill that gap, but it's a slightly different market segment. Apple refuses to recognize this, but who can blame them with the money coming in faster than they can count it?

Oh well, one can dream...

 

[diamond.g]

I wish...Nintendo has a HUGE market cap these days...10 years ago was a different story, but Apple didn't have the money then, and was still stinging from the Pippin fiasco.

I thought their market cap was only half that of Apples.

 

[Pandaboots]

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.

I agree totally with you.

now my $.02 - The movie and television industries are even more messed up that the music industry. Yet, somehow we have easy access to legally record any show for a minimal charge. Apple needs to just buy Tivo, get "hobby" out of their mind and make the TV the "must have" device like the iPhone or iPod. Selling a limited selection (and inferior quality) of television shows and movies at a premium price obviously isn't working. why? Because when Apple did it with music, we knew we were getting inferior product but at an attractive price and an almost unlimited selection, and also a cool gadget in which to play it on. I don't think people collect movies and TV like music. In other words, for every let's say 100 cd's owned, the average person might own maybe 10 dvd's. You get the idea, no one owns more dvd's than cd's. Therefore, a rental model makes the most sense, until everyone can agree on pricing and the quality gets better. For music, most people don't own an HD stereo that greatly benefits listening experience, so AAC or MP3's work for most people. However, with video, our eyes seem to decipher slight changes in quality more than our ears. Anyway, give us TiVo with Blu-Ray player and a rental model to iTunes. Eventually all the mess with the movie and TV industries, HD format wars, and bandwidth issue will get sorted out, Apple can then move full steam ahead with selling the content. However they will still need to give us the option to rent and keep the TiVo around for old school people that still like to buy dvds and record sports shows etc. Anyway you look at it, Apple and the industries will make $$ for every type of customer out there.

 

[basesloaded190]

Hmm... their was a rumor going around yesterday that CompUSA was going out of business. Apple could buy them out, convert them all to Apple Stores. Apple is about the only reason I go into my local CompUSA anyway unless it's an item like an external hard drive, blank CD/DVD's or networking gear. At least they could buy out the top performing CompUSA's with Apple Shops.

i would like to see more apple stores. correct me if im wrong but here in wisconsin the only apple store near us is either in chicago or the mall of america. i wish there were more all around! it would really make my family buy more apple stuff if they could go to the store and try the stuff out

 

[crazytom]

An iCar

How about a nice iCar. A super-efficient, everyone-wants-one type vehicle that drives itself. They might be able to make some money with the Automotive X-prize while they're at it!

 

[DTphonehome]

I thought their market cap was only half that of Apples.

They're worth about $85B now, which is less than Apple, but still way too big to acquire.

 

[DTphonehome]

Hmm... their was a rumor going around yesterday that CompUSA was going out of business. Apple could buy them out, convert them all to Apple Stores. Apple is about the only reason I go into my local CompUSA anyway unless it's an item like an external hard drive, blank CD/DVD's or networking gear. At least they could buy out the top performing CompUSA's with Apple Shops.

Or just rent the space when CompUSA vacates? What is this obsession everyone has with Apple buying everything in sight? Acquisitions have to be logical ways to make money, people!

 

[Lone Deranger]

And have SoftImage XSI finally ported for OSX! I like it!!

While they're at it, I'd like Steve to buy Pixologic, makers of the wonderful zBrush. Then he could give preferential treatment to the OSX version over the windows version (rather than the other way around like it is now).

They could buy Avid Technology, Inc. and completely control the professional audio and video market

 

[lazyrighteye]

A netflix "watch instantly" function on Apple TV would make me $400 poorer. The issue with Tivo is it's basis on broadcast. In 5 -10 years EVERYTHING we watch will be IP on demand based. There will be no need for a HD based DVR because you will just stream your movies and tv shows. Comcast on-demand, netflix's Watch Instantly, and Joost are already there. Netflix would give Apple a good company with the ability to leverage its market position in the industry.

Best suggestion yet.
And not just because I'm pissed that Netflix doesn't offer 'watch instantly' to their Mac users.

 

[gkroeger]

Apple should take a bit and pay Intuit to do a feature complete native version of QuickBooks Pro with full network support for the Mac. This is the one hitch that is preventing many small offices from switching from Windows, despite the fact that their lives would be infinitely better with Macs. (and yes, I know there are good, perhaps better alternatives on the Mac already... but most offices can't overcome the activation energy to change their entire accounting database... and they need better PC compatibility so that their accountants on PCs can still work with their company files).

 

[lazyrighteye]

Wow, we've come a long way from OS 7 and $2.95 share prices.

What I wouldn't do for those prices today.
Buy, buy buy!

 

[DTphonehome]

A netflix "watch instantly" function on Apple TV would make me $400 poorer. The issue with Tivo is it's basis on broadcast. In 5 -10 years EVERYTHING we watch will be IP on demand based. There will be no need for a HD based DVR because you will just stream your movies and tv shows. Comcast on-demand, netflix's Watch Instantly, and Joost are already there. Netflix would give Apple a good company with the ability to leverage its market position in the industry.

You make good points, but Tivo has been moving toward IP based on-demand as well, with Amazon Unbox and TivoCast. The hybrid model, with ability to record broadcast (which is very high bandwidth and already in virtually every US home) as well as get IP based content, is where I think the future is. ATV currently only does the IP thing, and not very well. Netflix could be a good acquisition, but I'd rather go with Tivo. While Netflix's brand would be nice to have, I would think that iTunes has about the same amount of brand recognition.

 

[Popeye206]

Tivo it!

Apple should just sink some of that money in Tivo, buy them and merge Apple TV with Tivo and a movie subscription service.... life would be good!

 

[szark]

I think Apple is doing alright, and doesn't need to go spending their cash reserves on acquisitions that don't make much sense. Though, as a stockholder, I hope they are thinking about some possible acquisitions down the road that will benefit all of us (like the Fingerworks acquisition).

i would like to see more apple stores. correct me if im wrong but here in wisconsin the only apple store near us is either in chicago or the mall of america. i wish there were more all around! it would really make my family buy more apple stuff if they could go to the store and try the stuff out

Here's me correcting you:

Bayshore -- Glendale, WI
West Towne -- Madison, WI
Mayfair -- Wauwatosa, WI

 

[lazyrighteye]

Nintendo is gigantic right now. They are the third most valuable company in Japan. In ALL of Japan. That is ginormous. They have a market cap of $78.8 Billion right now.
They are bigger than Sony. And Sony makes a hell of a lot more than just video games.

EDIT: The only japanese companies bigger right now are Toyota at $181.7 B and the Mitsubishi Financial Group at $112B

WOW! I had no idea.

 

[Rocketman]

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.

As IJ Reiley pointed out a stock dividend reduces stock volatility. AAPL volatility is a feature not a bug because the current strategy does several BETTER things:

1. Increases gross margins (very good for the stock price)
2. Increases growth rate (crack for stocks)
3. Lowers debt expense (very good for the stock price)

So given the choice between a 2% dividend or an add of 10% to the compound growth rate of the stock, I choose the latter, and choose not to whine about it.

Rocketman