Apple's $15 Billion Cash Reserve

[MikeTheC]

I think we shouldn't forget that Apple's money isn't sitting in a bank account earning 0.5. That money is working very, very hard for them - invested in various ways. With that amount, Apple is getting premium rates, and has very smart people managing it. It's essentially an investment fund. Apple shouldn't spend its money simply because they have a lot of it. If there isn't anything strategically worthwhile to buy, keep that cash working hard. It's a massive revenue stream with massive margins. Further to that, the folks in Cupertino are very good at creating. Why buy something that would require a great deal of additional money to integrate when they can do it themselves for a lot less? I also wonder about the animosity created when a company starts buying up a lot of smaller companies. The monopolistic behavior of Microsoft comes to mind. When you have a company creating something from nothing - innovating - it makes them interesting and shiny. Apple does that very well.

Bravo, sir. Well said. Not that Apple hasn't acquired companies, both lately and over the years, but Apple's always been more about blazing their own trail than following someone elses'.

It's nice to know Apple's in such a good financial position. It's a position most other companies would kill to be in, big, small, and everywhere in between. It's also another piece of ammo to use in talking to someone about Apple. The ignorance level out there is beginning to fall, but it's still pretty high and we need all the good, facts-backed sound bites we can get.

So long as there are a statistically significant number of people out there who are mis-informed (e.g.: Do Macs connect to the same Internet? They don't make software for Macs. But Macs are so much harder to use than Windows. There's just as many viruses for Macs as for Windows. Didn't Microsoft buy Apple up several years ago? Apple is only still around because of the iPod. Well, if Macs don't run Windows, then how could they function? And so forth, and so on...) we need every single good thing we can get to show them we're not nuts for backing Apple.

The first thing you have to have in order to argue a defensible argument is to have a defensible position. I could make every impassioned argument that Tuesday's Wednesday, that plastic bags come from plastic trees, or that cow farts cause global warming, but at the end of the day if what I'm arguing is not rational, not "defensible", then my arguments aren't, either. The second thing is to be in possession of facts, of correct information, and an actual "correct" technical understanding. As many times as I have heard moronic salesmen try to steer people away from Macs, I've also heard people trying to defend Apple or the Mac on the basis of things that are so untrue, naïve, simply incorrect or just out-and-out wrong. And more ignorance -- even if pro-Apple-biased -- we don't need.

 

[Small White Car]

Oohh! Buying Tivo to make a new AppleTV!

And then they can buy Dell to design their new laptops!

And buy Microsoft to design their new OS!

And buy Nokia to take over the iPhone!

And, uhm...wait. Why is ANY of this a good idea?

 

[applehappy]

I like the idea of Apple forcing its way into the video world via buying some entity that is already doing it. Lot's of talk out there about tv failing and in large part because iTunes hasn't made video content work as well as music. Seems to me that there will be at least one more big push to get tv working, but it seems contingent on video content and accesibility. Purchasing content directly via tv makes sense, but iTunes video content is too limited. It needs a Netflix-sized library!

I love my tv and use it to view family photos and videos as well as movies I burn from DVD and purchase on iTunes. I'd love to see it have a future.

 

[MikeTheC]

Forcing one's way is not a good thing, and if Apple did that, they'd be no better than Microsoft.

The best thing Apple could do is to do what they've been doing, and that is to provide an alternative product, pour their heart and soul into making it the best at what it does (either through standards, features, user interface, something else, or any combination of the above) and let the market decide for itself whether Apple's offering is more desirable than their competitors'. That's essentially what they did with the iPod and the iTMS. Look at where they are, despite the fact that there are many, many other choices out there (choices which some number of people do actually buy).

The XBox is what you get when you use the heavy-handed approach Microsoft's taken. Yes, it's a success and one could even argue that it's a self-sustaining success, but it didn't start out that way. Microsoft badly wanted entry into the gaming console market, and they used every trick they could, short of mafia assassinations to get there. I mean, what do you call it when a company goes out and buys up a ton of game software manufacturers? Does this not strike anyone the same way as when Wayne Huizenga essentially "bought" the 1997 World Series win for the Florida Marlins? There's an old saying in the fighter pilot business: The F4 Phantom is proof that, with enough thrust, you can fly a brick. And using your power or position to force your way into success is no different than that.

 

[IJ Reilly]

I think we shouldn't forget that Apple's money isn't sitting in a bank account earning 0.5. That money is working very, very hard for them - invested in various ways. With that amount, Apple is getting premium rates, and has very smart people managing it. It's essentially an investment fund. Apple shouldn't spend its money simply because they have a lot of it. If there isn't anything strategically worthwhile to buy, keep that cash working hard. It's a massive revenue stream with massive margins. Further to that, the folks in Cupertino are very good at creating. Why buy something that would require a great deal of additional money to integrate when they can do it themselves for a lot less? I also wonder about the animosity created when a company starts buying up a lot of smaller companies. The monopolistic behavior of Microsoft comes to mind. When you have a company creating something from nothing - innovating - it makes them interesting and shiny. Apple does that very well.

Apple isn't a financial investment company, they are a technology and consumer products company. Any money that isn't working towards growing their business is money that isn't working as hard as it should. I'm not arguing that Apple should be buying companies left and right, or at all -- only that cash flow investments are not doing much if anything to help them ship new products.

Here's an example. This year Apple was forced to announce the delay of Leopard for several months because the iPhone launch got in the way. A company with $15 billion in cash reserves can't finish a product on time? Need I remind you, this is the kind of excuse that Microsoft uses constantly.

No, sitting no huge piles of cash and still being unable to meet product deadlines is not a sign of good management practices. It's a sign that financial resources could probably be better allocated.

 

[Ugg]

The idea of Apple buying Netflix brings up a number of questions. Since Apple's relationship with Hollywood is somewhat strained, I can't imagine it would get any better by buying Netflix.

Netflix has lately been promoting a lot of Indie films but in a very poor way. There's also Jaman but they don't seem to be getting very far.

The idea of Apple becoming a major film/music promoter is appealing but filled with major pitfalls.

I'm sure Steve has some sort of plan lined up, sitting on that much money isn't healthy but I also don't see him paying out dividends anytime soon.

Whatever he does with his stash of moolah, it'll be interesting, that's for sure.

 

[Small White Car]

Here's an example. This year Apple was forced to announce the delay of Leopard for several months because the iPhone launch got in the way. A company with $15 billion in cash reserves can't finish a product on time?

Haven't you heard of the "Mythical Man Month?"
http://en.wikipedia.org/wiki/The_Mythical_Man-Month
Sounds like what you're suggesting.

What would you have them do, hire 1,000 programers and somehow train them all in 2 weeks? By the time they're all up to speed the work is already done.

Ok, let's say you pull it off. Now what? Fire them all? Pay them to do nothing? Or make up work for them to do?

Those are all bad, but it's that last one that's MOST dangerous. Throwing money at projects no one asked for is a horrible, stupid way to run a company.

 

[cube]

AMD is worth 5 billion.

 

[ChrisK018]

Anybody else envision Steve Jobs swimming through piles of gold coins like Scrooge McDuck?

 

[TurboSC]

Anybody else envision Steve Jobs swimming through piles of gold coins like Scrooge McDuck?

they would be golden iPods and iPhones.

 

[Clive At Five]

Haven't you heard of the "Mythical Man Month?"
http://en.wikipedia.org/wiki/The_Mythical_Man-Month
Sounds like what you're suggesting.

The Leopard/iPhone problem began before things started being late. They should've hired more programmers at the eve of the iPhone OS project. Having one team of people for continually more numerous product lines is just idiotic. TV, iPhone, iPod Touch, oh, and let's not forget OS X, the desktop client, probably the most important of all...

Fact is, now more than ever, Leopard needs a bigger team to implement it on other products. Period.

-Clive

 

[noriyori]

"700 mhz auction, expected to generate some $15 billion in FCC fun-money, draws near."

I'm with you on that one. Even as a joint venture with google.

FREE nation-wide wifi!!! ahhh, they'd probably require .mac or something, but still, I think jumping on the C-Block auction is the best idea.

 

[areve]

$15 billion. Isn't it Facebook's price?

 

[cameronjpu]

I think we shouldn't forget that Apple's money isn't sitting in a bank account earning 0.5. That money is working very, very hard for them - invested in various ways. With that amount, Apple is getting premium rates, and has very smart people managing it.

You're thinking about short term investments. If it says cash, it's cash. It is probably earning 5 or 6%.

 

[IJ Reilly]

The Leopard/iPhone problem began before things started being late. They should've hired more programmers at the eve of the iPhone OS project. Having one team of people for continually more numerous product lines is just idiotic. TV, iPhone, iPod Touch, oh, and let's not forget OS X, the desktop client, probably the most important of all...

Fact is, now more than ever, Leopard needs a bigger team to implement it on other products. Period.

-Clive

This is essentially my point. I'm not suggesting that Apple needs to go hog wild with hiring, but if they're unable to complete high-profile products by the announced shipping dates, then it seems to me that they are too light in this area. It may also be that Apple is now growing too quickly for their own good, but that's another story.

 

[brewcitywi]

$15 Billion

Surplus cash can be as tricky as debt. It's an opportunity, and it's dynamic, working for you while time passes.

For some reason, I would bet that the solutions regarding what to do with $15 billion is much less exciting than the posts.

They'll probably create the campus facility, some form of dividend, and continue to leverage the fact they're a "no debt" company.

It obviously gives them the freedom to create new innovations with more financial leverage to get things done the way they want.

I wouldn't doubt that there may be more acquisitions along the way, too!

 

[eastcoastsurfer]

Apple isn't a financial investment company, they are a technology and consumer products company. Any money that isn't working towards growing their business is money that isn't working as hard as it should. I'm not arguing that Apple should be buying companies left and right, or at all -- only that cash flow investments are not doing much if anything to help them ship new products.

Well said! If I'm invested in Apple I want them doing Apple things like inventing and coming out with new products. If I want professional money management I'll go to someone like Goldman Sachs.

Here's an example. This year Apple was forced to announce the delay of Leopard for several months because the iPhone launch got in the way. A company with $15 billion in cash reserves can't finish a product on time? Need I remind you, this is the kind of excuse that Microsoft uses constantly.

No, sitting no huge piles of cash and still being unable to meet product deadlines is not a sign of good management practices. It's a sign that financial resources could probably be better allocated.

Excellent point. Someone mentioned the Mythical Man-Month above, and I agree that adding resources once you're already late is the wrong thing to do. Apple should have looked ahead and prepared for getting the iPhone done at the same times as Leopard. IMHO, the delays show a management error and it looks like Apple is being somewhat caught by surprise with their growth. What's even more interesting is that many companies don't make it over this growth period. Or they get so big so fast and quit doing the things that made them successful when they were small, a la Innovators Dilemma.

 

[CrockettGTO]

I would say with that kind of surplus, they should be able to price a laptop and desktop machine in the 500-800 price range so they can really reach a larger customer base. Driving more innovation and competition. I mean, their machines, displays, Products, OS, etc. are excellent quality, innovative and slick, however most of us simply just cannot afford the price tag. With as many problems as Windows and Micropoly products have you can always
1. Build your own machine as powerful as you want, for a fraction of the cost.
2. Maintenance is simple for almost any component, example your power supply breaks, you run down to the local Fry's or PC store, buy a new one for 60 bucks and replace it yourself in 10 minutes.

I bought a decent laptop and desktop PC this year with fairly robust specifications and performance and still had $200 left for what one MacBook Pro would have cost me. (I would have much rather had the MacBook though)

 

[nimbuscloud]

I know this has been said, but Apple need to go ahead and get Adobe.

I don't know if Apple would put some money in with Google to the 700 mhz. It seems more of "Google's destiny", but they might.

 

[jouster]

A Lot more then 15 Billion. NBC is owned by General Electric. Right now the Mkt Cap 375.24B and is the 5th largest company on the planet. So no chance. At best they can use the money to be an influential shareholder. But the money can be used better elsewhere.

A company does not have to have a higher market cap than another company it intends to purchase. Nor does it have to (and almost certainly wouldn't) use only cash.

Any money that isn't working towards growing their business is money that isn't working as hard as it should.

And is money that makes Apple itself a juicy takeover target.

 

[Glideslope]

Nah... .eWorld!

eWorld was cool. Everyone was always nice.

 

[Glideslope]

Indeed the deadline was on Monday. Doesn't mean that Apple isn't involved, though. Under the 700 MHz spectrum bidding system, all participants must be publicly stated. Apple likes to keep secret. It's a massive investment for Google. One could imagine a backroom deal between Apple and Google to share the spectrum after Google buys it. Google could sell half to Apple and they go into partnership. Wild idea, I know.

Let's keep an eye on this "wild idea."

 

[agore]

By my reckoning, they could blow the lot on a controlling share of Adobe ...

Cheers

Jim

...Or on three copies of Adobe Creative Suite.

 

[ajhill]

Save some of the money...Pass on CC

"Apple could buy TiVo, NetFlix, and Circuit City and still have cash left over." Hopefully only buying CC to shut them down, I've had miserable experiences there.

Take the $15B and buy something a little more fun, like a new Mac Pro for me!

Circuit City is going down in flames all by itself. They fired their employees and hired them back at half the salary. They won't last another Christmas season.

As to TiVo and NetFlix? Both would make amazing enhancements to AppleTV. Netflix could be had for a mere $3 Billion. In 5 years that will look like a bargain.

TiVo could be had for $1.5 Billion. A bargain as well in light of the fact that Apple has ten times that much cash.

 

[ajhill]

Besides...

It's obvious. Apple Inc. is saving up billions of dollars to one day (in the not too distant future) purchase Microsoft and rid the world of a terrible disease that has plagued us for nearly 3 decades.

Another 5-6 years ought to just about do it...