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Original poster
Apr 12, 2001
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Apple had just over $65 billion in cash and marketable securities at the end of the last fiscal quarter, according to the company's quarterly filing (PDF). Apple has so much cash, it was pointed out last month, that its cash on hand exceeds the market capitalization of Nokia, RIM, HTC and Motorola Mobility combined. If Apple had no revenue, its cash-on-hand would sustain operations through the middle of 2018, more than seven years.

What's Apple doing with all that cash? An anonymous writer on the Q&A site Quora opines that the company uses the money to small-scale strategic advantage, purchasing entire factories for suppliers and using that leverage to guarantee supply of components for Apple -- and no one else:
Apple has access to new component technology months or years before its rivals. This allows it to release groundbreaking products that are actually impossible to duplicate. Remember how for up to a year or so after the introduction of the iPhone, none of the would-be iPhone clones could even get a capacitive touchscreen to work as well as the iPhone's? It wasn't just the software - Apple simply has access to new components earlier, before anyone else in the world can gain access to it in mass quantities to make a consumer device. One extraordinary example of this is the aluminum machining technology used to make Apple's laptops - this remains a trade secret that Apple continues to have exclusive access to and allows them to make laptops with (for now) unsurpassed strength and lightness.
This past January, Apple COO Tim Cook said something similar on the Q1 earnings call:
On the operational side of the house, as you probably remember, we've historically entered into certain agreements with different people to secure supply and other benefits. And the largest one in the recent past has been we signed a deal with several Flash suppliers back at the end of 2005 that totaled over $1 billion because we anticipated that Flash would become increasingly important across our entire product line and increasingly important to the industry. And so we wanted to secure supply for the company, and we think that, that was an absolutely fantastic use of Apple's cash. And we constantly look for more of these.
It is thought that Apple made another one of these deals earlier this year, agreeing to spend $3.9 billion on LCD panels. It was rumored that RIM's iPad competitor, the PlayBook, was delayed because RIM couldn't acquire enough LCD panels for production. Apple feels these payments are "very strategic" and a good use of their capital.

However, not everyone is impressed with this line of reasoning. One fund manager, Christopher Bonavico at Delaware investments, said Apple is "destroying value" by sitting on so much cash, and complained that the cash is "earning near zero". Bernstein Research analyst Toni Sacconaghi said the cash pile has "been beyond the point of being rational for a while now."

Apple, for its part, seems perfectly happy to sit on the cash, which allows it to quickly make large purchases when strategically necessary.

Hat tip to Gizmodo, Chart from Asymco

Article Link: How Apple Uses Its Cash to Keep Latest Technology for Themselves
 

supmango

macrumors 6502
Feb 17, 2008
413
0
A company saving its money.. how devastating..

Yep, I think we let Apple take a stab at the US government's debt issue. It won't happen, and I doubt anyone at Apple would want to touch it with a ten foot pole, but they must know something about money that escapes our wonderful elected officials in DC.
 
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Schizoid

macrumors 6502a
May 29, 2008
854
530
UK
Wirelessly posted (Mozilla/5.0 (iPhone; U; CPU iPhone OS 4_3_3 like Mac OS X; en-us) AppleWebKit/533.17.9 (KHTML, like Gecko) Mobile/8J2)

The crumbs off Apple's table taste so sweet!
 
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Mak47

macrumors 6502a
Mar 27, 2011
751
32
Harrisburg, PA
Sounds like a good business plan to me. It's got to be frustrating for Apple's competitors, but there's never been anyone telling them they can't do the same thing. RIM was the market leader for quite some time but they never thought to use their money wisely like this.

The author mentioned an analyst that states Apple's cash is earning near zero and therefore must be dumped. That guy is an idiot. Apple's cash is what allows the company to buy in massive quantities and lock up segments of the market before anyone else can touch them. It may not be earning returns in conventional ways, but to say the cash isn't working for them is just plain stupid.

Besides all that, a company with no debt is a company with few worries. Very smart business.
 
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Kyrra

macrumors member
Jan 15, 2009
50
0
A company saving its money.. how devastating..

From an investor point of view it could be frustrating. You are investing money in a company, and that company is just holding onto that money as cash. Most companies want to have some % of their expenses in cash for various uses. Having too much money can make investors upset.

But, Apple is not a standard company, so they can play by different rules in the stock market.
 
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ciTiger

macrumors 6502a
Jan 25, 2011
626
0
Portugal (Porto)
Investors only think about investing...
They must be blind or something, Apple isn't just sitting on the cash.
The cash is used for strategic decisions which keep on increasing the pile of money...
 
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tropic10

macrumors member
Sep 8, 2008
66
2
As a stockholder, I don't think it's out of line to ask Apple to give back some of that money through dividends. A large strategic reserve is definitely beneficial. But continuing to stockpile cash past any reasonable limit is just a waste.
 
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trims

macrumors regular
May 11, 2011
226
69
Nottingham, UK
The author mentioned an analyst that states Apple's cash is earning near zero and therefore must be dumped. That guy is an idiot. Apple's cash is what allows the company to buy in massive quantities and lock up segments of the market before anyone else can touch them. It may not be earning returns in conventional ways, but to say the cash isn't working for them is just plain stupid.

From the simple graph presented it would appear that the return from Apple's investment strategy is solid and significant.

I just wonder if they are abusing a near monopoly position? I'm no expert, but I wonder if they'd be referred to the Competition Commission if they were a UK company?
 
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Constable Odo

macrumors 6502
Mar 28, 2008
475
261
The fund managers basically control Apple's share price, so if Apple doesn't do what the fund managers want, they'll just punish long-term shareholders indefinitely. Most of the fund managers don't see any point in holding onto cash and they also don't believe that Apple has any long-term growth either. Individual Apple shareholders look to be facing a huge problem with institutions controlling the share price and Apple doing whatever it feels necessary to do to enlarge its business.

I believe Apple should corner the best components money can buy to continue putting out quality products, but if Wall Street doesn't see this as an advantage (I'm not sure why they don't), then shareholders will be screwed. I guess immediate profits are the only thing that fund managers are interested in. Apple's internal long-term growth plans apparently don't suit them.
 
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appleguy123

macrumors 604
Apr 1, 2009
6,631
1,071
15 minutes in the future
Yep, I think we let Apple take a stab at the US government's debt issue. It won't happen, and I doubt anyone at Apple would want to touch it with a ten foot pole, but they must know something about money that escapes our wonderful elected officials in DC.

All of Apple's money isn't even a percent of the U.S' debt.
 
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*LTD*

macrumors G4
Feb 5, 2009
10,703
1
Canada
Bernstein Research analyst Toni Sacconaghi said the cash pile has "been beyond the point of being rational for a while now."

Apple's success is also beyond the point of general conception. Way beyond.

You're forgiven, Tony. Seriously.
 
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RalfTheDog

macrumors 68000
Feb 23, 2010
1,537
348
Lagrange Point
From an investor point of view it could be frustrating. You are investing money in a company, and that company is just holding onto that money as cash. Most companies want to have some % of their expenses in cash for various uses. Having too much money can make investors upset.

But, Apple is not a standard company, so they can play by different rules in the stock market.

Massively out performing the competition can make investors happy. What they are doing is working. Any investor that comes in and starts telling them to change their game plan is a moron.

As a stockholder, I don't think it's out of line to ask Apple to give back some of that money through dividends. A large strategic reserve is definitely beneficial. But continuing to stockpile cash past any reasonable limit is just a waste.

Dividends are for non growth companies. If Apple ever starts handing out dividends, it is time to run.

The fund managers basically control Apple's share price, so if Apple doesn't do what the fund managers want, they'll just punish long-term shareholders indefinitely. Most of the fund managers don't see any point in holding onto cash and they also don't believe that Apple has any long-term growth either. Individual Apple shareholders look to be facing a huge problem with institutions controlling the share price and Apple doing whatever it feels necessary to do to enlarge its business.

I believe Apple should corner the best components money can buy to continue putting out quality products, but if Wall Street doesn't see this as an advantage (I'm not sure why they don't), then shareholders will be screwed. I guess immediate profits are the only thing that fund managers are interested in. Apple's internal long-term growth plans apparently don't suit them.

If fund managers dump Apple while it performs at it's current level, fund managers will get burned.
 
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Swift

macrumors 68000
Feb 18, 2003
1,766
923
Los Angeles
Non-monopolistic business models

This is not monopolism. It's dependent on one thing: Apple's products being market-creating. That depends on the engineers. Of course, anybody can play the same game, but its competitors insist on playing the other one: let's make something that's really close to what Apple has shown there's a big market for. Copy, copy, copy. (I don't know or care about the legal issues, but it's the business issues -- who do you want to work for, the company that made up the iPod, the iPhone and iPad, or one of the many, many imitators?
 
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Swift

macrumors 68000
Feb 18, 2003
1,766
923
Los Angeles
From an investor point of view it could be frustrating. You are investing money in a company, and that company is just holding onto that money as cash. Most companies want to have some % of their expenses in cash for various uses. Having too much money can make investors upset.

But, Apple is not a standard company, so they can play by different rules in the stock market.

So that's why investors are volatile about Apple's stock. They don't get dividends, they don't run the company, so-- they make money by speculation.
 
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BC2009

macrumors 68000
Jul 1, 2009
1,992
371
Investors only think about investing...
They must be blind or something, Apple isn't just sitting on the cash.
The cash is used for strategic decisions which keep on increasing the pile of money...

From an investor point of view it could be frustrating. You are investing money in a company, and that company is just holding onto that money as cash. Most companies want to have some % of their expenses in cash for various uses. Having too much money can make investors upset.

But, Apple is not a standard company, so they can play by different rules in the stock market.

It is clear to me that Apple is investing in itself. Rather than put this money in some other commodity, the company sees this cash as a way to invest in their own business model. It keeps competitors at bay whenever an acquisition comes along because they know Apple can outbid them (like with the Nortel patents), it allows Apple to lock up supply chains and ensure their business model, and it keeps Apple from ever being overly dependent on partners because with that much money you can go it alone if need be.

The fund managers basically control Apple's share price, so if Apple doesn't do what the fund managers want, they'll just punish long-term shareholders indefinitely. Most of the fund managers don't see any point in holding onto cash and they also don't believe that Apple has any long-term growth either. Individual Apple shareholders look to be facing a huge problem with institutions controlling the share price and Apple doing whatever it feels necessary to do to enlarge its business.

I believe Apple should corner the best components money can buy to continue putting out quality products, but if Wall Street doesn't see this as an advantage (I'm not sure why they don't), then shareholders will be screwed. I guess immediate profits are the only thing that fund managers are interested in. Apple's internal long-term growth plans apparently don't suit them.

I fully agree.
 
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nunes013

macrumors 65816
May 24, 2010
1,282
185
Connecticut
well they must be doing something right as to how many ipads they have sold and how much the mac has risen in 5 years. if investors dont like it then dont invest in apple. as long as apple keeps putting out a good product people will buy and apple will keep earning cash. its just the way it is. and when the time is right i guarantee you that cash pile is what is going to save them. you can flame this but it is true.
 
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Laird Knox

macrumors 68000
Jun 18, 2010
1,885
1,181
I just wonder if they are abusing a near monopoly position? I'm no expert, but I wonder if they'd be referred to the Competition Commission if they were a UK company?

I'm not familiar with the concept of a company being called a monopoly for buying the supplies it needs to do business. They are securing supply chains to feed the demand. You might be onto something if they were buying up everything in sight and then dumping it into a landfill just to keep it out of the hands of the competition.
 
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Analog Kid

macrumors 603
Mar 4, 2003
5,777
4,597
I suppose they could buy back stock, for a one time boost in price, ornthey could distribute it as a dividend and try to bend the stock price curve up even more steeply, or-- and this might seem like a crazy idea-- they could use that money strategically to grow the core value of the company by continuing to build desirable products years ahead of the competition.

With the economy the way it is now, there aren't many investment strategies that return much more than zero. Apple continues to perform, so they should continue investing in their own product plans.
 
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Rocketman

macrumors 603
applecashchart-500x349.png
The slope of the chart is not merely steep and upward, it is geometric. The ROI is on average higher than CD's, money markets, or 10 year bonds pay. This is not merely strategic capital which has proven so awesome the stock price represents top 2 in the USA for market cap, but also is surviving as a standalone investment far better than other mostly liquid investments in the entire financial market. They not only have money, but they are making money at outsized rates. I wonder if we will ever see anybody stop complaining about unbridled success?

Nope! :D

I wonder what would happen if they started buying "junk bonds" which pay 12%+ and started buying every nature of high leverage start-up resulting in more revenue from treasury activities than operations?

Rocketman

cite for a theme:
pnc bank commercial cnbc
 
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