Apple may soon have no choice but to put some of its cash to work. Cash has nearly doubled since the end of fiscal 2010.
NEW YORK (CNNMoney) — Apple has nearly $100 billion in cash. $97.6 billion to be precise. That is a lot of iDough. Even for Warren Buffett. Perhaps it’s time for Apple to, I don’t know, use some of it?
Unless Apple (Fortune 500) is planning to build an army of Siri-voiced iBots, it’s hard to defend why the company needs that much cash. Even company executives admit that it may soon have to deploy some of it.,
During the company’s celebratory earnings conference call Tuesday, Apple CFO Peter Oppenheimer said the company “was not letting [the cash] burn a hole in our pockets.”
Really? Apple’s iMountain of money has nearly doubled since the end of fiscal 2010. But Apple doesn’t pay a dividend. It doesn’t make splashy acquisitions or buy back stock.
If Apple’s cash keeps piling up, at this rate it won’t just burn a hole in the company’s pockets. It would be big enough to swallow up the entire universe.
Now one reason Apple is still hanging onto cash is because it doesn’t want to pay a sizeable chunk of taxes to Uncle Sam if it used that money on something productive or shareholder friendly. Oppenheimer said Tuesday that $64 billion of its cash was offshore. It is “trapped” if you will.
Apple is a multinational company. So there is nothing legally wrong with keeping cash abroad. But it is apparently doing so to avoid having to pay the 35% tax rate on it if it were repatriated or brought back to the U.S.
Many companies are in the same boat. And that’s why Apple, Cisco Systems (Fortune 500), Google ( , Fortune 500), Microsoft ( , Fortune 500) and other cash-rich techs are urging Congress to enact a so-called tax holiday.,
This group wants the tax rate on profits and cash held overseas to be temporarily lowered. They argue that doing so would help stimulate the economy. Lawmakers have yet to bite.
Apple passes Exxon in market cap again
But even if Apple wants to keep fighting the tax holiday fight, you can’t ignore the fact that it has $33.6 billion in cash in the United States.
That still is a lot of money that Apple could use for a regular, steady dividend, a big one-time cash payout or stock buybacks. Heck, it could do all three. That would all be good for shareholders.
And Apple would still have plenty left over to keep investing in research and development. Keep in mind that Apple generated $17.5 billion in cash flow from operations in its last quarter alone!
Will Apple finally succumb to the pressure to part with some of its cash? Probably. It’s really a matter of when as opposed to if. New CEO Tim Cook said during an earnings call in October that Apple was “not religious” about holding onto cash.
Cook didn’t discuss the cash hoard Tuesday. But in response to a question from an analyst about it, Oppenheimer said that Apple‘s management team was “actively discussing the best uses of our cash balance.”
But I wouldn’t interpret that as a code for future acquisitions. While some talking heads are calling for Apple to make a splashy acquisition of one of its key partners — voice recognition software firm Nuance () and chip designer ARM Holdings ( ) are oft-mentioned targets — I seriously doubt that will happen.
For one, Cook is not that different from his predecessor, the late Steve Jobs.
Under Jobs, Apple made small, opportunistic acquisitions instead of big multi-billion dollar ones. Based on their current market values. ARM and Nuance would both likely fetch more than $10 billion each if you factor in a juicy premium.
Apple’s most recent acquisition was of Israeli semiconductor company Anobit Technologies earlier this month. The price tag? $390 million.
I’d like to think that Cook and Oppenheimer will carry on the Jobs tradition of steering clear of bold “game changing” deals.
First off, Apple doesn’t need to make a big strategic move when things are going this well. And Apple’s execs are probably smart enough to realize that more big tech companies have difficulty successfully completing mergers (Cisco, HP (Fortune 500), Yahoo ( , Fortune 500), Microsoft, and former Time Warner ( , Fortune 500) brother-in-arms AOL ( ) to name a few) than there are success stories. IBM ( , Fortune 500) and Oracle ( , Fortune 500) are the notable exceptions.,
So once Apple finally puts that cash to use, expect something that rewards shareholders — a dividend and maybe share buybacks — as opposed to something that could potentially destroy Apple’s stock value in the future.
And hey. Just imagine how big a dividend might be if Apple and its Silicon Valley friends are ever able to successfully use their lobbying might to get a tax repatriation holiday.
Best of StockTwits and can you tell me how to get to Sesame Street? Forget about more cowbell. We need more Apple!
Amazing fact about Apple is that the “core” business is trading at less than 10 times fiscal 2012 earnings estimates if you subtract the cash.
Ha! You would think that with $100 billion in cash they could make a device you didn’t have to charge every night. Solar powered iPad anyone?
Whoa. That’s a bit crass and cynical. Even for me. But you are probably right that the death of Steve Jobs in October did lead to more publicity for all things Apple than normal.
Nvidia’s () warning does seem to be more proof that any company with big exposure to the Wintel-based PC market has a lot more to worry about than the flooding in Thailand.
Finally, all the Apple talk had me humming the following infectious tune from a Sesame Street video that Baby Buzz likes. “A is for Apple. Can you sing it with me? One two three. Apple!” I asked followers (now above 14K!) to name the band.
The winner is Tim G, who also has a 2-year old. He correctly noted that the band is the quirky indie group Tilly and the Wall. According to their website, they are from Omaha. I wonder if Buffett likes them? Or his secretary?
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.