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Originally Posted by nuclear500
Apples market cap is getting ridiculous.
You know why 20% of their market cap is cash? Because they need the safety of that cash when their iPhone and iPad sales start dwindling. It will. When? Who knows. Its clear they have no use for it R&D wise.
Jobs was against a dividend or buyback...
Why is "Apples market cap ridiculous"? And at what level does a market cap become ridiculous exactly? Is it based on a certain number or valuation? What if Apple has total net income of $200b this year...would their market cap still be ridiculous, or would that be ok then?
Apples iPhone and iPad sales will keep growing in the short term along with their respective markets. Saying sales will dwindle at some point in the future is meaningless. It's like highpisguy claiming Apple is overvalued for months and months and months and claiming the stock is peaking and will eventually fall. Yes, Apple will have a year where their iPhone sales don't grow...same with iPad...JUST like what happened/is happening with the iPod. Yes at one point their stock will peak. Just like what has happened at hundreds of companies before with other previously popular products or "large" market caps...and will continue to happen going forward. I don't know anything about baseball, but the New York Yankees will have a losing season....I don't know when...but they will.
Apple's management has made it very clear that they have more than enough cash to meet short and long term obligations, finance operations, and have an adequate amount left over for investments, acquisitions and some safety room.
Apple certainly needs cash for R&D. Especially when pushing into new markets (Television). They need cash for a number of areas and will need it more of it going forward. They've used large chunks of this cash pile very well in investments in their supply chain. They just closed on the Nortel patent purchase. They continue to open up Retail stores world wide which are some of the most profitable retail outlets in the world which also helps boost the ASP of their products, among other pros. They also are spending quite a bit on their data center build out and expansion and they'll need more of this in the future as they transition more of their products and services to work with iCloud.
But, given all that, yes they still have more than enough cash on hand. Apple has made no secret of this or denied it in the slightest. Apples board has considered what to do with this growing cash hoard for
years. Warren Buffet just outed a story recently on giving advice to Steve Jobs a few years ago on just this issue:
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"I went through the logic of each thing. He told me they would not have the chance to make big acquisitions that would require lots of money... And then I asked him the question, I said .. 'I would use it for buybacks if I thought my stock was undervalued.' And I said, 'How do you feel about that?' The stock was 200-and-something. He said, 'I think my stock is very undervalued.' I said, 'Well, what better to do with your money?'
And then we talked awhile. And, he didn't do anything, and of course, he didn't want to do anything. He just liked having the cash. It was very interesting to me because I later learned that he said I agreed with him to do nothing with the cash. (Laughs.) He didn't want to repurchase stock although he absolutely felt his stock was significantly underpriced at two-hundred and whatever it was then."
Tim Cook at a Goldman Sachs conference last month:
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Now, in terms of our approach on cash, I've said since becoming CEO, I'm not religious about this. I'm not religious about holding it or not holding it. And we're in very active discussions at the board level on what we should do. But I think everyone would want us to be deliberate and really think through, and that's what we're doing. We're not going to go have a toga party or do something outlandish, and so people don't have to worry it's going to burn a hole in our pocket.
It was always discussed. It's not new that we're discussing it. It is being discussed more, now, and in greater detail, and that's because the balance has risen to the point that you've already made. And I think it's clear to everyone, and I'd be the first to admit, we have more cash than we need to run the business on a daily basis. I'm sure everyone would agree with that in here. And so we're actively discussing it. I only ask for a bit of patience, so that we can do this in a very deliberate way and make the best decision for the shareholders.
It's clear they are discussing what to do with it. I am definitely not an expect on the subject and can only regurgitate what I've heard/read from other sources but it appears their options are sit on it, pay a dividend, make more/larger acquisitions, increase capex or a share buyback. And I'd assume there is some major tax implications as well, as most of their cash is held overseas.
To me, it looks like they still think the best option is to sit on it. If you, or anyone, has any meaningful insight into the pros and cons of their options...please share, I'd be glad to listen (and learn). I certainly don't think they are deliberately keeping the cash on hand because they fear a slow down in sales...and I'm not sure how simply holding cash will solve that problem in any regard.
