Apple shedding depression era mentality on cash hoarding

Apple shedding depression era mentality on cash hoarding

Summary: Apple may be ready to admit it has more cash than it knows what to do with. That's good news for shareholders.

TOPICS: Apple, Banking

Apple will hold a conference call Monday to outline what it will do with its $97 billion in net cash on its balance sheet. Regardless of the outcome, Apple appears to be ready to shed its cash hoarding mentality that came from a near-death experience in the 1990s.

Although it's hard to believe today given that Apple is selling its latest iPad and covering the globe with iPhones, the company was on the ropes in the mid-1990s. In fact, Microsoft's $150 million investment in Apple in 1997 was huge for the company. Microsoft also said it would develop and ship future versions of its Office juggernaut for Apple's platform.

That little footnote highlights why Apple has such a cash hoard. Once you've been broke---or come close to being that way---you tend to appreciate a cash cushion a little bit more. Then Apple CFO Fred Anderson said the Microsoft investment strengthened "Apple's viability." Can you imagine such a comment today? Simply put, Apple has come a long way.

How far has Apple come? Here's a compare and contrast of Apple's financial profile today vs. 1997.

Fiscal 2011

And fiscal 1997

However, Apple has more cash than it knows what to do with. Barclays analyst Ben Reitzes estimates that Apple will generate $49 a share in cash flow in fiscal 2012. Wall Street is looking for free cash flow per share of $47 in fiscal 2012 and $50 in 2013. In other words, Apple has a ton of cash and is just printing more money. Sure, Apple will make key acquisitions. Sure, Apple gobbles up components in the supply chain. And yes, Apple needs a cash cushion for development. But $97 billion in net cash is a big chunk of change.

Apple signaled the new world order as CEO Tim Cook began talking to Wall Street. Cook noted that he wasn't religious about a dividend. Indeed, former Apple CEO Steve Jobs would have collected as much cash as possible without spinning it off to shareholders.

That approach sounds illogical on the surface---unless you were a co-founder of a company that had been on the financial ropes.

Any potential dividend is likely to be welcomed by Wall Street, but there's no need to get carried away. Why? Reitzes estimates that about two thirds of Apple's cash is overseas. That cash hoard is likely to stay overseas given the tax consequences of bringing it back to the U.S. In other words, the potential dividend pile is really more like $32 billion.

Reitzes is betting on a $10 one time dividend and then one that's ongoing. The Barclays analyst added:

We believe that our expectations for a dividend above are prudent -- and would represent a nice start. We also expect to hear from Apple how factors such as acquisitions, capital expenditures and component pre-buys played into the decision. These factors are increasingly important for Apple as it grows and looks to vertically integrate its products even more. We have seen large component buys-- which should get much larger in the near-future, as well as significant growth in capital expenditures to fund retail expansion, proprietary tooling and data centers for iCloud. Also, Apple is likely to continue to be acquisitive - as we have seen an increased desire to control IP around its ARM based processors and within its controllers for NAND.

Also: What will Apple do with its $100 billion cash?

Topics: Apple, Banking

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.


Log in or register to join the discussion
  • Apple should remember the scar but not be led by it

    The mentality of Apple hoarding cash is seen in other firms that have brushes with bankruptcy and survive, they come back but remember how they got into that situation and hence every executive around in those times will remember and its ingrained that they never want to go through it again.

    While its a mentality that serves companies well, care is needed that they don't become fixated with it, a couple of acquisitions and several years of dividends will do the trick I think
    • Apple works the fad angle hard

      And they know fads go as fast as they come. They are wise to hold onto a strong buffer. They don't need the higher stock acceptance. They are on top and need to plan their next product. The iX series is running out of new tricks and the competition is going to match them within 5 years. With the fans cycling to new versions as fast as they are, the market is getting saturated as first market players are now looking at secondary markets as a substitute, cannibalizing the line. And to the author: you mean shedding ideals like having a mortgage you can afford? No more snake-oil. You should learn from Apple.
      • Troll

        Please name a SINGLE Apple product that matches the definition of "fad".
  • Would it kill Apple to be a LITTLE philanthropic?

    97 BILLION in cash?? Would it kill apple to do a little philanthropy? No, they'd rather pay out more dividends to their shareholders than do any tangible good for society.
    You Apple seeds sure love to hate Microsoft, but at least they know how to do more than simply take your money.
    • Are you talking the actual company MS or Bill Gates the individual?

      I've read a lot about what the individual Bill Gates is doing but not so much MS.

      Pagan jim
      James Quinn
    • A little yes.. Enough.. probably not..

      "Cook told Apple employees that the company has donated $50 million to Stanford???s hospital, the Verge reported. In addition, Cook also talked at length about Apple???s participation in (Product) RED, a charity fighting against AIDS, tuberculosis, and malaria. According to Cook, another $50 million has been donated to (Product) RED, though it???s unclear if the money came solely from the sale of (Product) RED branded iPods and iPad Smart Covers or if Apple donated additional money as well."

      Also they mention that apple has a matching program if employees donate to charities, etc.. Don't forget that Apple has been pushing Foxconn by having them increase salaries, living conditions, etc.

      That all said, you would hope that they would work more at helping schools with needs. Maybe donating iPads to people with disabilities, etc. Just a very small percentage of that would go a long way.
    • Being that they do

      ... what exactly is your point, other than that you don;t know what you are talking about, and just make stuff up?
  • Why do we care what Apple does with it's cash?

    Last I checked, this is a free market. A business is free to spend or save it's money as it sees fit. Why do we care what Apple does with it's cash? We're so darned worried about Apple, yet our government has the exact opposite problem. It spends more than it makes. From my perspective, Apple is doing what it needs to do - in very uncertain economic times - in order to survive. If they had invested the money in stocks the would have lost money overall. As far as I'm concerned they did the smart thing to protect the company. Thank you Apple for providing jobs and paychecks for all those employees you have.
    • canlimacizle

      They could keep the prices the same and make a little less profit, but greed will prevent this.
      • The utter hypocrisy

        of this comment is astounding.
  • Confiscate ALL of Apple's money and

    that would not cover the government's budget for one whole day of 2012.
    • RE: Confiscate...

      By any chance, did you leave out the <sarcasm> tag?
  • Well...

    How about they start by arranging for Foxconn to pay its employees a little bit more and then lower the price on their products a bit? I bet they could afford to do both of those things and [i]still[/i] have something extra to give the stockholders.
    • Seriously, don't you trolls pay ANY attention?!?

      Apple has already done BOTH. In fact, they were the first and only major manufacturer to demand that Foxconn, increase pay, decrease mandatory overtime, increase living standards, and go so far as to hire independent auditors to police their fabs. You might know this if you did research before jumping to charge a toll to all the billy goats that cross your bridge.
  • Perhaps if some of our banks were a tad more frugal?

    And were more like bankers than poorly run casinos.
  • 97 Billion

    How about moving the manufacturing to the USA, paying a living wage to thousands of Americans? They could keep the prices the same and make a little less profit, but greed will prevent this. If Congress had a spine they would enact tarrifs on imported products to level the playing field so that having $1 an hour workers would not be so attractive.
    • Maybe because it would be IMPOSSIBLE

      Leave aside the idea that very few Americans would work for the wages that would allow this, the plain fact is that the factories that would allow this, and their proximity to each other, like they are in Shenzhen, just do not exist ANYWHERE in the US.
  • canlimacizle

    They could keep the prices the same and make a little less profit, but greed will prevent this.
    • Yeah, so you said

      And it is still hypocritical to talk about greed as you spam the forum.
  • Apple was NEVER on the ropes

    @Larry Dignan
    As editor and chief, you have an obligation to at least try to appear like you did the fundamental research needed to write such a story. Instead, you write a piece based on purely fabricated concepts with NO basis in fact.
    At the time when you claim that MS's paltry $150M was "huge" for Apple, Apple had over 2BILLION in liquid assets. Not only was that $150M not huge, it was insignificant.
    More importantly, it was not an investment on the part of MS, it was a LEGAL settlement. MS was caught red-handed stealing Apple code, putting code for Quicktime directly into their fledgling Video For Windows project (which eventually became WMP) not even bothering to change variable names, or even remove Apple's engineers comments, which were still in the reverse engineered code.
    MS was caught dead to rights, but on Jobs' return to Apple, he wanted to remove all distractions from his remaking of the company, so he killed side projects, even those that were doing well (such as the Newton) and settled the suit with MS for 150M in non-voting stock (stock which MS later sold for a HUGE profit). That money was so insignificant to Apple that it was immediately shuttled to their education division, where it was used to fund donations of computers to schools (that's how important it was to Apple).
    In addition, as part of the agreement, MS was to agree to continue to develop Office for Mac for 5 years. This is what the CFO was claiming was significant for Apple (and also MS, as they made a rather large profit from sale to the Mac market) NOT the 150M.
    Why you keep repeating this demonstrably false internet meme is beyond me, especially since its lack of veracity has been pointed out to your writers, especially Ed Bott, who still regurgitates it from time to time, and yourself, repeatedly.