Apple shedding depression era mentality on cash hoarding

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

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?


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