Chasing Value: Apple Does Not Need $50 Billion

I'm an Apple long-term shareholder and I think Steve should do what he thinks is wise for his company. I'm still making money as the shares increase in value. I believe he is more capable of running a company than I am and probably better than you could. I wish there was a way he could use the money to make Apple worth the share price to Wall Street and investors, but I couldn't tell him how to do that. He needs to be able to corner the market for iOS device components so Apple's products couldn't be undercut in price without the competition losing money. If Steve says he has a plan to use the money or hold it for a rainy day, I believe him. He's doing a fantastic job for Apple and I have no reason to doubt he intends to do the best he can to keep Apple on top. This is the Steve Jobs way and it's good enough for me.

"...utter nonsense, a supreme untruth, wasted breadth and a failure to come to grips with reality"
Don't you love bloggers who keep an open mind, dazzling us with their journalistic skill at examining all sides of an issue?

steff...

What you have is called 'blind faith'.

Most of what you say is true, but the $50 billion implies he has some trepidation about what to do.

Example: He could have bought back some stock last month when it was down -- but he did not.

Apple only has $25b in cash that is accessible.

The other 1/2 is trapped offshore by our insane tax policies.

Regardless, I do agree that apple should provide a dividend and/or use dividend payouts as a way to try and smooth share price volitility which is driving out retail investors.

That being said, as in all "public" corporations, the shareholders do not have any effective ownership of the company, management effectively owns the company and in apple's case Steve Jobs owns the company.

Steve will never allow a dividend to be paid

Consequently the cash pile will grow and become an increasing threat to Apple's stability

Apple is not the only U.S. company sitting on a hoard of cash, but I don wonder about Jobs. He and Woz started a business in a garage on a shoresting. The main thing that both had was an entreprenerial spirit and the desire to innovate. Seems that Jobs still has the latter with the former giving way to caution. Wozniak still takes crazy chances on the far fetched but it does not seem to bother him much and he is only sitting on millions. While I have no idea why near all U.S. companies are sitting on so much cash I would think that Apple, along with all of the others that require rare earth material for their current and likely future products, would be putting some investment into this area. Open fact - China is the main supplier and they are curbing exports, simply because the need it too. We have it here also but our mining, refining and manufacturing system is dated and with that, China will hold a virtual monopoly within two years that could extend to five, or until we get back on line. With all of the cash that is being reserved for future development this would be a good area in which to look. The electronics industry has the best talent, especially in the areas of being creative and solving problems. Finding new ways in this area could prove to be a manner in which any of the major electronics players could have a prevailing edge, both in product and price. If we allow a foreign power that is also a competitor the edge, money, such as what Apple has reserved, could well wind up used simply to keep afloat.
This country needs forward looking entreprenurial leaders that will create new jobs - I mean the working kind. Government will not solve our economic problems and neither will the financial sector, and that leaves business to get the job done. Leadership and investment in our domestic economy are sorely in need. If this does not begin to happen soon - 2011 will be a very bad year.

Sheldon,
Your article is at a minimum disingenuous and completely dishonest at worst. In the most recent quarterly analyst call, Jobs specified that Apple is looking at one or two strategic future acquisitions and noted that Apple does not squander its cash on wasteful acquisitions. No mention was made of the economic climate.

You ascribe motives to Jobs which are not in evidence and which are flatly contradicted by the company's track record, accuse the CEO of lying, offer unfounded speculation about acquisition targets, misinterpret or distort Apple's position, and generally castigate Jobs under the rather shaky logic that Apple *could* pay a dividend, therefore they *should* pay a dividend.

The fact of the matter is that Apple has no need to pay a dividend. Its shareholders, of which I am one, have seen and continue to see a tremendous return on their investment. Apple has no need to buy back shares, it's stock price is still undervalued even now. Apple continues to return value to its investors as a growth company and issuing a dividend at this time would send the wrong signal to investors and analysts alike.

It's not a question of hubris. It's simply common sense. Until Apple needs to bolster its position or is in a position to leverage a planned acquisition, it has no need to spend its cash reserves merely to appease pundits who find it outrageous that Apple dares to "think different."

It is clear that Sheldon is trying to warn us that Jobs has no clue how to run Apple and is not qualified to make decisions for the benefit of the company. (Hint: he make $1 a year! Any decent CEO would give himself at least a million for running a company that size)

So, at the next shareholder meeting I hope Sheldon will show up so we can appoint him as the new CEO and give Jobs the boot for lying and deceiving and hoarding cash.

Sheldon, I beseech you, don't waste your time writing blogs. Don't deprive America of your true talents. Run a big public company. Heck, run the economy. Please.

P.S. Your humility is a refreshing contrast to Steve Jobs' hubris.

Josh,
I did go too far; thanks for reigning me in.


Speaker,
Thank you for taking the time to comment.

1) Strategic acquisitions, are smart, and I expect that to always be under consideration. They have been doing that. They do not need anywhere near $50 B to continue to do so.

2) It is not a question of could pay a dividend vs should pay a dividend. The question is first, whether paying a dividend would harm the business or help it, and second could they, meaning do they have that ability to, because if they do not, the "should" question has no merit. Once it has been determined that they have the ability than one must consider if it makes any sense. It does.

3) It makes sense because the company will grow faster with less cash on hand. Apple is viewed by many to be under valued in terms of its recent historic growth and present metrics for example, it has a rather low P/E based on its future potential. There two reasons for that. One is the growth ... More consideration. They have been doing that. They do not need anywhere near $50 B to continue to do so.

2) It is not a question of could pay a dividend vs should pay a dividend. The question is first, whether paying a dividend would harm the business or help it, and second could they, meaning do they have that ability to, because if they do not, the "should" question has no merit. Once it has been determined that they have the ability than one must consider if it makes any sense. It does.

3) It makes sense because the company will grow faster with less cash on hand. Apple is viewed by many to be under valued in terms of its recent historic growth and present metrics for example, it has a rather low P/E based on its future potential. There two reasons for that. One is the growth in the number of shares via stock options that dilute the stock. The second and much more diluting is the growing cash stash. The P/E ratio on cash must by its nature be very low. Since the cash equals about 17% of the capitalization the P/E is weighed down, and ever more so as the cash becomes a larger percentage of the company.

4) The cash continues to be a drag on over all earnings because the return on cash is very low and is averaged with the high margins on product sales. This would also be true of any major acquisition because there are few companies growing at Apple's rate.

5) Share buy back -- "Apple has no need to buy back shares, it's stock price is still undervalued even now" You have this backwards. If Apple believed their shares were under valued it would be smart to buy back shares. This would increase the stock value and P/E significantly, and is an alternative to a dividend.

6) "Apple thinks different" is fine when it comes to their products and services but no matter what you think, gravity affects everyone equally.

7) If you understood what you were reading, it would be clear to you Apple would not even have to reduce its cash stash (or minimally) to pay a healthy dividend.

Pete,
Most would agree he is worth far more than a million dollars.

You want 2% a year? Just sell 2% of your holding every year. Done!