138 Billion Units (Apple's Cash Position)

http://dcurt.is/100-billion-units-of-strategy

by danielzarick • 14 years ago

67 47 14 years ago

phil4• 14 years ago

Interesting post, but there's a lot that's wrong here. For example, it's really not true that Apple tends towards vertical integration.

dcurtis2• 14 years ago

Really?

- Apple bought a semiconductor design company and brought that in-house.

- Apple does all software design, hardware design, industrial engineering, etc in house.

- Apple develops its own processes for manufacturing their computers (unibody).

- Apple built a chain of retail stores to sell directly to consumers.

Those are just a couple examples; the trend is very clear to me.

dangrossman• 14 years ago

That's the only example I've heard of, not that I follow Apple news outside HN.

phil4• 14 years ago

Well I was thinking of the major counterexample that they own essentially none of their manufacturing. They don't produce any of their components -- even the processors they design get built by (I believe) Samsung.

As far as I've been able to tell, design and engineering get hauled in because they want to control it. I guess you can add the stores, too.

But buying something like an LCD panel maker? Or a flash maker? Or Foxconn? I'd be shocked.

gt384u• 14 years ago

Add to that the mapping companies, lala.com, Fingerworks for multitouch, Siri, PA Semi and Intrinsity for semiconductors, and a whole lot of other tiny but massively differentiating pieces[1] to their "experience" stack.

[1]http://en.wikipedia.org/wiki/List_of_mergers_and_acquisition...

rdl2• 14 years ago

Really? Apple has been about vertical integration from the start (apps + OS + hw), at least compared to the Wintel and Android worlds. (the exception being iOS apps, but those were neither in Apple's original plan nor are a huge amount of revenue relatively to Apple; I suspect Safari, Mail, Calendar, iMessage still get the majority of the use of apps on iOS).

Deeper hw integration (buying chip designers was obvious; I do not think they'll buy a fab; maybe hw assembly if that is somehow non-commodity), or upstream integration (applications on mac osx, content sources, services) would make some sense to me. Buying a shipping company to ship the devices, probably not.

Maybe they could just buy Goldman Sachs.

phil4• 14 years ago

That's an interesting perspective; I wasn't thinking about the software side at all.

dfc2• 14 years ago

Why do most of the reports I have seen list apple's cash at 96B?

phil4• 14 years ago

That's cash/equivalents + short-term securities + long-term securities. Total assets are $138b.

This all gets pulled from SEC filings. Here's the most recent: http://investor.apple.com/secfiling.cfm?filingID=1193125-12-...

latch3• 14 years ago

Because the market is liquid enough that Apple could probably convert those investments into cash relatively quickly (and without damaging their value).

Assuming trustworthy partners, if you have a cheque to your name for $100, it wouldn't be unreasonable to say that you have $100 cash.

dfc2• 14 years ago

There is no way this jives with any accepted accounting practices...

hncommenter13• 14 years ago

This post is not quite right in its understanding of how these securities are classified.

Securities held by corporations as assets are shown both by type of instrument and by "intent" of the holding. In this case, the types of instruments shown on the latest 10-Q [1] are, as the post describes, cash and cash equivalents, short-term securities and long-term securities. But that only applies to the security itself, not Apple's intent: a 30 year government bond would be classified as "long term," but it could easily be sold tomorrow in one of the most liquid financial markets in the world.

Under GAAP, what is also relevant is a label on the "intent" of the holding: trading, available-for-sale, or held-to-maturity. According to the same 10-Q, all of these securities are classified as available-for-sale. The original post conflates these two ideas and mistakenly assumes that the ~$67B of long term securities will be held until they mature. Were that Apple's intent, they would likely be classified as held-to-maturity, rather than available-for-sale.

(The classification as to intent matters, as it affects how unrealized gains/losses from the securities held flow into the income statement in any given period.)

It's a technical point, to be sure, but the post's conclusion that long term security != ready cash is not quite right.

Regardless, Apple's numbers amaze me every time I look at them.

[1] http://investor.apple.com/secfiling.cfm?filingID=1193125-12-...

dcurtis2• 14 years ago

Thanks. I have updated the post with a quotation and link to your comment here.

I think the central point of my article stands because the tax burden associated with bringing Apple's significant foreign investments (about 60% of their cash, reportedly) back into the United States would be prohibitive and restrict any kind of heroic or crazy deals from being announced tomorrow. And Apple's investments are not in cash.

If anyone would like more information about the structure of Apple's investments, see page 7 of the most recent 10-Q: http://files.shareholder.com/downloads/AAPL/1738322915x0x536... The parent commenter is correct that the vast majority of holdings are in things like us treasuries and corporate bonds, which can be liquidated immediately.

latch3• 14 years ago

There are non-US companies they can buy. I've heard that was a main driver in MS' purchase of Skype. They didn't want to repatriotize assets, so they just bought a foreign company.

rdl2• 14 years ago

Couldn't Apple keep those assets offshore and either do the investment through the foreign entities, or borrow money in the us on the basis of that offshore cash (or issue more shares, kinda the same thing) to do it?

If Apple had a productive use of $50b in the USA, I think they could raise it.

notatoad2• 14 years ago

netflix as a very likely acquisition target? really?

i can't see why. does netflix have a lot of exclusive content deals that apple can't get? it seems like most things that are on netflix are already on itunes. also, netflix is popular because it's available on all kinds of devices which doesn't seem to be a policy that apple is likely to continue. if apple doesn't need netflix' customer base or content, why would they purchase them?

brianobush2• 14 years ago

and if they did have a exclusives deals/contracts of interest, I am sure that if netflix was purchased those contracts would be up for review.

uptown• 14 years ago

Because dcurtis holds Netflix stock ... So he wants it to happen ... So saying it is very likely to happen makes it seem more plausible increasing the value of his investment if others believe the hype and buy.

This is the American Airlines website of financial analysis blog posts IMO.

steve8918• 14 years ago

Exactly. There is ZERO chance that Apple will buy Netflix. Netflix is a dying company, and their business model isn't long-term viable. They don't own their own content, and the content providers are not only charging them more, but building their own infrastructures. Apple already has iTunes and plenty of deals with content providers. Why on earth would they get Netflix which has a worse business model? It's just plain garbage.

This is a great example of "talking your book".

mikeryan• 14 years ago

You're right buying Netflix would be ridiculous.

They'd be much better off going after a studio like Disney or WB and buying content - they already have an audience and distributing digital content is a known entity. With that amount of cash, they would want content rights, not distribution rights.

pja• 14 years ago

Remember when Sony decided it had to own content?

My prediction is that once you get those content execs inside Apple, they'll destroy precisely those qualities that make Apple what it is.

Hopefully Apple is self-aware enough to realise this, but with Jobs gone, who knows?

RandallBrown3• 14 years ago

Netflix has a pretty solid architecture for streaming video. It's definitely better than Apple's. Their content deals are also for subscription streaming where Apple's are for one time streams and downloads. I'm not sure if that actually matters or not.

Apple could buy them just to be anticompetitive and block all the competition from having it (which would be huge imagine if the Apple TV was the only way you could stream Netflix to a TV). I don't see the government allowing that though.

notatoad2• 14 years ago

>Apple could buy them just to be anticompetitive

could they really? i thought there were laws against that.

eurleif• 14 years ago

>Netflix has a pretty solid architecture for streaming video. It's definitely better than Apple's.

Is that really so hard? Honest question; I just can't imagine how streaming video could be a very difficult problem, especially for a company the size of Apple.

nl3• 14 years ago

The thesis of this post is incorrect.

As hncommenter13 pointed out, the breakdown of long term securities vs cash is very wrong.

Additionally, even if it were correct Apple could easily borrow billions of dollars in cash either from a bank or by selling bonds. They'd have no trouble getting the money, which makes the "$10-30 billion dollars" limit pretty artificial.

I'm not convinced it matters anyway - there aren't a lot of things worth more than that which Apple would be interested in.

Looking at a list of the most valuable US companies[1], I guess the following might be interesting:

Intel, Verizon, Cisco, HP, Qualcomm, Walt Disney, Comcast.

Realistically, I think Walt Disney is the only real possibility there (and there are other media stocks that could be interesting - Time/Warner, News Co etc). The other possibility is an unlisted company: Facebook (but I don't think Zuck would relinquish control).

[1] http://money.cnn.com/magazines/fortune/fortune500/2011/perfo...

njharman• 14 years ago

Why would apple want to get into content creation?

nl3• 14 years ago

Apple could replace cable TV (if they chose to. I don't think they will, but it is possible..)

stevenj• 14 years ago

Apparently, Steve asked Warren Buffett what he thought Apple should do with all of the cash a couple years ago: http://www.cnbc.com/id/46540227/Warren_Buffett_Steve_Jobs_Di...

RandallBrown3• 14 years ago

Vizio seems unlikely to me because they're a bargain brand. If Apple bought them it would only tarnish Apple's brand. Could you imagine buying an Apple television set that was of Vizio quality? Even if they completely started from scratch and only used their factories, their would be enough people saying "This is really a Vizio" that it would look bad.

jonursenbach• 14 years ago

I don't know what experience you've had, but every Vizio TV I've used has been fantastic.

cloudwalking• 14 years ago

Apple is a company that vertically integrates. What they're missing from their verticals is content. They already have a content provider, iTunes, so I don't think they'll buy Netflix or Hulu.

I expect Apple will make a move on a content provider soon (Disney? HBO?), but not tomorrow.

guelo3• 14 years ago

It is sad how tax dodging schemes by the uber wealthy are considered normal business procedure instead of the low-life thing it is. Hey Apple, in case you hadn't heard you have a ridiculous amount of money, you can afford to pay the taxes that you owe.

davidw2• 14 years ago

Via index funds, I own a bit of Apple stock, and I'm not uber-wealthy.

Uber-wealthy people are those that have/earn "zillions" of dollars.

guelo3• 14 years ago

You're not the one making the tax dodging decision, some multi millionaire Apple executive is.

nikcub• 14 years ago

I think they will announce a small-ish one-off dividend, a long-term dividend yield target, and a stock split.

For context, Microsoft had $43B in cash when it issued its first dividend, which was a total of $900M (it also split its stock at the time, which Apple may also do). It paid another dividend a year later, a bit larger, and has raised their yield a few times (not moving the stock much). Cisco's first dividend was when they had $40B in cash and it was also only worth a couple of points.

For dividend distribution purposes, Apple has $100B+, 66% of which is not in the USA (not bad, it is 90% for Microsoft and Cisco). They can easily afford a one-off 2-3 point dividend tomorrow and then announce a regular dividend yield of 2-3 points again without repatriating any cash.

I doubt it will be larger than a few points, which means that the stock will likely fall sharply tomorrow (as it did with both Cisco and Microsoft) as it seems that the market is expecting a much larger dividend.

Note: it is possible to issue a larger dividend without repatriating overseas assets by borrowing against those foreign assets, but I doubt they would do that.

138 Billion Units (Apple's Cash Position)

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