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Apple has huge stores of cash sitting overseas. They can't bring it home without subject to large tax penalties. With that cash stockpile growing, it seems like
by sbuccini 10y ago
Apple has huge stores of cash sitting overseas. They can't bring it home without subject to large tax penalties. With that cash stockpile growing, it seems like they're having trouble finding ways to put that money to work overseas. I wonder if they would have still made this investment if they had the ability to bring that money back stateside without hefty tax liabilities.
Regardless, a $1B is not a small chunk of change, even for Apple. Clearly, natural synergies could arise when Project Titan matures. But Apple tightly coupling itself with a rising player in the Chinese tech sector is a smart play (not to mention associating itself with other notable Didi investors like Alibaba). We've seen similar moves by Uber, who took a large investment from Baidu.
Interesting times ahead.
- IBM 10y agoTax reform has been kicking around for years in Congress (which would allow repatriation at a lower rate) and has fairly bipartisan support. It likely won't happen in an election year, but after November I'd say the odds go up significantly. I doubt that has anything to do with this investment. They've had no problem tapping the debt markets to buyback stock and pay dividends, they don't need access to their cash.
- ProAm 10y agoCompanies wont do it until its offered as full amnesty, especially companies as large as Apple, there is no reason for them to.
- adventured 10y agoSure there is. Apple has already accumulated a dangerous amount of debt, given their business is declining and global smartphone sales growth is inching closer to zero. Outside of the financial sector, they're now one of the world's largest corporate carriers of debt at $69.3 billion. At the pace they're picking up debt, they'll hit $100+ billion in debt in two years, while their annual profit and stock price declines simultaneously (upsetting investors, increasing pressure for greater dividends). Given their position in the smartphone market is in no way guaranteed or a monopoly, it's an extremely dangerous position they're putting themselves into. Apple would accept a 5% penalty on their pile of cash any day of the week to repatriate it. Their financial situation in the very near future will become such that they start to get threatened with credit downgrades as the debt piles up and their growth keeps going backwards or otherwise stagnates. What they're doing can't continue for more than a few more years before it causes serious problems.
- robbiemitchell 10y agoWhy will profit decline? A reduction in sales _growth_ does not mean a reduction in sales/revenue/profit.
- jonknee 10y ago> Apple has already accumulated a dangerous amount of debt, given their business is declining and global smartphone sales growth is inching closer to zero. Umm, what? That is nowhere close to a dangerous amount of debt. They're issuing debt because rates are so low that it is advantageous to do so. Free cash flow can easily take care of all their expenses (including dividend).
- ktRolster 10y agoTax reform has been kicking around for years in Congress (which would allow repatriation at a lower rate) and has fairly bipartisan support. Note that while tax reform has broad support from both parties, the exact details of those reforms are fairly divisive.
- dreamsofdragons 10y agoI'd certainly consider it a small chunk. Based on 2015 revenue, and my 2015 income, Apple spending $1B is the equivalent of me buying a MacBook. The cheapest one.
- consz 10y agoWhy would you compare revenue to income?
- dreamsofdragons 10y agoWhy wouldn't you?
- deadbeef404 10y agoWhat would be a better comparison?
- mikeash 10y agoRevenue is the money that comes in, ignoring expenses. Income is the money that comes in, ignoring expenses. They are exactly equivalent.
- lotsofpulp 10y agoIn the context of discussing a company's finances, income is usually short for net income, which is also known as earnings or profit, or revenue minus expenses.
- mikeash 10y agoIn this case, they're comparing a company's revenue to a person's income, so "income" as applies to a company's finances is irrelevant.
- kayoone 10y agoAt 234B apples 2015 revenue is 234x this investment. The cheapest macbbok air is 899 which would put your income at 210k !? not bad, who do you work for ? :)
- mdorazio 10y agoI see this argument a lot, but what do you think they would spend that money on if they could bring it back to the US tax-free? If they thought they could get a better return on it in the US than the one-time tax hit would be, then they would repatriate the funds. The fact that they don't says a lot.
- gohrt 10y agothe only taxable repatriation is if they sit on the money as profit. if they spend it on anything, it's deductible.
- cm3 10y ago> what do you think they would spend that money on Bringing back some of the production to the US, which will benefit everybody by getting skills that are exclusively available in Asia onto the continent where most of it originated but now has been perfected and is only available outside the US. I don't live in the US but it's worrisome that we're comfortable with the concentration of EE manufacturing skills in one particular region of the world. Other industries are not like that and have state of the art production in all places of the world.
- stevetrewick 10y agoNever happen. In the US those jobs would be done by robots, as they will shortly in China. Manufacturing jobs aren't coming back.
- cm3 10y agoEven if robots do more of it, it's a win because there's no precious resource in Asia that requires fabs to sit there like say tea plantations and because better robots will allow setting up fabs in more diverse locations.
- charlesdm 10y ago> which will benefit everybody Everybody, besides Apple, because that means they'd pay more for the same work being done. Actually, they'd get robots to do the building.
- guelo 10y agoApple has been spending their state-side money on dividends and stock buybacks so no, they don't seem to have any big ideas for investments in the US besides their considerable R&D spending of about $10 billion this year.
- partiallypro 10y agoI am pretty sure this has nothing to do with inversion and has a lot more to do with appeasing the Chinese government with a capital investment. http://www.eweek.com/mobile/apples-tim-cook-heading-to-china-to-improve-relations-with-leaders.html http://www.eweek.com/mobile/apples-tim-cook-heading-to-china... Tim Cook meets with Chinese government to smooth over relations and then immediately Apple announces a capital investment in China, what a major coincidence!
- seanmcdirmid 10y agoBoth. Apple earns a lot of money in China, so they want to be seen as doing something with that in China to look better with the government + its already been taxed there anyways. Same with most tech companies actually, just that Apple does very little R&D in China ATM, so investment it is.
- throwaway462016 10y agoThe linked article claims that Tim Cook is meeting with Chinese propaganda officials. My bet is that Apple will first manufacture and sell electric cars in Asia than bring it to the USA. If that is true the ministry of propaganda is probably frustrated with Apple's secrecy. BTW, I doubt self-driving cars are very high on Apple's list. They are a very very practical company and self driving cars have not proven themselves yet.
- lotteQ 10y agoThey should build a nice self sustaining city/island somewhere I can move too like Disney's Epcot far away from the Trumps and genpop.
- KKKKkkkk1 10y agoIf your theory is true, this is clearly a big "win" for the US government. Not only do Apple shareholders lose because Apple is forced to make suboptimal investments, but also the American economy is losing because the money is invested elsewhere. I am sure Congress is paying attention and will respond by making the US tax regime even more aggressive.
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- TaylorGood 10y agoThe possible swing of this investment using offshore cash > bringing reserves stateside and seeing capital gains One has larger risk but upside.