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Apple, Microsoft, and Google hold 23% of all U.S. corporate cash
- eximius 10y agoI feel like I read a similar headline with the same figure but it was 23% among technology corporations cash...
- boxy310 10y agoThere was a very interesting article in the NY Times earlier this year about this subject: "For other industries, though, a dollar of savings is worth a lot more than itself. For pharmaceutical companies, a dollar in savings is worth $1.50. For software firms, it’s even higher: more than $2. This means that investors are behaving as if they trust the executives in these industries, like Larry Page of Alphabet, to be smarter about using that money than the investors themselves could be. ... "Why? The answer, perhaps, is that both the executives and the investors in these industries believe that something big is coming, but — this is crucial — they’re not sure what it will be. Through the 20th century, as we shifted from a horse-and-sun-powered agrarian economy to an electricity-and-motor-powered industrial economy to a silicon-based information economy, it was clear that every company had to invest in the new thing that was coming. These were big, expensive investments in buildings and machinery and computer technology. Today, though, value is created far more through new ideas and new ways of interaction. Ideas appear and spread much more quickly, and their worth is much harder to estimate." Source: http://www.nytimes.com/2016/01/24/magazine/why-are-corporations-hoarding-trillions.html?_r=0 http://www.nytimes.com/2016/01/24/magazine/why-are-corporati... The implication is that big tech companies see some very disruptive trends coming down the pipeline, but they're not sure which specific idea or ideas should take most of the investment, and they're hedging their bets by hoarding cash for now. Maybe when the AI/automation revolution kicks into high gear, we'll finally see what they spend all this money on.
- snewman 10y agoA serious question: does anyone -- management, shareholders, analysts, anyone in the picture at all -- seriously think that these companies will actually find a way to invest a nontrivial portion of the cash piles they're sitting on? (Bearing in mind that to date, year after year after year, they're unable to invest quickly enough to prevent the pile from continuing to accumulate, let alone spend it down.)
- fnovd 10y agoHave there been any incredibly disruptive & profitable markets in the past 10 years? Would hanging onto cash help solidify your place in the next disruptive & profitable market? At the end of the day, the question for these companies is: can you afford not to have cash available for The Next Big Thing?
- cheez 10y agoSmartphones have exploded in the last 10 years....
- rgbrenner 10y agoand yet Microsoft has been unable to use their cash to secure a foothold in the smartphone market.
- cheez 10y agoMy understanding is they get ~$1 billion/year from licensing patents to Android manufacturers. Anyway, I wouldn't count them out just yet. It took them 5-6 years to catch up to Google Docs and these days, I often consider using Office 365 because it's local AND syncs to the cloud automatically.
- WildUtah 10y agoSmartphones have exploded in the last 10 years... The lithium ion battery problems are mostly under control now.
- snewman 10y agoThere's cash available for The Next Big Thing, and then there's $215B (Apple's current cash). They could buy, say, GM outright (market cap: $48B) and barely make a dent.
- bearcobra 10y agoI think the whole Apple car rumor is analysts trying to come up with a conceivable way they could spend a large portion of their reserves.
- mikeyouse 10y agoI like Warren Buffet's phrasing as cash is a call option with no expiration date. Standard finance theory is that companies should either invest the cash themselves, or if they can't find good investments, they should return it to their shareholders so the shareholders can deploy it elsewhere. However if the management of these companies thinks that the ultimate return on the cash they hold will be greater even given the time value of holding a zero-return investment for years then it makes sense to wait to deploy. I happen to think they're wrong and that they'd be better off returning most of the cash to their shareholders but that's for the respective boards to decide.
- vessenes 10y agoThere is a real weight of gravity around that much cash. I would guess the returns of having 10x the cash of your nearest competitor, and publicizing that fact exceeds T-bill returns for instance.
- mikeyouse 10y agoYeah true, and Apple's "Cash" isn't just cash but likely includes tons of government debt and other low-risk securities that return somewhere >0. They have an exceptional treasury team, which probably my favorite fun fact about Apple, operates a separate company called "Braeburn Capital". Article about their cash woes when they "only" had $120B to invest: https://www.theguardian.com/business/2012/oct/26/apple-investment-manager-braeburn-capital https://www.theguardian.com/business/2012/oct/26/apple-inves...
- bduerst 10y agoApple was an outlier in this sense, because for the longest time they were sitting on a mountain of cash. They ended up paying part of that out as dividends when Cook became CEO.
- robbiemitchell 10y agoSomething I don't understand: why would a company ever return cash if they don't have to? Isn't it better to have it than not?
- Shivetya 10y agoYet according to the article the vast majority of their holdings are trapped overseas because of onerous taxing principles, the US being one of the nations to tax companies for profits regardless of where. Of course with this much overseas and its increasing value how much must be stashed before you exceed the value of the company in question. On a completely different tangent, how much does it take to intimidate your competition to nothing in fear you are waiting to jump?
- wrong_variable 10y agoI understand their motivation - just like I understand Hitler's motivations. Hoarding cash is extremely bad from a macro-economical standpoint. The govt should be alarmed of this type of development. There is a reason why we need 2% inflation - it is to push people with money to spend it or risk loosing its value. Its what keeps the economy churning and keep people employed. This massive cash hoard is essentially one entity holding on to all the gold in the kingdom - resulting in deflation in the rest of the economy. These companies are waiting for a disruption, and will just use their cash hoard to buy the company that threatens their monopoly ? How is this not a massive issue of anti-trust ?
- partycoder 10y agoGodwin's law kicked in again. I am impressed how it makes its way into every discussion.
- HillaryBriss 10y agoadditional benefit of inflation: it makes existing debts easier to pay as time goes on, thus reducing the probability of a default (or a large collection of simultaneous defaults). that is, a small positive inflation rate is good because it means we aren't having deflation, which makes debt harder to pay off.
- HillaryBriss 10y ago> it is to push people with money to spend it or risk loosing its value. and yet, what these big, very smart companies are doing is not investing. they're just sitting on it. it seems a positive inflation rate, as an economic growth strategy for a nation, can only do so much. it's also helpful if companies and investors actually see some enterprises or industries worth investing in, or worth creating from thin air, in the current economic environment.
- kilroy123 10y agoI'm very worried those next big things aren't coming. If they do, they'll come from China and not the US. Why? The low government spending on R&D, from the US. So much technology came from government R&D. I just don't think private R&D is enough for the "next big thing".
- stellazhiu 10y agoWhen I hear the phrase corporate profits, I think of the fact that they aren't really profits at all. According to a UN report, the amount of environmental damage the companies caused is on par in dollar terms than the profits they made. They just exchanged something for something else, except that the global population has to eat the losses in the form of pollution. Nothing is free in this world unfortunately, not even corporate profits. http://www.theguardian.com/environment/2010/feb/18/worlds-top-firms-environmental-damage http://www.theguardian.com/environment/2010/feb/18/worlds-to...
- foobar2020 10y agoWithout disagreeing that some portion of global profit comes from "taking things from the planet", do you think that all the value we've created since emerging from Africa somewhen between 50.000 and 100.000 years ago can be compensated with environmental damage? Or is it a recent trend? If we were to plot a graph, where the X axis is the time and the Y axis is profits/damage, how would it look like? What about mathematics, arts and science? It sure has incredible value and eventually translates into corporate profit. For the most part I cannot see the corresponding environmental debt. And to be more specific: what kind of damage did the three mentioned companies do?
- ikeboy 10y agoThat's not what your link (quoting an unpublished study) claims: "The figure equates to 6-7% of the companies' combined turnover, or an average of one-third of their profits"
- coderholic 10y agoThat might be the case for some companies and corporate profits, but certainly not all or even most. To give one example, Facebook's profits in 2015 were almost $4 billion. They share their carbon footprint details, and other environmental impact details at https://www.facebook.com/green/ https://www.facebook.com/green/. Their environmental impact is small, and their profits enormous.
- sbuttgereit 10y agoYou know when I hear a people speaking like this, I can't help but think about that scene from "The Life of Brian" where the rhetorical question of "What have the Romans ever done for us?!" (https://www.youtube.com/watch?v=ExWfh6sGyso https://www.youtube.com/watch?v=ExWfh6sGyso) It's terribly simplistic to look only at industrialization problems and completely neglect to acknowledge the upsides. Is there pollution and would I like there to be less, sure. Having said that would I want to give up the safety, food security, medical advances, conveniences, etc. that make life worthwhile so that I could live in pristine, untouched nature? Not a chance. I've life is substantially better because I live in an industrialized society and I'll take the pollution so long as it comes with all the good in my life.
- Analemma_ 10y agoIs it apropos on HN to link to cite one's own comment? I made a comment about this a month or so ago that I think is relevant: https://news.ycombinator.com/item?id=11592455 https://news.ycombinator.com/item?id=11592455. Essentially, I think this cash hoarding is motivated by fear, fear of being "disrupted" and becoming the next RIM or Palm or whatever: in a dominant position in year N; dead as a doorknob in year N+3. And this is the toughest kind of fear, because it's perfectly reasonable but can still get pathological when taken too far.
- foota 10y agoMaybe a stupid question, but why doesn't Apple start a vc fund?
- brianwawok 10y agoYou mean like http://mashable.com/2016/05/16/apple-venture-capital/#6eTxK0DTQgqm http://mashable.com/2016/05/16/apple-venture-capital/#6eTxK0...
- jedberg 10y agoEven a VC fund would have a hell of a time investing that much cash. The biggest VC funds are "only" in the single digit billions per fund.
- vlunkr 10y agoThey don't need it?
- aianus 10y agoDefine 'need'. I assume the average VC fund returns more than treasuries or nobody would do it. They could even give the companies they invest in preferential treatment at Apple (instant iOS approvals, secret APIs, whatever) to give them a competitive edge.
- dpc59 10y agoall the very rich people don't really need to keep investing
- WildUtah 10y agoThe US tax code heavily punishes companies that hold cash in a variety of ways. The motive is to subsidize banks by requiring companies to rely on short term debt for operations. It's the biggest and most lucrative of subsidies for the banking industry and laundering such subsidies is how many bankers get rich. For instance, Mitt Romney made his money that way. (The main tax code subsidies here are the business interest loophole and the accumulated earnings tax) Usually a big company holds almost no liquid assets and hands profits out to bondholders and shareholders or invests actively to grow, even in unrelated businesses. That's to avoid tax penalties. Apple, Google, Microsoft, and the like are holding masses of cash outside the USA. Gridlock in Washington and a stagnant and irrational corporate tax code make it very hard to bring cash home to invest for American companies. Therefore you find tech companies with few overseas expenses exporting services and accumulating cash they can't bring home. (The main tax issue here is the non-territorial tax system in the USA. All other developed countries have a territorial system.) Other countries can see this is a problem that kills jobs and wages at home so they don't do it. Obama has tried to fix it and Trump's main tax proposal is aimed at it, but both parties in Congress block change. Republicans don't want to hand Obama a victory and would rather hand out goodies to donors with loopholes than simplify taxes and Democrats just want to punish profitable multinationals even if it kills jobs. And Wall Street is very mercurial with credit for tech companies, especially growing ones, so they can't rely on the banking subsidies. The result is that tech giants are the only companies with a reason to accumulate cash so they overwhelmingly are the only ones that do so. In summary, this is a government regulatory policy that creates cash rich tech companies. It's a result of bad decisions on Capitol Hill, not on Wall Street or Sand Hill Road. It is not a stock valuation or corporate strategy issue.
- johnchristopher 10y agoIs 'tax penalties' the official name ?
- WildUtah 10y agoNo. I used it to mean paying high and unnecessary tax assessments.
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- gozur88 10y agoI think Occam's razor applies here: It's not that management teams have big plans for the money, or that they "believe that something big is coming, but... they’re not sure what it will be". It's that they don't know what to do with the money and there isn't much pressure to disburse it. Cash hordes are reflected in the share price, so investors can monetize the cash by selling a few shares. If you're a "buy and hold" investor you don't want a dividend because that's a taxable event.
- beezle 10y agoOnce again the boatloads of cash story rears its head. Except that the figures stated are inflated, most certainly in the case of Apple who already spent a good amount of that cash by issuing debt to pay for dividends and stock buybacks.
- MrMullen 10y agoWhen a company like Apple has $200B in "cash" overseas, where do they put it? I mean, is there literally a giant vault of physical cash or gold somewhere or do they buy 6 month T-Bills or just put it all in a private bank? BTW: $200 billion in $100 bills weighs 2,200 tons.
- rmah 10y agoMost of Apple's "cash" is in various securities. If they follow the typical pattern, the vast majority will be US Treasuries and other sovereign debt. Apple has "only" $11 bil in cash & short term debt. Of the cash portion, the vast majority (99.9%+) will be in bank accounts. Most money in the world is electronic, not paper :-)
- xenadu02 10y agoIt is all a legal fiction. The money is deposited with banks in NYC, so it's all here in the USA. Legally it is deposited in the accounts of "Apple Ireland", "Apple China", etc even though those subsidiary companies are wholly owned by Apple Inc, a US company. To be clear I'm in favor of a lower corporate tax rate and making up the difference in taxes on those worth >$10 million. Money sitting idle in bank accounts doesn't even do any good for the "capital" part of capitalism, let alone put money in consumer's pockets. It represents a sink, reducing the amount of money available to the rest of the economy. (A separate issue is the fact that accumulating money into corporations or the top 1% of individuals is bad for the economy as economies function on consumer spending, either external or internal. You get much greater leverage by taking money away from them and giving it to consumers, who will immediately spend most of it and ultimately putting it back into corporate/1% pockets anyway. The ultra-low taxes and stagnant wages in the US are a form of killing the golden goose).
- munificent 10y ago> I'm in favor of a lower corporate tax rate and making up the difference in taxes on those worth >$10 million. Doesn't that mean that each rich person would just start a tiny personal "corporation" that owns a lot of very nice things and gives its one employee free access to the company car, yacht, mansion, etc?
- microcolonel 10y ago>Excluding the energy sector, tech comprised 40% of non-financial free cash flow in 2015, similar to the 42% average since 2007. This writeup is a bit sensationalized. They try to argue that "tech" is the biggest by ignoring the actual two biggest. This is like arguing that men are the majority population, 100% of the remainder after women.
- igravious 10y agoWell, what are the numbers for the others sectors: energy and finance? Would like to know for the sake of comparison.
- microcolonel 10y ago>Excluding the energy sector, tech comprised 40% of non-financial free cash flow in 2015, similar to the 42% average since 2007. This writeup is a bit sensationalized. They try to argue that "tech" is the biggest by ignoring the actual two biggest. This is like arguing that men are the majority population, 100% of the remainder after women.
- chirau 10y agoI am curious as to how links on HN work. I am certain i posted this very link two days ago. Does HN now allow multiple posts of the same link?
- lukevers 10y agoYes. I'm on my phone so I can't find a link right now, but I've seen multiple people mention that it's OK to re-post until it hits the front page. Sorry for the lack of sources.
- bcheung 10y agoWhat is meant by cash in this context? I'm assuming a lot of it is invested in financial vehicles with varying degrees of risk and liquidity? It's not just sitting in a savings account earning 0.01% interest, is it?
- HappyTypist 10y agoThe cash is sitting in a bank account in NYC under the name "Apple Ireland" or "Apple China", or invested in US stocks, bonds, etc with US brokerages, or lent to "Apple Inc" with corporate bonds.
- bahmboo 10y agoSo those 3 could cover federal spending for almost 2 weeks.
- ksec 10y agoAs someone not an US citizen, it is because US are running into 2016 election that we have to be constantly reminded by the media there are lots of US companies holding huge amount of cash overseas? The amount of these article popping up is just getting silly. And yet not a single one has proposed a (fair ) solution to the problem / US Tax Code. Everytime I just end up skip read the article or go straight to HN comment for some of the best thoughts around.
- known 10y agoOne more reason why I endorse https://en.wikipedia.org/wiki/Basic_income_around_the_world https://en.wikipedia.org/wiki/Basic_income_around_the_world
- bogomipz 10y agoDon't share holders want some of this money back? 200 billion in cash just sitting there is not doing anyone much good.