14 ms·

Apple's cash hoard swells to $246B

293 points by jgrahamc 10y ago

wtfishackernews 10y ago
Excuse my potentially dumb question, but what is the point of hoarding cash like that? would it not be more useful to reinvest it?
- manmal 10y ago
  Only if you know how. Burning cash in a bonfire won't do Apple good. Shareholders and the market in general would not approve of money-losing follies. But I think if they really get serious about building cars, they can make good use of some of that money in order to quickly scale up. Where Tesla has to raise billion after billion to ensure they are not running dry, Apple could just use up reserves.
  - mars4rp 10y ago
    Or they could just buy Tesla, but it is so overpriced.
    - throwaway55523 10y ago
      Expensive for the business, yes, but it would be worth it for Apple to acquire a new visionary CEO. Of course it won't and can't happen, but one can dream.
      - valuearb 10y ago
        You can't acquire Elon Musk. First, he's not going to be happy losing his independence. Second, to buy Tesla you can't just pay todays absurdly high price, you have to pay so much higher to convince virtually all of the non-Musk shareholders to vote for your offer. And if you "win" that auction, Elon will probably just devote even more of his time and energy to SpaceX.
        srtjstjsj 10y ago
        Apple "acquired" Jobs from NEXT. they can do it again with Musk
        zepto 10y ago
        Wrong - Jobs reacquired Apple with NeXT.
        valuearb 10y ago
        Apple never "acquired" Jobs. Jobs asked Apple to buy NeXT. When they did, he explicitly refused to return as an employee. He only changed his mind laster because they were such a mess and he had an emotional commitment to Apples success, because he founded them. And at the time, he only had one other major interest, Pixar, and it was mostly run by the Pixar folks, Jobs wasn't writing or directing movies or developing animation technology for them. Purchasing Tesla is almost certainly a hostile takeover at an insane price tag. Elon Musk has no need of money or to sell the business, his highest priority is to be able to run it without being told what to do by anyone else. Elon Musk has no emotional connection to Apple, but has a huge one to SpaceX, which he is super actively involved in all strategic planning. Tesla would be a terrible acquisition and there isn't enough money in the world to convince Elon to let Tim Cook be his boss, and to spend his time designing phones and computers instead of rockets and electric cars. If Apple won the takeover bid, Elon would cash out his shares and pour the money into SpaceX and new businesses, and tell Apple to kiss his ass.
  - del82 10y ago
    One question I have about Apple is: why should they want to build cars? Or anything else, really, except phones and computers and possibly other personal electronics? Why shouldn't they stick with what they're good at, invest their cash in that business when they can, and when they can't then either return it to shareholders or hire a portfolio manager or ten to invest it elsewhere? People often criticize Twitter for trying to be Facebook instead of just being Twitter. Why shouldn't Apple just be Apple?
    - mikhailt 10y ago
      They already are, you have to understand, they're practically printing money with the iPhones. They are capturing more than 90% of the market's profits for high end smartphones. They are not sitting around doing nothing. They cannot just print new innovation every year, it doesn't work like that. The problem will be when the market is fully saturated and people start upgrading every 5-10 years instead of the current 2 years.
      - ghaff 10y ago
        Furthermore, I have no doubt that Apple has people doing work in all sorts of adjacent markets like AR, VR, more wearables etc. But the consensus seems to be that it's going to take a lot of things coming together for true mainstream products in AR for example. And for better or worse releasing effectively a version 0.6-type product to test the waters just isn't Apple's style (at least deliberately).It's not just a matter of no company has invested enough money yet.
      - valuearb 10y ago
        I don't think saturation is a problem. You can't get silk from a souse ear, or something like that. Apple's growth rate will continue to slow, but as long as it maintains it's competitive position it will still be very profitable and a good investment. The Buffett investment (actually his sub-managers did the investment I'd bet) is an example of Apple gradually becoming a more attractive investment to value investors as it gradually becomes a worse investment to growth investors.
    - 10y ago
- moomin 10y ago
  Truth is, this kind of money is already being "reinvested" by the treasury function. What isn't clear is what on Earth Apple could do that would cost that much money and generate Apple-like returns. The obvious solution to this is to cut out the middle-man and just return a good chunk of the cash to shareholders. But that never happens because reasons.
  - Jtsummers 10y ago
    This cash reserve is a large reason Apple started paying dividends several years back. A large portion of this is also overseas and they want to bring it back to the US without the present tax obligations.
- deleted 10y ago
  [deleted]
- penpapersw 10y ago
  The article implies that Apple would take too big of a tax hit by doing so, to the point where it's better to wait until the laws change to make it more profitable for Apple to do so.
- mariodiana 10y ago
  Technically, it is being invested. The money isn't kept in a big pile under a giant iMattress in Cupertino. Whatever holdings Apple keeps the money in is earning some interest, dividends, or whatever. "Cash" here only means something like "readily convertible." But, "hoarding" here means that Apple is neither directing investment directly, nor returning the money as dividends to its stockholders, right? I'm guessing the reason is because Apple is investigating future business opportunities which may require deep pockets. In other words, it's possible Apple is involved in exploring some future, highly speculative investment in a new industry, so that they can be "the next Apple" in some economic venture other than phones, tablets, and desktops. Just to take one example: developing, producing, and marketing a self-driving car will cost a bundle. And, who really knows what Apple is up to? It's fair to say they may have many pokers in the first right now.
  - Eric_WVGG 10y ago
    The money is mostly in Braeburn Capital, I believe. https://qz.com/393093/the-mysterious-fund-in-the-desert-that-manages-apples-cash/ https://qz.com/393093/the-mysterious-fund-in-the-desert-that... [edit: better source]
    - jpalomaki 10y ago
      From the linked article: "Braeburn is a variety of apple that is simultaneously sweet and tart."
      - smcl 10y ago
        I was always confused that it's not an apple of Scottish origin - "Brae" is scots for "hill", and "burn" is scots for "little river"
        jdminhbg 10y ago
        It was first cultivated at an orchard in NZ called Braeburn which is almost certainly named after a Scottish person or place. https://en.wikipedia.org/wiki/Braeburn https://en.wikipedia.org/wiki/Braeburn
- kolbe 10y ago
  If they could reasonably put that investment to use, that would be a fine thing to do. But Apple doesn't really have the same philosophy as Larry/Sergey and Zuckerberg do towards throwing money at any idea that has the slightest bit of potential. They want to see a legitimate and probable chance of success in their investments in addition to a synergy with Apple would enhance the investment or Apple itself. It just so happens that there aren't really hundreds of billions of dollars worth of such investments out there. So, instead, Apple tries to return that money to its investors. Unfortunately for that plan, if Apple were to give that money back to investors, it would incur a massive repatriation tax, so it instead sits overseas, "waiting" for a tax holiday.
- mikhailt 10y ago
  Reinvest in what exactly and in a way that would return money back? Apple has suffered through the tough times in the 90s where they almost went out of business. Having that much money means Apple can take greater risks and still suffer through multiple failures. The biggest problem is most of that cash came from iPhone revenue and if you remove that, Apple doesn't have much breathing room to take the same amount of risks. Apple is currently placing a bid for Tosibia's memory business that could cost up to $30 billion dollars.
  - macspoofing 10y ago
    A cash horde isn't very helpful if your business is tanking. It prolongs the pain but doesn't fix anything. Ask Yahoo.
    - mikhailt 10y ago
      Nor does investing pointlessly or burning the money. Nothing is a sure fix for tanking businesses. Yahoo didn't do anything to help themselves, there's nothing innovative or useful about them. Google, Facebook, Twitter, Instagram is what is draining the life away from Yahoo.
    - thanksgiving 10y ago
      > A cash horde isn't very helpful if your business is tanking. It prolongs the pain but doesn't fix anything. Ask Yahoo. I was (in hindsight, correctly) skeptical of MM and her gang's effort to pull more eyeballs into Y! with things like Tumblr and in smaller extent bringing in people like Katie Couric and David Pogue. Personally, I don't know what Yahoo! is and that makes me hard to tell whether they're doing the right thing at all. As much as we love to hate MM, I don't know if any of us could do any better. Apple, I sort of get what they are. They are a hardware company that (at least presently) sells phones for $800 that has a bill of materials of about $250. They can use the rest of the margin to make the phone as appealing to consumers as possible. Everything else is a side show. (sorry mac fans) Now where does Apple go from here? I think about the narrative in the iPhone ten year anniversary podcast (listened to it because it was on the front page of HN so thanks to whoever submitted it) that Apple had to cannibalize its iPod business and started thinking about at least two years before the iPhone was released. Unpopular opinion but I think it is unlikely that Apple will get the next big thing right. I don't think self-driving cars will not be a high margin business. Yes, I want electric cars and self-driving cars to become mainstream because I want one for myself. There's no way I will buy a $60k+ car in the next five years. But I digress. Like what I read from what GP said, I think Apple will likely fail not once but multiple times. It is easy to forget the bad old days: > Since then there has been a lot of noise and shouting, but little has changed. The smaller dealership continues to sell sleek Euro-styled sedans and to spend a lot of money on advertising campaigns. They have had GOING OUT OF BUSINESS! signs taped up in their windows for so long that they have gotten all yellow and curly. The big one keeps making bigger and bigger station wagons and ORVs. from in the beginning was the command line by neal stephenson http://cristal.inria.fr/~weis/info/commandline.html http://cristal.inria.fr/~weis/info/commandline.html
- macspoofing 10y ago
  >would it not be more useful to reinvest it Or return it to shareholders via dividend or share buy-back.
- pipio21 10y ago
  Well, it is. Most of this money is stored on things like multi billion factories manufacturing exclusively for Apple. For my company we went to some of them, and you get the impression of being on a huge manufacturing Catedral. Apple has a scale nobody in the world has, and I am used to see lots of factories, from cars' to refrigerators's manufacturing places. If this money figures as cash it must be only for fiscal or "not telling your competitors how you do things" reasons, but this scale exerts an enormous pressure over suppliers.
  - krzyk 10y ago
    Really nobody has the scale that Apple has? Do they make ships like Samsung? Where does Apple make cars?
    - valuearb 10y ago
      There was an article that claimed Apple bought so many aluminum milling machines at one point that it was almost impossible for competitors to get their own to make aluminum cases in any volumes. That's years ago and possibly apocryphal, but Apple does have some some big economies of scale in certain key points of manufacturing their products. They tried to do same in Sapphire but that one didn't work out.
- ryanSrich 10y ago
  1998...2008...201...See the trend? Always have cash and assets on hand.
- jcfrei 10y ago
  I've read somewhere that this is somewhat unprecedented in the history of economics. Traditionally hoarding cash was frowned upon by investors and the stock prices of companies with large cash reserves traded at a discount. That negative discount by the stock market appears to have vanished but nobody is sure why. Maybe it's regarded as an insurance against technological disruptions. In such a case companies like Apple could quickly acquire new competitors.
  - pg314 10y ago
    Apple is trading at a discounted P/E compared to Nasdaq as a whole, and has done so for years. They have caught up a bit in the last couple of months, though. I'm not sure it's because of their large cash reserves, but it might be a factor.
- ChuckMcM 10y ago
  There isn't a 'point' exactly. Typically companies hold cash or cash equivalents to write checks against when they are either expanding or buying material that will later be sold. So if you're a company building widgets you need parts for the widgets to build them before you have sold them to get the money. Some companies will use a line of credit for that, others will use cash. An interesting comparison here is IBM. Like Apple, IBM's operations generated a huge amount of cash in the early days. Way more than they needed to run the business. As a result IBM bought real estate. They bought up large parcels near cities and transportation hubs and office buildings etc. In the Bay Area you can see their Almaden Research center, an example of some property they bought in the 60's. When IBM lost their way in the 90's and it was looking like they were toast, they survived by selling off a lot of that property and living off the proceeds. Apple could conceivably operate for 15 to 20[1] years off just their cash on hand. That said, given today's market rates for cash (under 2% and sometimes even negative), almost anything that wasn't completely stupid would likely give them a better return. And that is something of a conundrum for economists who are wondering why all these companies are sitting on so much cash. It really depresses an economy when there isn't enough cash running around in it to operate it. Then 'what should they invest in'? Is a solid question. I felt they should build a web crawler/search engine, dump the last dependencies on Google for their destiny. But clearly they are looking at self driving cars (see the story about getting a permit to test in California) they are developing CPUs (they could create an actual semiconductor subsidiary if they wanted). And then there is the challenge of 'where' the money is. First and foremost a number of people would argue that the 'cash hoard' consists in no small amount of unpaid taxes, which is to say taxes that have been avoided through a variety of legal schemes from being paid to the governments of the territories where they do business. And that argument is bolstered by the fact that Apple doesn't move cash around in order to avoid taxes on it (the whole repatriation thing). On the one hand if the governments give up their claim on any taxes owed, then Apple is free to collect the money into the jurisdiction where it can be invested most profitably, on the other hand there are civil servants who would really like to get their hands one some of that cash[2]. Bottom line is that there isn't a point, but various conditions have made holding cash the default choice. [1] Their cost to operate would go up as they were non-profitable but their headcount could go down if they weren't in product production. [2] And in many cases the governments believe it to be 'owed' even if there is no legal statute that states that.
- CriticalSection 10y ago
  Industrial capacity utilization is currently less than 76%, which is historically low. So about a quarter of invested capital is sitting idle currently ( https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath=/files/docs/publications/ERP/2012/2012_erp.pdf&start_page=378 https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath... ) ( https://www.federalreserve.gov/releases/g17/revisions/Current/table1b_rev.htm https://www.federalreserve.gov/releases/g17/revisions/Curren... ). Why tie up money in new capital expenditures when about a quarter of existing capital is sitting idle? Ben Bernanke referred in 2005 to a "global savings glut". The conditions which led to that haven't changed much over the past 12 years. Gross domestic private investment, fixed nonresidential investment increased 2.8% between 2004 and 2014 (I exclude investment in fixed residential structures as that plummeted by 4.9% in that time frame). Computers and software was the sub-field where investment increased the most, by 6.1% a year ( https://www.bls.gov/emp/ep_table_405.htm https://www.bls.gov/emp/ep_table_405.htm ). Whereas from 1994 to 2004, gross private domestic investment increased at a rate of 5.5% a year. Computers and software investment increased at an average rate of 26.5% a year between 1994 and 2004 (ref: same link). You have to measure investment against GDP and profit rates as well. In short, Apple is doing what a lot of people with liquid capital are doing, holding onto it.
  - badsock 10y ago
    Genuine question: given this, am I correct in thinking that if there was a big corporate tax cut the most likely outcome is that the money retained would just further inflate this savings glut?
    - valuearb 10y ago
      Cutting corporate tax rates long term increases the incentive to invest. So the savings turns into capital investment, new jobs and higher productivity and wages. Cutting one time brings back lots of capital to invest, lots of that will be paid to shareholders, who will spend some and reinvest some. With similar effects, for that year.
      - badsock 10y ago
- PeterStuer 10y ago
  The 'financialization' of our society has turned a lot of companies that you still associate with producing goods or services into de facto investment and speculation firms.
matt_wulfeck 10y ago
They're smart to wait for a more favorable tax environment for repatriation. It really is backwards that we tax money returning to the United States so aggressively. It's greatly in our interest to bring that money home.
- iloveluce 10y ago
  It makes me think why companies haven't hired lobbyist that convince Congress to pass some sort of repatriation bill. It would pay itself in a month
  - arikr 10y ago
    What makes you think they haven't already hired lobbyists for this?
  - pjc50 10y ago
    There is occasional talk of a tax amnesty that would bring the money back.
    - stale2002 10y ago
      Thats a doubled edged sword. The whole reason why companies keep money overseas is because they are waiting for a tax amnesty deal. But if they knew that no tax deal was EVER coming, then they'd be more willing to bring it back over.
      - valuearb 10y ago
        Even better would be if we just dumped the US Corporate income tax, it's essentially a tax on investment and reinvestment. Not only would all of the money would come back but more of it would stay here. The profits will still get taxed when paid out as dividends. But right now we have high corporate rates. We double-tax the profits with an average rate of around 50% when paid out as dividends (whether you are in the lowest or highest bracket, little difference). We single-tax reinvestment of the profits at around 40% with state income taxes included.
lobster_johnson 10y ago
There was a brief window, back when Apple started taking off post-Jobs, when their pile of money put them in danger of a hostile, leveraged "bust-up" takeover -- i.e. an outsider could buy the company with borrowed money by using Apple's assets and cash flow as collateral. I always found that idea fascinating. Of course, that moment passed pretty quickly.
- lilbobbytables 10y ago
  Why isn't that still a concern?
  - afthonos 10y ago
    The idea was that they would borrow enough money to buy a majority of Apple's stock, and then repay the loan with the cash reserves. For that to work, the cash reserves must be close to half the value of the company. Since Apple's market cap is now $790B, half the value is $370B, which means that even with the cash reserves, they'd be $123B short of being able to repay, and they'd need it available on day one to execute the hostile takeover. And like they say, $100B here, $100B there, soon you're talking real money.
    - valuearb 10y ago
      Apple has also taken on debt since then, needed it to fund dividends since most profits trapped overseas. Also any acquirer still has to pay the taxes on repatriating those overseas profits if they want to use them in the acquisition. Given effective tax rates (US + CA) over 40%, they can only use barely more than half the overseas profits. Essentially Apple's available cash is much less than it appears.
      - _pmf_ 10y ago
        > since most profits trapped overseas. That's certainly one way to put it.
  - micv 10y ago
bookbinder 10y ago
$246B is more than a "rainy day" fund. Unless they are planning to buy Disney or a small country, they should return some of that money to their shareholders. They could pay out half of their fund and still make do with $123B in the bank.
- pg314 10y ago
  The $246B is misleading: it doesn't count the $79B they raised in debt to finance their capital returns. They are returning a lot of money to their shareholders: through dividends and share buy-backs. They plan to have returned $250 billion in capital to the shareholders by the end of march 2018. They are also partly limited in their options: most of the cash and equivalents is stuck abroad, and subject to a 35% tax if repatriated to the US. It doesn't make sense for their shareholders to repatriate that money if a tax holiday (which means they would pay around 10% instead if history is any guidance) is very likely in the near future. In the mean-time they can borrow to finance the capital returns, but it would be unwise to overdo the borrowing.
israrkhan 10y ago
Apple Is reportedly planning to bid for Toshiba semiconductor business unit. Perhaps they would also want to control critical parts of their supply chain. They can use this cash to acquire foreign companies. I do not expect them to bring this cash back to USA without a major tax break. Perhaps that is what they are waiting for.
pokemongoaway 10y ago
Invest in R&D you fools! Make a laptop to appease power users, many of whom work for you! Capture our imagination instead of kowtowing to mainstream desire for each product design!
- mikhailt 10y ago
  Yea, that's why they're still selling more MBP than before and their R&D are increasing by billions every year. Sorry, power users are very small # of users. Making a laptop to appease power users will do very little to the bottom line.
- NotSammyHagar 10y ago
  Yeah, they sure look like they can't decide what to do with their riches. It's sad. Put money toward self driving car tech if you wish, you have so much to waste. But where are your awesome next gen laptops, why nothing like a chromebook, why their disasterous desktop machines (the coffee warmer form factor, what where they thinking). The apple watch. The majority of professional devs use apple laptops because they are a great selection of tools and nice ui with unix tools. They can't build off that?
  - valuearb 10y ago
    Somehow despite their "disastrous desktop machines" and disappointing laptops, they are the highest revenue PC manufacturer in the world and make more profits making PCs than the rest of the market combined. And somehow they only sold $6B in Apple Watches it's first year, not only making it the most successful watch launch in history but the best selling watch in the world by revenues. Imagine if they'd only invest more!
    - jacquesm 10y ago
      But that money is not made on PCs, it is mostly made on phones and tablets. Q1/17: 80M iphones, 10M+ ipads, 5M Macs. And margins on phones and pads are higher than on PCs too.
heifetz 10y ago
this is an article from Jan 31st!
- jasongill 10y ago
  I thought the same thing - "wow, they really haven't added much cash this quarter" - nope, this is just an old article
mongol 10y ago
With that kind of cash, would it make sense to start a bank?
- RivieraKid 10y ago
  No, they would not benefit from that.
- homakov 10y ago
  Banks is 99% regulation and paperwork and 1% account table. They won't be around long enough this way to be interesting for Apple.
zackmorris 10y ago
That's 2.5 million startups that never saw the light day, at $100,000 a pop. When I was in my 20s and hungry to change the world, that would have been FU money for 5 years. It occurs to me that the problem isn't wealth inequality, but opportunity cost. If you subscribe to the corporate ethos, life is fantastic right now. But if you don't, then you're likely struggling to make rent. Large multinational corporations are standing in the way of progress in a way not seen since the gilded age. P.S. I like Apple and have always owned a Mac. This is not directed solely at them, I just think that this is not the progress we're looking for.
- pavement 10y ago
  Large multinational corporations are standing in the way of progress in a way not seen since the gilded age. Hmmm, I understand the sentiment, but geeze, how I cannot agree with that statement. Yes, operating within confines of someone else's corporation, or beneath the general corporate regime in general, is stifling, and you, yourself, and I, myself, are unlikely to benefit as handsomely as those whom are in control of the corporation or their regime. But I wouldn't say progress-in-general is being held back by large corporations. I also wouldn't say that Apple locking up 250B in a bank account represents them withholding the freedom of others to operate, by blowing that kind of cash frivolously, and putting it back into economic circulation. I'd say it's their windfall, and they've clearly been saving up for the next big leap they're about to take. If anything, progress is moving right along at kind of an insane pace. Almost too fast. Kind of too fast. I get that certain avenues of progress have been held back, and one might draw a correlation between internal combustion and leaded gas in the 20th century, and file sharing and proprietary software in the 21st century, but these examples are narrow in scope. When you step back, look at the whole picture, and take the way things are today, and hold that up, next to the way things were 20 or 40 years ago, the differences are kind of shocking. Things are radically different, showing drastic changes between each generation. Sometimes I think if we went faster, everything would burst into flames just from the ambient friction of social upheaval incidental to rapid change.
  - psyc 10y ago
    But progress is relative, and it may be that the potential is far greater than what it is. We don't know, because most people aren't allowed to try things. And that isn't merely what money represents, it's what it is. Money is allocation. Those that have it literally decide, broadly, what gets done and what doesn't get done.
throwawaybug 10y ago
They should buy Uber and Tesla. Both are in markets that shouldn't trigger antitrust concerns. Apple has a patent portfolio that would make the waymo lawsuit go away. Apple would get revenge on google for dicking it over with android vs the iPhone. It would acquire visionary leadership (Musk and Holden) and pragmatic/effective gets things done leadership (Kalanick). Musk+Kalanick = Steve Jobs. These two acquisitions would give them the car manufacturing, self driving car talent, and the market in ridesharing. SpaceX also makes sense since they have plans to put 4000+ satellites up which would erode the only other advantage Google has, which it it's network.
- ceejayoz 10y ago
  I doubt Musk would a) sell Tesla or b) come along with it. Kalanick is the sort of walking PR disaster Apple's good at avoiding hiring.
- jonthepirate 10y ago
  Why would you buy Uber if you can get the same thing for 1/10th the price in Lyft? People actually like Lyft.
  - throwawaybug 10y ago
    If you think Lyft is the same thing for 1/10th the price, then you're blinded by your distaste for Uber. Uber is global in scope. Uber is well ahead of Lyft in terms of getting control of their losses (IIRC from leaked financials from both companies, Lyft is losing money at more than twice the rate as Uber and Uber is closing the profitability gap faster). Uber serves many more markets such as food delivery and freight, so there are more growth opportunities. Uber is doing a ton of R&D in the self driving car space and has a lot of the talent in the market. Lyft is basically just copying Uber's lead. Once you get past the few vocal outrage culture people, lots of people like Uber too. Basically Lyft is a plaything that only looks the same as Uber if you only consider the US market and picking up and moving people. Even then, it's a distant number two.
    - 10y ago
happycube 10y ago
It's amusing that literally 20 years ago, Apple was a bit cash-strapped and got a $150m investment from Microsoft...
- newbeee 10y ago
  And was at an interesting point 10 years ago too: https://news.ycombinator.com/item?id=14121752 https://news.ycombinator.com/item?id=14121752
- IBM 10y ago
  Charlie Munger had something to say about that. https://www.youtube.com/watch?v=Ownc_LP3t08&feature=youtu.be&t=6m57s https://www.youtube.com/watch?v=Ownc_LP3t08&feature=youtu.be...
  - nodesocket 10y ago
    I'm headed to the Berkshire shareholder meeting for the first time in May, super excited to listen to Warren and Charlie impart their wealth of knowledge.
  - sumedh 10y ago
    I have not seen this video of Charlie Munger, thanks for sharing. Watching all the parts now.
- brogrammernot 10y ago
  One could make the argument that without apple, M$ wouldn't have achieved as much. Less competitors, less focus on initiatives and innovation. You could argue that part of the reason that Apple hasn't been that innovative the last few years. There's no one company really doing any amazing in their bread/butter of smartphones.
  - nebabyte 10y ago
    An idle king
- 10y ago
breatheoften 10y ago
What possible reason could Apple have to repatriate their cash hoard (even with a tax holiday?) They don't manufacture anything in the us -- do they need those kinds of billions to hire more software developers in Cupertino -- that seems pretty unlikely to me. Do they need it to build more US apple stores (nope they've got that covered). They are already paying a dividend with free cash flow from their US business ... I can't imagine why they would ever want to "increase investment" in the us vs the many far more productive things they could conceivably do by spending that money outside the us ...
- sparkzilla 10y ago
  If they don't need it, they should return it to their shareholders.
  - arrrg 10y ago
    The argument here was about not needing the money in the US (but possibly investing it elsewhere on the planet), not not needing it in general.
  - melling 10y ago
    That's not what Warren Buffett would do: http://www.businessinsider.com/warren-buffett-on-dividends-2013-3 http://www.businessinsider.com/warren-buffett-on-dividends-2...
    - valuearb 10y ago
      Buffett is running an investment company. The day Berkshire Hathaway can't do a better job of earning long term returns than it's shareholders can, is the day it no longer justifies it's existence. There have certainly been times where Buffett has struggled to find good investments, and in the short run a dividend might have seemed wise. But those times always pass and letting cash pile up until opportunities arise has worked very well for him. Apple isn't an investment company. They are a consumer products company. Their new product ideas should not require large amounts of capital. Even the silly car idea should never get more than $10B or so in funding until it's proven, which is mice nuts in their grand scheme. So they should return excess capital to shareholders. The only limiting test is how much is 'excess'. Tim Cook is likely being very conservative, but in the future if Apple has to ride out some bad years, having a hundred billion or so in the bank might prove the difference between success and failure.
z3t4 10y ago
It would surprise me if it's just cash, like literally just laying there. It's probably used to fund startups etc. You should probably be lucky that they are not liquidating it. If it's just laying there doing nothing though, I think that would be bad for the economy, making interests return negatives.
- dmoy 10y ago
  "just cash" has a reasonably specific definition for corporate accounting, and definitely does not include investments in startups. It's gotta be liquid in like <<1yr or something. Also not sure what you mean by "the economy", since the majority of that cash is likely not in one country...
  - z3t4 10y ago
    What I mean with bad for the economy is that $246B not used is $246B in potential being lost, every second, 24 hours a day. With that much money you could care diseases, end hunger, create world peace, etc.
    - dmoy 10y ago
      Yea no arguments here
skdotdan 10y ago
Stock buyback?
- sumedh 10y ago
  Jobs called Buffett and asked what he should do with all extra cash, Buffett said buy it back but Jobs did not listen.
return0 10y ago
Hmmm... how much does a big car company cost?
- drdeadringer 10y ago
  Which big car company?
  - Keyframe 10y ago
    All of them.
- pacificmint 10y ago
  Here are the current market caps of the big car companies. Of course to buy them you'd likely have to pay a premium on the market cap, but it gives you a ballpark: Toyota Motor Corp 174.2B Daimler AG 75.8B Volkswagen AG 71.9B Honda Motor Co Ltd 52.0B General Motors Company 50.0B Tesla Inc 49.5B Ford Motor Company 44.2B Nissan Motor Co Ltd 39.3B Tata Motors Limited 22.5B Ferrari NV 13.3B Harley-Davidson Inc 10.5B
  - return0 10y ago
    thanks ... even more hmmm now .... my bet is on Tesla, with a daimler and ferrari on the side
    - sumedh 10y ago
      I see lot of comments about Apple should buy Tesla but I dont think it will happen. Elon Musk is not the type of guy who will take orders from others which will happen if Apple takes over Tesla.
Animats 10y ago
Even building the Mothership in Cupertino didn't make a dent in that cash. It's supposed to open soon, but it doesn't look finished yet.
CalChris 10y ago
Apple is able to use their Double Irish with Dutch Sandwich strategy because they can employ the army of tax lawyers and lobbyists necessary to keep the government busy. XYZ Company cannot do this. So when you see that the United States has a 35% top corporate tax rate, you need to remember Leona Helmsley's observation: We don't pay taxes. Only the little people pay taxes. That rate would be lower if it were administered fairly. It effectively is lower.
- btian 10y ago
  Isn't it nice that XYZ startup also doesn't make profits, thus pay $0 in tax?
  - a13n 10y ago
    Hmm, no... profits are nice.
  - EpicEng 10y ago
    ... Nice for whom? I'm sure xyz would love to turn a profit.
- valuearb 10y ago
  No it's not effectively lower, it's higher. Apple has to pay roughly 40% because it's headquartered in CA, which has a 8.9% rate. That's the rate it must pay if it repatriates overseas profits, there is little it can do to change that. other than not repatriate. The myth of Apple's low tax rate goes something like this. Let's say Apple makes $10B in profits. $5B are profits of Apple US, and $5B are profits of it's international subsidiaries. Apple pays about $450M in state income taxes on the $5B and about $1.6B in federal income taxes on the remainder (35% of the $5B minus state taxes). It also pays income taxes in every country it has a subsidiary in on the foreign $5B (let's estimate income taxes average out to 20%, or $1B), and ships the remaining $4B to Ireland for storage until such time as US tax rates aren't so onerous. Now someone looks at Apples financials and sees it paid "only" $1.6B in federal income taxes, even though it made $10B! OMG, they shout, Apple is only paying 16%, no one is paying 35%, our tax system is a LIE! But in this example, Apple paid over $3B in total income taxes, or 30%. And if it repatriates the $4B, it will pay another $1.6B in state and federal income taxes for a total tax rate nearing 50%. And this doesn't count all the other taxes Apple pays, from property taxes, sales taxes, VAT, import tariffs, etc, around the globe. The "double dutch" strategy revolved around how much value you assigned to your IP and moving that IP to tax favorable countries. It's no longer legal or used. What costs and profits Apple assigns to subsidiaries is subject to judgement and audit. But mostly it's just a smokescreen to ignore how terrible our corporate income tax system is and it's rates are among the highest in the world. Apple pays a ton of taxes. We'd be better off not taxing corporate income, so one can argue it pays too much.
neom 10y ago
Will they buy: a) a bank b) a car company c) healthcare provider/insurance company :)
- omarchowdhury 10y ago
  With $250 billion, they can buy all 3.
beezle 10y ago
No, it did not swell to 246B. Or are we not counting the debt and other obligations they have issued to pay out dividends and do share buybacks? This has been their game for a while now so to trumpet the asset side in isolation is disingenuous by the press and purely clickbait. (another minor point is that the figure is cash + short and long-term marketable securities).
- pisarzp 10y ago
  It's not NET cash, so it's right not to include debt.
walkingolof 10y ago
Wonder at what point a government would just seize the money, there are few looser compared to what good you could do with the money.....
peterwwillis 10y ago
Weird question: What if Apple folded tomorrow? What happens to the cash? The people? The [global] economy?
- perlgeek 10y ago
  Uneducated guess: first their creditors, then their stakeholders. But how can a company fold and still have money left? Typically if companies stop operating, it's because they have no money left to pay their bills and debts.
5_minutes 10y ago
And still they cant make a 15" laptop with a normal keyboard.
nodesocket 10y ago
I'd love to see Apple acquire Stripe. Let me make a case for why this could be a great addition. 1.) Apple pay. Apple pay has not caught on, and perhaps Stripe could push it over the tipping point. 2.) Acquire Stripe's team of amazing designers, front-end engineers and operations engineers. 3.) Further revenue into Apple's increasingly massive services business The problem is Stripe is crazy Silicon Valley over valued. Consensus is that Stripe recently raised 150M at a 10B valuation. 10 billion? No way! Payments processing is a very slim margin business. From their 2.90% and $0.30, Stripe will make about 1% on average, the rest goes to Wells Fargo. That doesn't seem too bad except that Stripe's total processing volume can't nearly justify that crazy valuation.
aklemm 10y ago
At this point aren't they at risk of thieves (elected officials) conspiring to take huge pieces of that money?
nodesocket 10y ago
Heads up, this is from January. For all negative nancies, if you bought $AAPL on this day (1/31) you'd be up a nice 16%.
intrasight 10y ago
As a stockholder, I consider that my cash. And it saddens me that I can't get to it ;)
Waterluvian 10y ago
What is the endgame of a corporation? Does Apple hold on to $246B because they simply have nothing sensible to use it on and have no need to give it away? How big can a corporation get before the whole system kind of breaks down or governments break it apart?
- akvadrako 10y ago
  This is an interesting question, but I doubt even the people in charge have a clear picture in their head. Maybe corporations will become sovereign entities, with their own citizens and social structures. That amount of money would be a good start for buying counties outright and building a military.
sidcool 10y ago
I would buy a bunch of startups and diversify business. Kinda like Alphabet did. Let there be smaller startups within Apple with funding from Apple. Not sure if they are already doing it.
LeicaLatte 10y ago
Startup idea: Create a country. Setup tax laws so that huge corporations, politicians, business folks can hoard money. Profit.
LeicaLatte 10y ago
Textbook tech depression, often alluded to by industry watchers like Marc Andreessen. $246B in the bank and not able to use it for good.
shmerl 10y ago
It's sad when so much money is hoarded by such a nasty company.
anigbrowl 10y ago
Another year of record corporate cash piles, another year of the same old tired rationalizations for a policy that doesn't make good economic sense but seems tied to the future of the gravy train. I know all the technical and philosophical arguments in favor of doing this, but most people neither know nor care, and their anger is reaching boiling point. Apple won't be the first target, but when enough people are angry enough to take action that's not going to be any comfort. My advise is use it or lose it, because angry people don't make good listeners.
jlebrech 10y ago
they should enter the airliner industry, electric passenger jets or glider jets. and take that worldwide quite quickly.
faragon 10y ago
In my opinion, Apple should buy TSMC (~100 billion) and Qualcomm (~100 billion). It would be a hell of competition for Intel and AMD, now that Moore Law seems to reach its limits.
- kgdinesh 10y ago
  If Moore's law has reached its limits then what's the point of buying them? Apple can do something on its own, the technology of these makers will won't be worth in the long term anyway.
  - faragon 10y ago
    Opportunity cost.
- rodgerd 10y ago
  At that point I'd expect the EU antitrust (and, in a sane climate, the US ones) to be all over that.
  - faragon 10y ago
    Why not? E.g. both Samsung and Intel already have that level of vertical integration.
    - skrebbel 10y ago
      Intel makes phones and (significant amounts of) computers now?
andy_ppp 10y ago
Might as well start their own hedge fund with that much cash. They could build the best trading/hedge fund infrasin the world in house then make billions selling it to other players.
cm2187 10y ago
Hum. A quick look at their financials [1]. Their balance sheet only shows $130B of shareholders equity. What it means is that half of that cash/liquidity is not attributable to its shareholders but is effectively borrowed cash. I am sure there all sort of good (tax?) reasons for that. But it doesn't mean Apple is sitting on $246B of liquidity they can spend as they please. They are sitting on more like half of that they can actually spend. Still a staggering amount though. [1] https://images.apple.com/newsroom/pdfs/Q1FY17ConsolidatedFinancialStatements.pdf https://images.apple.com/newsroom/pdfs/Q1FY17ConsolidatedFin...
- cs702 10y ago
  No. They ARE sitting on $246B of liquidity and they CAN do with it whatever they want. The company's short-term and long-term debt total $77B, but they can repay that over time from future profits. All other liabilities on the balance sheet are ordinary items like accounts payable and deferred revenues, and those will be fulfilled during the ordinary course of business too, without ever needing to touch a single dollar of the $246B pile.
  - cm2187 10y ago
    You can only distribute to your shareholders your reserves. They do not have $246B of reserve. And yes they can spend some of it, but that will come in deduction of their equity (through P&L). This is not the balance sheet of some risky start up who will borrow to pay their bills. I believe Apple has a AA+/AAA kind of rating. These investors are not in there for the risk.

293 points by jgrahamc 10y ago

Excuse my potentially dumb question, but what is the point of hoarding cash like that? would it not be more useful to reinvest it?

manmal 10y ago
Only if you know how. Burning cash in a bonfire won't do Apple good. Shareholders and the market in general would not approve of money-losing follies. But I think if they really get serious about building cars, they can make good use of some of that money in order to quickly scale up. Where Tesla has to raise billion after billion to ensure they are not running dry, Apple could just use up reserves.
- mars4rp 10y ago
  Or they could just buy Tesla, but it is so overpriced.
  - throwaway55523 10y ago
    Expensive for the business, yes, but it would be worth it for Apple to acquire a new visionary CEO. Of course it won't and can't happen, but one can dream.
    - valuearb 10y ago
      You can't acquire Elon Musk. First, he's not going to be happy losing his independence. Second, to buy Tesla you can't just pay todays absurdly high price, you have to pay so much higher to convince virtually all of the non-Musk shareholders to vote for your offer. And if you "win" that auction, Elon will probably just devote even more of his time and energy to SpaceX.
      - srtjstjsj 10y ago
        Apple "acquired" Jobs from NEXT. they can do it again with Musk
        zepto 10y ago
        Wrong - Jobs reacquired Apple with NeXT.
        valuearb 10y ago
        Apple never "acquired" Jobs. Jobs asked Apple to buy NeXT. When they did, he explicitly refused to return as an employee. He only changed his mind laster because they were such a mess and he had an emotional commitment to Apples success, because he founded them. And at the time, he only had one other major interest, Pixar, and it was mostly run by the Pixar folks, Jobs wasn't writing or directing movies or developing animation technology for them. Purchasing Tesla is almost certainly a hostile takeover at an insane price tag. Elon Musk has no need of money or to sell the business, his highest priority is to be able to run it without being told what to do by anyone else. Elon Musk has no emotional connection to Apple, but has a huge one to SpaceX, which he is super actively involved in all strategic planning. Tesla would be a terrible acquisition and there isn't enough money in the world to convince Elon to let Tim Cook be his boss, and to spend his time designing phones and computers instead of rockets and electric cars. If Apple won the takeover bid, Elon would cash out his shares and pour the money into SpaceX and new businesses, and tell Apple to kiss his ass.
- del82 10y ago
  One question I have about Apple is: why should they want to build cars? Or anything else, really, except phones and computers and possibly other personal electronics? Why shouldn't they stick with what they're good at, invest their cash in that business when they can, and when they can't then either return it to shareholders or hire a portfolio manager or ten to invest it elsewhere? People often criticize Twitter for trying to be Facebook instead of just being Twitter. Why shouldn't Apple just be Apple?
  - mikhailt 10y ago
    They already are, you have to understand, they're practically printing money with the iPhones. They are capturing more than 90% of the market's profits for high end smartphones. They are not sitting around doing nothing. They cannot just print new innovation every year, it doesn't work like that. The problem will be when the market is fully saturated and people start upgrading every 5-10 years instead of the current 2 years.
    - ghaff 10y ago
      Furthermore, I have no doubt that Apple has people doing work in all sorts of adjacent markets like AR, VR, more wearables etc. But the consensus seems to be that it's going to take a lot of things coming together for true mainstream products in AR for example. And for better or worse releasing effectively a version 0.6-type product to test the waters just isn't Apple's style (at least deliberately).It's not just a matter of no company has invested enough money yet.
    - valuearb 10y ago
      I don't think saturation is a problem. You can't get silk from a souse ear, or something like that. Apple's growth rate will continue to slow, but as long as it maintains it's competitive position it will still be very profitable and a good investment. The Buffett investment (actually his sub-managers did the investment I'd bet) is an example of Apple gradually becoming a more attractive investment to value investors as it gradually becomes a worse investment to growth investors.
  - 10y ago
moomin 10y ago
Truth is, this kind of money is already being "reinvested" by the treasury function. What isn't clear is what on Earth Apple could do that would cost that much money and generate Apple-like returns. The obvious solution to this is to cut out the middle-man and just return a good chunk of the cash to shareholders. But that never happens because reasons.
- Jtsummers 10y ago
  This cash reserve is a large reason Apple started paying dividends several years back. A large portion of this is also overseas and they want to bring it back to the US without the present tax obligations.
deleted 10y ago
[deleted]
penpapersw 10y ago
The article implies that Apple would take too big of a tax hit by doing so, to the point where it's better to wait until the laws change to make it more profitable for Apple to do so.
mariodiana 10y ago
Technically, it is being invested. The money isn't kept in a big pile under a giant iMattress in Cupertino. Whatever holdings Apple keeps the money in is earning some interest, dividends, or whatever. "Cash" here only means something like "readily convertible." But, "hoarding" here means that Apple is neither directing investment directly, nor returning the money as dividends to its stockholders, right? I'm guessing the reason is because Apple is investigating future business opportunities which may require deep pockets. In other words, it's possible Apple is involved in exploring some future, highly speculative investment in a new industry, so that they can be "the next Apple" in some economic venture other than phones, tablets, and desktops. Just to take one example: developing, producing, and marketing a self-driving car will cost a bundle. And, who really knows what Apple is up to? It's fair to say they may have many pokers in the first right now.
- Eric_WVGG 10y ago
  The money is mostly in Braeburn Capital, I believe. https://qz.com/393093/the-mysterious-fund-in-the-desert-that-manages-apples-cash/ https://qz.com/393093/the-mysterious-fund-in-the-desert-that... [edit: better source]
  - jpalomaki 10y ago
    From the linked article: "Braeburn is a variety of apple that is simultaneously sweet and tart."
    - smcl 10y ago
      I was always confused that it's not an apple of Scottish origin - "Brae" is scots for "hill", and "burn" is scots for "little river"
      - jdminhbg 10y ago
        It was first cultivated at an orchard in NZ called Braeburn which is almost certainly named after a Scottish person or place. https://en.wikipedia.org/wiki/Braeburn https://en.wikipedia.org/wiki/Braeburn
kolbe 10y ago
If they could reasonably put that investment to use, that would be a fine thing to do. But Apple doesn't really have the same philosophy as Larry/Sergey and Zuckerberg do towards throwing money at any idea that has the slightest bit of potential. They want to see a legitimate and probable chance of success in their investments in addition to a synergy with Apple would enhance the investment or Apple itself. It just so happens that there aren't really hundreds of billions of dollars worth of such investments out there. So, instead, Apple tries to return that money to its investors. Unfortunately for that plan, if Apple were to give that money back to investors, it would incur a massive repatriation tax, so it instead sits overseas, "waiting" for a tax holiday.
mikhailt 10y ago
Reinvest in what exactly and in a way that would return money back? Apple has suffered through the tough times in the 90s where they almost went out of business. Having that much money means Apple can take greater risks and still suffer through multiple failures. The biggest problem is most of that cash came from iPhone revenue and if you remove that, Apple doesn't have much breathing room to take the same amount of risks. Apple is currently placing a bid for Tosibia's memory business that could cost up to $30 billion dollars.
- macspoofing 10y ago
  A cash horde isn't very helpful if your business is tanking. It prolongs the pain but doesn't fix anything. Ask Yahoo.
  - mikhailt 10y ago
    Nor does investing pointlessly or burning the money. Nothing is a sure fix for tanking businesses. Yahoo didn't do anything to help themselves, there's nothing innovative or useful about them. Google, Facebook, Twitter, Instagram is what is draining the life away from Yahoo.
  - thanksgiving 10y ago
    > A cash horde isn't very helpful if your business is tanking. It prolongs the pain but doesn't fix anything. Ask Yahoo. I was (in hindsight, correctly) skeptical of MM and her gang's effort to pull more eyeballs into Y! with things like Tumblr and in smaller extent bringing in people like Katie Couric and David Pogue. Personally, I don't know what Yahoo! is and that makes me hard to tell whether they're doing the right thing at all. As much as we love to hate MM, I don't know if any of us could do any better. Apple, I sort of get what they are. They are a hardware company that (at least presently) sells phones for $800 that has a bill of materials of about $250. They can use the rest of the margin to make the phone as appealing to consumers as possible. Everything else is a side show. (sorry mac fans) Now where does Apple go from here? I think about the narrative in the iPhone ten year anniversary podcast (listened to it because it was on the front page of HN so thanks to whoever submitted it) that Apple had to cannibalize its iPod business and started thinking about at least two years before the iPhone was released. Unpopular opinion but I think it is unlikely that Apple will get the next big thing right. I don't think self-driving cars will not be a high margin business. Yes, I want electric cars and self-driving cars to become mainstream because I want one for myself. There's no way I will buy a $60k+ car in the next five years. But I digress. Like what I read from what GP said, I think Apple will likely fail not once but multiple times. It is easy to forget the bad old days: > Since then there has been a lot of noise and shouting, but little has changed. The smaller dealership continues to sell sleek Euro-styled sedans and to spend a lot of money on advertising campaigns. They have had GOING OUT OF BUSINESS! signs taped up in their windows for so long that they have gotten all yellow and curly. The big one keeps making bigger and bigger station wagons and ORVs. from in the beginning was the command line by neal stephenson http://cristal.inria.fr/~weis/info/commandline.html http://cristal.inria.fr/~weis/info/commandline.html
macspoofing 10y ago
>would it not be more useful to reinvest it Or return it to shareholders via dividend or share buy-back.
pipio21 10y ago
Well, it is. Most of this money is stored on things like multi billion factories manufacturing exclusively for Apple. For my company we went to some of them, and you get the impression of being on a huge manufacturing Catedral. Apple has a scale nobody in the world has, and I am used to see lots of factories, from cars' to refrigerators's manufacturing places. If this money figures as cash it must be only for fiscal or "not telling your competitors how you do things" reasons, but this scale exerts an enormous pressure over suppliers.
- krzyk 10y ago
  Really nobody has the scale that Apple has? Do they make ships like Samsung? Where does Apple make cars?
  - valuearb 10y ago
    There was an article that claimed Apple bought so many aluminum milling machines at one point that it was almost impossible for competitors to get their own to make aluminum cases in any volumes. That's years ago and possibly apocryphal, but Apple does have some some big economies of scale in certain key points of manufacturing their products. They tried to do same in Sapphire but that one didn't work out.
ryanSrich 10y ago
1998...2008...201...See the trend? Always have cash and assets on hand.
jcfrei 10y ago
I've read somewhere that this is somewhat unprecedented in the history of economics. Traditionally hoarding cash was frowned upon by investors and the stock prices of companies with large cash reserves traded at a discount. That negative discount by the stock market appears to have vanished but nobody is sure why. Maybe it's regarded as an insurance against technological disruptions. In such a case companies like Apple could quickly acquire new competitors.
- pg314 10y ago
  Apple is trading at a discounted P/E compared to Nasdaq as a whole, and has done so for years. They have caught up a bit in the last couple of months, though. I'm not sure it's because of their large cash reserves, but it might be a factor.
ChuckMcM 10y ago
There isn't a 'point' exactly. Typically companies hold cash or cash equivalents to write checks against when they are either expanding or buying material that will later be sold. So if you're a company building widgets you need parts for the widgets to build them before you have sold them to get the money. Some companies will use a line of credit for that, others will use cash. An interesting comparison here is IBM. Like Apple, IBM's operations generated a huge amount of cash in the early days. Way more than they needed to run the business. As a result IBM bought real estate. They bought up large parcels near cities and transportation hubs and office buildings etc. In the Bay Area you can see their Almaden Research center, an example of some property they bought in the 60's. When IBM lost their way in the 90's and it was looking like they were toast, they survived by selling off a lot of that property and living off the proceeds. Apple could conceivably operate for 15 to 20[1] years off just their cash on hand. That said, given today's market rates for cash (under 2% and sometimes even negative), almost anything that wasn't completely stupid would likely give them a better return. And that is something of a conundrum for economists who are wondering why all these companies are sitting on so much cash. It really depresses an economy when there isn't enough cash running around in it to operate it. Then 'what should they invest in'? Is a solid question. I felt they should build a web crawler/search engine, dump the last dependencies on Google for their destiny. But clearly they are looking at self driving cars (see the story about getting a permit to test in California) they are developing CPUs (they could create an actual semiconductor subsidiary if they wanted). And then there is the challenge of 'where' the money is. First and foremost a number of people would argue that the 'cash hoard' consists in no small amount of unpaid taxes, which is to say taxes that have been avoided through a variety of legal schemes from being paid to the governments of the territories where they do business. And that argument is bolstered by the fact that Apple doesn't move cash around in order to avoid taxes on it (the whole repatriation thing). On the one hand if the governments give up their claim on any taxes owed, then Apple is free to collect the money into the jurisdiction where it can be invested most profitably, on the other hand there are civil servants who would really like to get their hands one some of that cash[2]. Bottom line is that there isn't a point, but various conditions have made holding cash the default choice. [1] Their cost to operate would go up as they were non-profitable but their headcount could go down if they weren't in product production. [2] And in many cases the governments believe it to be 'owed' even if there is no legal statute that states that.
CriticalSection 10y ago
Industrial capacity utilization is currently less than 76%, which is historically low. So about a quarter of invested capital is sitting idle currently ( https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath=/files/docs/publications/ERP/2012/2012_erp.pdf&start_page=378 https://fraser.stlouisfed.org/scribd/?toc_id=296052&filepath... ) ( https://www.federalreserve.gov/releases/g17/revisions/Current/table1b_rev.htm https://www.federalreserve.gov/releases/g17/revisions/Curren... ). Why tie up money in new capital expenditures when about a quarter of existing capital is sitting idle? Ben Bernanke referred in 2005 to a "global savings glut". The conditions which led to that haven't changed much over the past 12 years. Gross domestic private investment, fixed nonresidential investment increased 2.8% between 2004 and 2014 (I exclude investment in fixed residential structures as that plummeted by 4.9% in that time frame). Computers and software was the sub-field where investment increased the most, by 6.1% a year ( https://www.bls.gov/emp/ep_table_405.htm https://www.bls.gov/emp/ep_table_405.htm ). Whereas from 1994 to 2004, gross private domestic investment increased at a rate of 5.5% a year. Computers and software investment increased at an average rate of 26.5% a year between 1994 and 2004 (ref: same link). You have to measure investment against GDP and profit rates as well. In short, Apple is doing what a lot of people with liquid capital are doing, holding onto it.
- badsock 10y ago
  Genuine question: given this, am I correct in thinking that if there was a big corporate tax cut the most likely outcome is that the money retained would just further inflate this savings glut?
  - valuearb 10y ago
    Cutting corporate tax rates long term increases the incentive to invest. So the savings turns into capital investment, new jobs and higher productivity and wages. Cutting one time brings back lots of capital to invest, lots of that will be paid to shareholders, who will spend some and reinvest some. With similar effects, for that year.
    - badsock 10y ago
PeterStuer 10y ago
The 'financialization' of our society has turned a lot of companies that you still associate with producing goods or services into de facto investment and speculation firms.

matt_wulfeck 10y ago

They're smart to wait for a more favorable tax environment for repatriation. It really is backwards that we tax money returning to the United States so aggressively. It's greatly in our interest to bring that money home.

iloveluce 10y ago
It makes me think why companies haven't hired lobbyist that convince Congress to pass some sort of repatriation bill. It would pay itself in a month
- arikr 10y ago
  What makes you think they haven't already hired lobbyists for this?
- pjc50 10y ago
  There is occasional talk of a tax amnesty that would bring the money back.
  - stale2002 10y ago
    Thats a doubled edged sword. The whole reason why companies keep money overseas is because they are waiting for a tax amnesty deal. But if they knew that no tax deal was EVER coming, then they'd be more willing to bring it back over.
    - valuearb 10y ago
      Even better would be if we just dumped the US Corporate income tax, it's essentially a tax on investment and reinvestment. Not only would all of the money would come back but more of it would stay here. The profits will still get taxed when paid out as dividends. But right now we have high corporate rates. We double-tax the profits with an average rate of around 50% when paid out as dividends (whether you are in the lowest or highest bracket, little difference). We single-tax reinvestment of the profits at around 40% with state income taxes included.

lobster_johnson 10y ago

There was a brief window, back when Apple started taking off post-Jobs, when their pile of money put them in danger of a hostile, leveraged "bust-up" takeover -- i.e. an outsider could buy the company with borrowed money by using Apple's assets and cash flow as collateral. I always found that idea fascinating. Of course, that moment passed pretty quickly.

lilbobbytables 10y ago
Why isn't that still a concern?
- afthonos 10y ago
  The idea was that they would borrow enough money to buy a majority of Apple's stock, and then repay the loan with the cash reserves. For that to work, the cash reserves must be close to half the value of the company. Since Apple's market cap is now $790B, half the value is $370B, which means that even with the cash reserves, they'd be $123B short of being able to repay, and they'd need it available on day one to execute the hostile takeover. And like they say, $100B here, $100B there, soon you're talking real money.
  - valuearb 10y ago
    Apple has also taken on debt since then, needed it to fund dividends since most profits trapped overseas. Also any acquirer still has to pay the taxes on repatriating those overseas profits if they want to use them in the acquisition. Given effective tax rates (US + CA) over 40%, they can only use barely more than half the overseas profits. Essentially Apple's available cash is much less than it appears.
    - _pmf_ 10y ago
      > since most profits trapped overseas. That's certainly one way to put it.
- micv 10y ago

bookbinder 10y ago

$246B is more than a "rainy day" fund. Unless they are planning to buy Disney or a small country, they should return some of that money to their shareholders. They could pay out half of their fund and still make do with $123B in the bank.

pg314 10y ago
The $246B is misleading: it doesn't count the $79B they raised in debt to finance their capital returns. They are returning a lot of money to their shareholders: through dividends and share buy-backs. They plan to have returned $250 billion in capital to the shareholders by the end of march 2018. They are also partly limited in their options: most of the cash and equivalents is stuck abroad, and subject to a 35% tax if repatriated to the US. It doesn't make sense for their shareholders to repatriate that money if a tax holiday (which means they would pay around 10% instead if history is any guidance) is very likely in the near future. In the mean-time they can borrow to finance the capital returns, but it would be unwise to overdo the borrowing.

israrkhan 10y ago

Apple Is reportedly planning to bid for Toshiba semiconductor business unit. Perhaps they would also want to control critical parts of their supply chain. They can use this cash to acquire foreign companies. I do not expect them to bring this cash back to USA without a major tax break. Perhaps that is what they are waiting for.

pokemongoaway 10y ago

Invest in R&D you fools! Make a laptop to appease power users, many of whom work for you! Capture our imagination instead of kowtowing to mainstream desire for each product design!

mikhailt 10y ago
Yea, that's why they're still selling more MBP than before and their R&D are increasing by billions every year. Sorry, power users are very small # of users. Making a laptop to appease power users will do very little to the bottom line.
NotSammyHagar 10y ago
Yeah, they sure look like they can't decide what to do with their riches. It's sad. Put money toward self driving car tech if you wish, you have so much to waste. But where are your awesome next gen laptops, why nothing like a chromebook, why their disasterous desktop machines (the coffee warmer form factor, what where they thinking). The apple watch. The majority of professional devs use apple laptops because they are a great selection of tools and nice ui with unix tools. They can't build off that?
- valuearb 10y ago
  Somehow despite their "disastrous desktop machines" and disappointing laptops, they are the highest revenue PC manufacturer in the world and make more profits making PCs than the rest of the market combined. And somehow they only sold $6B in Apple Watches it's first year, not only making it the most successful watch launch in history but the best selling watch in the world by revenues. Imagine if they'd only invest more!
  - jacquesm 10y ago
    But that money is not made on PCs, it is mostly made on phones and tablets. Q1/17: 80M iphones, 10M+ ipads, 5M Macs. And margins on phones and pads are higher than on PCs too.

heifetz 10y ago

this is an article from Jan 31st!

jasongill 10y ago
I thought the same thing - "wow, they really haven't added much cash this quarter" - nope, this is just an old article

mongol 10y ago

With that kind of cash, would it make sense to start a bank?

RivieraKid 10y ago
No, they would not benefit from that.
homakov 10y ago
Banks is 99% regulation and paperwork and 1% account table. They won't be around long enough this way to be interesting for Apple.

zackmorris 10y ago

That's 2.5 million startups that never saw the light day, at $100,000 a pop. When I was in my 20s and hungry to change the world, that would have been FU money for 5 years. It occurs to me that the problem isn't wealth inequality, but opportunity cost. If you subscribe to the corporate ethos, life is fantastic right now. But if you don't, then you're likely struggling to make rent. Large multinational corporations are standing in the way of progress in a way not seen since the gilded age. P.S. I like Apple and have always owned a Mac. This is not directed solely at them, I just think that this is not the progress we're looking for.

pavement 10y ago
Large multinational corporations are standing in the way of progress in a way not seen since the gilded age. Hmmm, I understand the sentiment, but geeze, how I cannot agree with that statement. Yes, operating within confines of someone else's corporation, or beneath the general corporate regime in general, is stifling, and you, yourself, and I, myself, are unlikely to benefit as handsomely as those whom are in control of the corporation or their regime. But I wouldn't say progress-in-general is being held back by large corporations. I also wouldn't say that Apple locking up 250B in a bank account represents them withholding the freedom of others to operate, by blowing that kind of cash frivolously, and putting it back into economic circulation. I'd say it's their windfall, and they've clearly been saving up for the next big leap they're about to take. If anything, progress is moving right along at kind of an insane pace. Almost too fast. Kind of too fast. I get that certain avenues of progress have been held back, and one might draw a correlation between internal combustion and leaded gas in the 20th century, and file sharing and proprietary software in the 21st century, but these examples are narrow in scope. When you step back, look at the whole picture, and take the way things are today, and hold that up, next to the way things were 20 or 40 years ago, the differences are kind of shocking. Things are radically different, showing drastic changes between each generation. Sometimes I think if we went faster, everything would burst into flames just from the ambient friction of social upheaval incidental to rapid change.
- psyc 10y ago
  But progress is relative, and it may be that the potential is far greater than what it is. We don't know, because most people aren't allowed to try things. And that isn't merely what money represents, it's what it is. Money is allocation. Those that have it literally decide, broadly, what gets done and what doesn't get done.

throwawaybug 10y ago

They should buy Uber and Tesla. Both are in markets that shouldn't trigger antitrust concerns. Apple has a patent portfolio that would make the waymo lawsuit go away. Apple would get revenge on google for dicking it over with android vs the iPhone. It would acquire visionary leadership (Musk and Holden) and pragmatic/effective gets things done leadership (Kalanick). Musk+Kalanick = Steve Jobs. These two acquisitions would give them the car manufacturing, self driving car talent, and the market in ridesharing. SpaceX also makes sense since they have plans to put 4000+ satellites up which would erode the only other advantage Google has, which it it's network.

ceejayoz 10y ago
I doubt Musk would a) sell Tesla or b) come along with it. Kalanick is the sort of walking PR disaster Apple's good at avoiding hiring.
jonthepirate 10y ago
Why would you buy Uber if you can get the same thing for 1/10th the price in Lyft? People actually like Lyft.
- throwawaybug 10y ago
  If you think Lyft is the same thing for 1/10th the price, then you're blinded by your distaste for Uber. Uber is global in scope. Uber is well ahead of Lyft in terms of getting control of their losses (IIRC from leaked financials from both companies, Lyft is losing money at more than twice the rate as Uber and Uber is closing the profitability gap faster). Uber serves many more markets such as food delivery and freight, so there are more growth opportunities. Uber is doing a ton of R&D in the self driving car space and has a lot of the talent in the market. Lyft is basically just copying Uber's lead. Once you get past the few vocal outrage culture people, lots of people like Uber too. Basically Lyft is a plaything that only looks the same as Uber if you only consider the US market and picking up and moving people. Even then, it's a distant number two.
  - 10y ago

happycube 10y ago

It's amusing that literally 20 years ago, Apple was a bit cash-strapped and got a $150m investment from Microsoft...

newbeee 10y ago
And was at an interesting point 10 years ago too: https://news.ycombinator.com/item?id=14121752 https://news.ycombinator.com/item?id=14121752
IBM 10y ago
Charlie Munger had something to say about that. https://www.youtube.com/watch?v=Ownc_LP3t08&feature=youtu.be&t=6m57s https://www.youtube.com/watch?v=Ownc_LP3t08&feature=youtu.be...
- nodesocket 10y ago
  I'm headed to the Berkshire shareholder meeting for the first time in May, super excited to listen to Warren and Charlie impart their wealth of knowledge.
- sumedh 10y ago
  I have not seen this video of Charlie Munger, thanks for sharing. Watching all the parts now.
brogrammernot 10y ago
One could make the argument that without apple, M$ wouldn't have achieved as much. Less competitors, less focus on initiatives and innovation. You could argue that part of the reason that Apple hasn't been that innovative the last few years. There's no one company really doing any amazing in their bread/butter of smartphones.
- nebabyte 10y ago
  An idle king
10y ago

breatheoften 10y ago

What possible reason could Apple have to repatriate their cash hoard (even with a tax holiday?) They don't manufacture anything in the us -- do they need those kinds of billions to hire more software developers in Cupertino -- that seems pretty unlikely to me. Do they need it to build more US apple stores (nope they've got that covered). They are already paying a dividend with free cash flow from their US business ... I can't imagine why they would ever want to "increase investment" in the us vs the many far more productive things they could conceivably do by spending that money outside the us ...

sparkzilla 10y ago
If they don't need it, they should return it to their shareholders.
- arrrg 10y ago
  The argument here was about not needing the money in the US (but possibly investing it elsewhere on the planet), not not needing it in general.
- melling 10y ago
  That's not what Warren Buffett would do: http://www.businessinsider.com/warren-buffett-on-dividends-2013-3 http://www.businessinsider.com/warren-buffett-on-dividends-2...
  - valuearb 10y ago
    Buffett is running an investment company. The day Berkshire Hathaway can't do a better job of earning long term returns than it's shareholders can, is the day it no longer justifies it's existence. There have certainly been times where Buffett has struggled to find good investments, and in the short run a dividend might have seemed wise. But those times always pass and letting cash pile up until opportunities arise has worked very well for him. Apple isn't an investment company. They are a consumer products company. Their new product ideas should not require large amounts of capital. Even the silly car idea should never get more than $10B or so in funding until it's proven, which is mice nuts in their grand scheme. So they should return excess capital to shareholders. The only limiting test is how much is 'excess'. Tim Cook is likely being very conservative, but in the future if Apple has to ride out some bad years, having a hundred billion or so in the bank might prove the difference between success and failure.

z3t4 10y ago

It would surprise me if it's just cash, like literally just laying there. It's probably used to fund startups etc. You should probably be lucky that they are not liquidating it. If it's just laying there doing nothing though, I think that would be bad for the economy, making interests return negatives.

dmoy 10y ago
"just cash" has a reasonably specific definition for corporate accounting, and definitely does not include investments in startups. It's gotta be liquid in like <<1yr or something. Also not sure what you mean by "the economy", since the majority of that cash is likely not in one country...
- z3t4 10y ago
  What I mean with bad for the economy is that $246B not used is $246B in potential being lost, every second, 24 hours a day. With that much money you could care diseases, end hunger, create world peace, etc.
  - dmoy 10y ago
    Yea no arguments here

skdotdan 10y ago

Stock buyback?

sumedh 10y ago
Jobs called Buffett and asked what he should do with all extra cash, Buffett said buy it back but Jobs did not listen.

return0 10y ago

Hmmm... how much does a big car company cost?

drdeadringer 10y ago
Which big car company?
- Keyframe 10y ago
  All of them.
pacificmint 10y ago
Here are the current market caps of the big car companies. Of course to buy them you'd likely have to pay a premium on the market cap, but it gives you a ballpark: Toyota Motor Corp 174.2B Daimler AG 75.8B Volkswagen AG 71.9B Honda Motor Co Ltd 52.0B General Motors Company 50.0B Tesla Inc 49.5B Ford Motor Company 44.2B Nissan Motor Co Ltd 39.3B Tata Motors Limited 22.5B Ferrari NV 13.3B Harley-Davidson Inc 10.5B
- return0 10y ago
  thanks ... even more hmmm now .... my bet is on Tesla, with a daimler and ferrari on the side
  - sumedh 10y ago
    I see lot of comments about Apple should buy Tesla but I dont think it will happen. Elon Musk is not the type of guy who will take orders from others which will happen if Apple takes over Tesla.

Animats 10y ago

Even building the Mothership in Cupertino didn't make a dent in that cash. It's supposed to open soon, but it doesn't look finished yet.

CalChris 10y ago

Apple is able to use their Double Irish with Dutch Sandwich strategy because they can employ the army of tax lawyers and lobbyists necessary to keep the government busy. XYZ Company cannot do this. So when you see that the United States has a 35% top corporate tax rate, you need to remember Leona Helmsley's observation: We don't pay taxes. Only the little people pay taxes. That rate would be lower if it were administered fairly. It effectively is lower.

btian 10y ago
Isn't it nice that XYZ startup also doesn't make profits, thus pay $0 in tax?
- a13n 10y ago
  Hmm, no... profits are nice.
- EpicEng 10y ago
  ... Nice for whom? I'm sure xyz would love to turn a profit.
valuearb 10y ago
No it's not effectively lower, it's higher. Apple has to pay roughly 40% because it's headquartered in CA, which has a 8.9% rate. That's the rate it must pay if it repatriates overseas profits, there is little it can do to change that. other than not repatriate. The myth of Apple's low tax rate goes something like this. Let's say Apple makes $10B in profits. $5B are profits of Apple US, and $5B are profits of it's international subsidiaries. Apple pays about $450M in state income taxes on the $5B and about $1.6B in federal income taxes on the remainder (35% of the $5B minus state taxes). It also pays income taxes in every country it has a subsidiary in on the foreign $5B (let's estimate income taxes average out to 20%, or $1B), and ships the remaining $4B to Ireland for storage until such time as US tax rates aren't so onerous. Now someone looks at Apples financials and sees it paid "only" $1.6B in federal income taxes, even though it made $10B! OMG, they shout, Apple is only paying 16%, no one is paying 35%, our tax system is a LIE! But in this example, Apple paid over $3B in total income taxes, or 30%. And if it repatriates the $4B, it will pay another $1.6B in state and federal income taxes for a total tax rate nearing 50%. And this doesn't count all the other taxes Apple pays, from property taxes, sales taxes, VAT, import tariffs, etc, around the globe. The "double dutch" strategy revolved around how much value you assigned to your IP and moving that IP to tax favorable countries. It's no longer legal or used. What costs and profits Apple assigns to subsidiaries is subject to judgement and audit. But mostly it's just a smokescreen to ignore how terrible our corporate income tax system is and it's rates are among the highest in the world. Apple pays a ton of taxes. We'd be better off not taxing corporate income, so one can argue it pays too much.

neom 10y ago

Will they buy: a) a bank b) a car company c) healthcare provider/insurance company :)

omarchowdhury 10y ago
With $250 billion, they can buy all 3.

beezle 10y ago

No, it did not swell to 246B. Or are we not counting the debt and other obligations they have issued to pay out dividends and do share buybacks? This has been their game for a while now so to trumpet the asset side in isolation is disingenuous by the press and purely clickbait. (another minor point is that the figure is cash + short and long-term marketable securities).

pisarzp 10y ago
It's not NET cash, so it's right not to include debt.

walkingolof 10y ago

Wonder at what point a government would just seize the money, there are few looser compared to what good you could do with the money.....

peterwwillis 10y ago

Weird question: What if Apple folded tomorrow? What happens to the cash? The people? The [global] economy?

perlgeek 10y ago
Uneducated guess: first their creditors, then their stakeholders. But how can a company fold and still have money left? Typically if companies stop operating, it's because they have no money left to pay their bills and debts.

5_minutes 10y ago

And still they cant make a 15" laptop with a normal keyboard.

nodesocket 10y ago

I'd love to see Apple acquire Stripe. Let me make a case for why this could be a great addition. 1.) Apple pay. Apple pay has not caught on, and perhaps Stripe could push it over the tipping point. 2.) Acquire Stripe's team of amazing designers, front-end engineers and operations engineers. 3.) Further revenue into Apple's increasingly massive services business The problem is Stripe is crazy Silicon Valley over valued. Consensus is that Stripe recently raised 150M at a 10B valuation. 10 billion? No way! Payments processing is a very slim margin business. From their 2.90% and $0.30, Stripe will make about 1% on average, the rest goes to Wells Fargo. That doesn't seem too bad except that Stripe's total processing volume can't nearly justify that crazy valuation.

aklemm 10y ago

At this point aren't they at risk of thieves (elected officials) conspiring to take huge pieces of that money?

nodesocket 10y ago

Heads up, this is from January. For all negative nancies, if you bought $AAPL on this day (1/31) you'd be up a nice 16%.

intrasight 10y ago

As a stockholder, I consider that my cash. And it saddens me that I can't get to it ;)

Waterluvian 10y ago

What is the endgame of a corporation? Does Apple hold on to $246B because they simply have nothing sensible to use it on and have no need to give it away? How big can a corporation get before the whole system kind of breaks down or governments break it apart?

akvadrako 10y ago
This is an interesting question, but I doubt even the people in charge have a clear picture in their head. Maybe corporations will become sovereign entities, with their own citizens and social structures. That amount of money would be a good start for buying counties outright and building a military.

sidcool 10y ago

I would buy a bunch of startups and diversify business. Kinda like Alphabet did. Let there be smaller startups within Apple with funding from Apple. Not sure if they are already doing it.

LeicaLatte 10y ago

Startup idea: Create a country. Setup tax laws so that huge corporations, politicians, business folks can hoard money. Profit.

LeicaLatte 10y ago

Textbook tech depression, often alluded to by industry watchers like Marc Andreessen. $246B in the bank and not able to use it for good.

shmerl 10y ago

It's sad when so much money is hoarded by such a nasty company.

anigbrowl 10y ago

Another year of record corporate cash piles, another year of the same old tired rationalizations for a policy that doesn't make good economic sense but seems tied to the future of the gravy train. I know all the technical and philosophical arguments in favor of doing this, but most people neither know nor care, and their anger is reaching boiling point. Apple won't be the first target, but when enough people are angry enough to take action that's not going to be any comfort. My advise is use it or lose it, because angry people don't make good listeners.

jlebrech 10y ago

they should enter the airliner industry, electric passenger jets or glider jets. and take that worldwide quite quickly.

faragon 10y ago

In my opinion, Apple should buy TSMC (~100 billion) and Qualcomm (~100 billion). It would be a hell of competition for Intel and AMD, now that Moore Law seems to reach its limits.

kgdinesh 10y ago
If Moore's law has reached its limits then what's the point of buying them? Apple can do something on its own, the technology of these makers will won't be worth in the long term anyway.
- faragon 10y ago
  Opportunity cost.
rodgerd 10y ago
At that point I'd expect the EU antitrust (and, in a sane climate, the US ones) to be all over that.
- faragon 10y ago
  Why not? E.g. both Samsung and Intel already have that level of vertical integration.
  - skrebbel 10y ago
    Intel makes phones and (significant amounts of) computers now?

andy_ppp 10y ago

Might as well start their own hedge fund with that much cash. They could build the best trading/hedge fund infrasin the world in house then make billions selling it to other players.

cm2187 10y ago

Hum. A quick look at their financials [1]. Their balance sheet only shows $130B of shareholders equity. What it means is that half of that cash/liquidity is not attributable to its shareholders but is effectively borrowed cash. I am sure there all sort of good (tax?) reasons for that. But it doesn't mean Apple is sitting on $246B of liquidity they can spend as they please. They are sitting on more like half of that they can actually spend. Still a staggering amount though. [1] https://images.apple.com/newsroom/pdfs/Q1FY17ConsolidatedFinancialStatements.pdf https://images.apple.com/newsroom/pdfs/Q1FY17ConsolidatedFin...

cs702 10y ago
No. They ARE sitting on $246B of liquidity and they CAN do with it whatever they want. The company's short-term and long-term debt total $77B, but they can repay that over time from future profits. All other liabilities on the balance sheet are ordinary items like accounts payable and deferred revenues, and those will be fulfilled during the ordinary course of business too, without ever needing to touch a single dollar of the $246B pile.
- cm2187 10y ago
  You can only distribute to your shareholders your reserves. They do not have $246B of reserve. And yes they can spend some of it, but that will come in deduction of their equity (through P&L). This is not the balance sheet of some risky start up who will borrow to pay their bills. I believe Apple has a AA+/AAA kind of rating. These investors are not in there for the risk.