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Their borrowing rates are super low. They can simple just invest the cash they have in an asset that is safe but has a better return and can make money on the d

Their borrowing rates are super low. They can simple just invest the cash they have in an asset that is safe but has a better return and can make money on the difference. Even if the difference is like .5% that is billions of dollars.

adventured 9y ago
Everybody else is talking about today. I'm talking about tomorrow. Here, I'll give you the obvious scenario. Apple wilts. There are no exceptions, all the top corporations from each generation falter to one degree or another. The very few that are lucky or good enough, revive after taking a big hit. Profits fall to $12 billion, or $25 billion. I'm not even modeling a loss scenario here, I'm being generous. Shareholders are used to being bribed with fat buybacks, financial engineering. They also like the solid dividend, which then has to be slashed as the situation worsens. Simultaneously Apple has immense capital outlay requirements to maintain their margins. They're also bloated on labor, as they massively bulked up on employees and operational costs (the new HQ, and HQ2 et al.) during the extremely fat years, that means mass firings. The market cap crumbles, 15 pe * $25 billion = $375 billion. Now shareholders are really ticked off. $200 billion in debt. $200 billion in cash. Hey, debt is cheap after all, so why not. Today their net income is more like $50 billion against ~$104 billion in long-term debt; a two to one ratio. Now make that ~$20 billion in net income against $200 billion in long-term debt; a ten to one ratio. That $200 billion debt level will be reached in just four or five years at this point, if they don't stop accumulating at the rate they are. Interest costs rise considerably as the market has a lot less confidence in Apple's prospects. How does just 5% sound on $200 billion, $10 billion in interest costs, while yielding $20 billion in net income. That becomes a debt hell, that is nearly impossible to get out of. This is not a reach, this is almost guaranteed to happen at some point if they keep pushing the debt up (unless one assumes the utopia outcome, where Apple is the sole exception in US history, and they just soar forever). That's the medium outcome scenario. Feel free to model the bad scenario where the iPhone loses its place in the market. In that scenario, Apple goes bankrupt again circa 2030. It could never happen, that the present Apple glory falters, everyone will say. My refutation: it has never not happened in US industrial history, that the top tier giants don't tumble (typically in a big way). Apple is far more exposed to that outcome than the very few corporate giants that have done it best over long periods of time, such as Exxon (even they just saw their profits contract toward zero when oil crashed). And that's why you get rid of the debt. Just ask GE how they feel about their present balance sheet (negative $32 billion in net tangible assets). GE was on top of the world not very long ago. They're not the same situations, skeptics will declare; of course not, they don't have to be, Apple will follow its own unique scenario of faltering, as all companies do.
- pertymcpert 9y ago
  Cash exceeds debt so they're fine.

adventured 9y ago

Everybody else is talking about today. I'm talking about tomorrow. Here, I'll give you the obvious scenario. Apple wilts. There are no exceptions, all the top corporations from each generation falter to one degree or another. The very few that are lucky or good enough, revive after taking a big hit. Profits fall to $12 billion, or $25 billion. I'm not even modeling a loss scenario here, I'm being generous. Shareholders are used to being bribed with fat buybacks, financial engineering. They also like the solid dividend, which then has to be slashed as the situation worsens. Simultaneously Apple has immense capital outlay requirements to maintain their margins. They're also bloated on labor, as they massively bulked up on employees and operational costs (the new HQ, and HQ2 et al.) during the extremely fat years, that means mass firings. The market cap crumbles, 15 pe * $25 billion = $375 billion. Now shareholders are really ticked off. $200 billion in debt. $200 billion in cash. Hey, debt is cheap after all, so why not. Today their net income is more like $50 billion against ~$104 billion in long-term debt; a two to one ratio. Now make that ~$20 billion in net income against $200 billion in long-term debt; a ten to one ratio. That $200 billion debt level will be reached in just four or five years at this point, if they don't stop accumulating at the rate they are. Interest costs rise considerably as the market has a lot less confidence in Apple's prospects. How does just 5% sound on $200 billion, $10 billion in interest costs, while yielding $20 billion in net income. That becomes a debt hell, that is nearly impossible to get out of. This is not a reach, this is almost guaranteed to happen at some point if they keep pushing the debt up (unless one assumes the utopia outcome, where Apple is the sole exception in US history, and they just soar forever). That's the medium outcome scenario. Feel free to model the bad scenario where the iPhone loses its place in the market. In that scenario, Apple goes bankrupt again circa 2030. It could never happen, that the present Apple glory falters, everyone will say. My refutation: it has never not happened in US industrial history, that the top tier giants don't tumble (typically in a big way). Apple is far more exposed to that outcome than the very few corporate giants that have done it best over long periods of time, such as Exxon (even they just saw their profits contract toward zero when oil crashed). And that's why you get rid of the debt. Just ask GE how they feel about their present balance sheet (negative $32 billion in net tangible assets). GE was on top of the world not very long ago. They're not the same situations, skeptics will declare; of course not, they don't have to be, Apple will follow its own unique scenario of faltering, as all companies do.

pertymcpert 9y ago
Cash exceeds debt so they're fine.