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The history is that apple had a crazy cash position partly because of the need to keep cash overseas to avoid tax on repatriation. What they did was borrow agai

The history is that apple had a crazy cash position partly because of the need to keep cash overseas to avoid tax on repatriation. What they did was borrow against that overseas cash to get US based on dollars. Cash neutral doesn't relate to growth, if you grew you'd need to increase cash to cover working capital needs generally (ie, Apple first has to pay for parts, inventory, factories, staff for them etc before it gets revenue from sales). Excess cash above this - it can be argued is not useful for apple to hold. Ie, investors can earn as much on cash as apple AND might want to invest it in things that theoretically could earn more - especially now with low interest rates. They can get to cash neutral a couple of ways. Because gross net income is going down, share buybacks one option - they've already been doing lots of that. Dividends is another. Pushing a bit on R&D might be another. No rush on that change.

microtherion 7y ago
Not only is excess cash not very useful, I'd argue that it can be actively harmful, as it makes the company a target for a leveraged buyout. Though maybe this does not apply to Apple, as a potential buyout would have to be about 30x as large as the largest leveraged buyout in history.
- tclancy 7y ago
  Yeah, lots of cash leaves you vulnerable to greenmail, but when you have the most cash, you’re probably ok.
- privateSFacct 7y ago
  What is impressive in some ways is their spending discipline with this mountain of cash. Many business have tried to buy their way to growth with horrible results in my view.
pazimzadeh 7y ago
Well, they should have repatriated it. The only reason they're not is because they're hoping to get a one-time tax cut from a Republican administration, and with the amount of money involved it was worth it to wait out Obama, who wouldn't have any of it.
- privateSFacct 7y ago
  The way they handled it was to borrow funds using the cash as collateral. They could put $1B in Bank X, then would borrow $1B from Bank X, using their cash in Bank X as security. If you squint it might almost look like they were borrowing their own money :). I'm not that onto the details here so this might be totally wrong - but I didn't wonder why Apple had so much debt one time and this is what I think I was looking at. One risk if they didn't repay and the bank took collateral would be that they would then have had to pay the taxes (it would have counted as a repatriation). They must have thought the risk was reasonably low.

microtherion 7y ago

Not only is excess cash not very useful, I'd argue that it can be actively harmful, as it makes the company a target for a leveraged buyout. Though maybe this does not apply to Apple, as a potential buyout would have to be about 30x as large as the largest leveraged buyout in history.

tclancy 7y ago
Yeah, lots of cash leaves you vulnerable to greenmail, but when you have the most cash, you’re probably ok.
privateSFacct 7y ago
What is impressive in some ways is their spending discipline with this mountain of cash. Many business have tried to buy their way to growth with horrible results in my view.

pazimzadeh 7y ago

Well, they should have repatriated it. The only reason they're not is because they're hoping to get a one-time tax cut from a Republican administration, and with the amount of money involved it was worth it to wait out Obama, who wouldn't have any of it.

privateSFacct 7y ago
The way they handled it was to borrow funds using the cash as collateral. They could put $1B in Bank X, then would borrow $1B from Bank X, using their cash in Bank X as security. If you squint it might almost look like they were borrowing their own money :). I'm not that onto the details here so this might be totally wrong - but I didn't wonder why Apple had so much debt one time and this is what I think I was looking at. One risk if they didn't repay and the bank took collateral would be that they would then have had to pay the taxes (it would have counted as a repatriation). They must have thought the risk was reasonably low.