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138 Billion Units (Apple's Cash Position)
- phil 15y agoInteresting post, but there's a lot that's wrong here. For example, it's really not true that Apple tends towards vertical integration.
- rdl 15y agoReally? Apple has been about vertical integration from the start (apps + OS + hw), at least compared to the Wintel and Android worlds. (the exception being iOS apps, but those were neither in Apple's original plan nor are a huge amount of revenue relatively to Apple; I suspect Safari, Mail, Calendar, iMessage still get the majority of the use of apps on iOS). Deeper hw integration (buying chip designers was obvious; I do not think they'll buy a fab; maybe hw assembly if that is somehow non-commodity), or upstream integration (applications on mac osx, content sources, services) would make some sense to me. Buying a shipping company to ship the devices, probably not. Maybe they could just buy Goldman Sachs.
- phil 15y agoThat's an interesting perspective; I wasn't thinking about the software side at all.
- dcurtis 15y agoReally? - Apple bought a semiconductor design company and brought that in-house. - Apple does all software design, hardware design, industrial engineering, etc in house. - Apple develops its own processes for manufacturing their computers (unibody). - Apple built a chain of retail stores to sell directly to consumers. Those are just a couple examples; the trend is very clear to me.
- dangrossman 15y agoThat's the only example I've heard of, not that I follow Apple news outside HN.
- meric 15y agoIMHO if a company vertically integrated, it will not have many examples of how it is vertically integrated. Right now I think the only thing missing for Apple to be 100% fully vertically integrated is to buy its own factory.
- draggnar 15y agoApple buys Foxconn? Or Apple builds massive factory in CA?
- brianobush 15y agoChina would not allow that, at most they would be allowed to buy 49% -- though I think you were joking.
- nl 15y agoChina would not allow that Foxconn is actually a Taiwanese company. (Technically that can still mean China depending on your definition. I interpreted your comment to mean that the (mainland) Chinese government would block a potential takeover. That isn't directly possible, although clearly they have multiple ways to put indirect pressure on Foxconn. (Not that this will happen anyway, because Apple isn't going to buy Foxconn))
- draggnar 15y agoWell it is a next step towards vertical integration. Maybe they'll buy a mining company to dig up rare earths also. And a recycling company to close the loop.
- meric 15y agoSuppose Apple is able to buy Foxconn - that would work too (there are numerous problems such as politics and anti-monopoly authorities; foxconn produces devices for many companies, not just Apple). Once bought Apple can configure the factories as it sees fit.
- phil 15y agoWell I was thinking of the major counterexample that they own essentially none of their manufacturing. They don't produce any of their components -- even the processors they design get built by (I believe) Samsung. As far as I've been able to tell, design and engineering get hauled in because they want to control it. I guess you can add the stores, too. But buying something like an LCD panel maker? Or a flash maker? Or Foxconn? I'd be shocked.
- tesseract 15y agoWell they already did buy a flash maker, Anobit. That said, Anobit is fabless just like PA Semi was. If I am not mistaken, there were reports that Apple provided at least some of the capital for both Samsung's upcoming fab in Texas and the newly opened Foxconn factory in Brazil. I guess they have decided it doesn't (yet?) make sense to own manufacturing facilities outright, but they seem to be making actual investments in their manufacturing partners rather than just purchasing services. I would say that is indeed further evidence of a tendency toward vertical integration.
- gt384u 15y agoAdd to that the mapping companies, lala.com, Fingerworks for multitouch, Siri, PA Semi and Intrinsity for semiconductors, and a whole lot of other tiny but massively differentiating pieces[1] to their "experience" stack. [1]http://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Apple http://en.wikipedia.org/wiki/List_of_mergers_and_acquisition...
- dfc 15y agoWhy do most of the reports I have seen list apple's cash at 96B?
- phil 15y agoThat's cash/equivalents + short-term securities + long-term securities. Total assets are $138b. This all gets pulled from SEC filings. Here's the most recent: http://investor.apple.com/secfiling.cfm?filingID=1193125-12-23398&CIK=320193 http://investor.apple.com/secfiling.cfm?filingID=1193125-12-...
- latch 15y agoBecause the market is liquid enough that Apple could probably convert those investments into cash relatively quickly (and without damaging their value). Assuming trustworthy partners, if you have a cheque to your name for $100, it wouldn't be unreasonable to say that you have $100 cash.
- hncommenter13 15y agoThis post is not quite right in its understanding of how these securities are classified. Securities held by corporations as assets are shown both by type of instrument and by "intent" of the holding. In this case, the types of instruments shown on the latest 10-Q [1] are, as the post describes, cash and cash equivalents, short-term securities and long-term securities. But that only applies to the security itself, not Apple's intent: a 30 year government bond would be classified as "long term," but it could easily be sold tomorrow in one of the most liquid financial markets in the world. Under GAAP, what is also relevant is a label on the "intent" of the holding: trading, available-for-sale, or held-to-maturity. According to the same 10-Q, all of these securities are classified as available-for-sale. The original post conflates these two ideas and mistakenly assumes that the ~$67B of long term securities will be held until they mature. Were that Apple's intent, they would likely be classified as held-to-maturity, rather than available-for-sale. (The classification as to intent matters, as it affects how unrealized gains/losses from the securities held flow into the income statement in any given period.) It's a technical point, to be sure, but the post's conclusion that long term security != ready cash is not quite right. Regardless, Apple's numbers amaze me every time I look at them. [1] http://investor.apple.com/secfiling.cfm?filingID=1193125-12-23398&CIK=320193 http://investor.apple.com/secfiling.cfm?filingID=1193125-12-...
- dcurtis 15y agoThanks. I have updated the post with a quotation and link to your comment here. I think the central point of my article stands because the tax burden associated with bringing Apple's significant foreign investments (about 60% of their cash, reportedly) back into the United States would be prohibitive and restrict any kind of heroic or crazy deals from being announced tomorrow. And Apple's investments are not in cash. If anyone would like more information about the structure of Apple's investments, see page 7 of the most recent 10-Q: http://files.shareholder.com/downloads/AAPL/1738322915x0x536523/381559d7-04a1-40d5-8e2a-236e3f867158/AAPL%20Q1FY12%2010Q%2001.25.12.pdf http://files.shareholder.com/downloads/AAPL/1738322915x0x536... The parent commenter is correct that the vast majority of holdings are in things like us treasuries and corporate bonds, which can be liquidated immediately.
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- notatoad 15y agonetflix as a very likely acquisition target? really? i can't see why. does netflix have a lot of exclusive content deals that apple can't get? it seems like most things that are on netflix are already on itunes. also, netflix is popular because it's available on all kinds of devices which doesn't seem to be a policy that apple is likely to continue. if apple doesn't need netflix' customer base or content, why would they purchase them?
- brianobush 15y agoand if they did have a exclusives deals/contracts of interest, I am sure that if netflix was purchased those contracts would be up for review.
- uptown 15y agoBecause dcurtis holds Netflix stock ... So he wants it to happen ... So saying it is very likely to happen makes it seem more plausible increasing the value of his investment if others believe the hype and buy. This is the American Airlines website of financial analysis blog posts IMO.
- steve8918 15y agoExactly. There is ZERO chance that Apple will buy Netflix. Netflix is a dying company, and their business model isn't long-term viable. They don't own their own content, and the content providers are not only charging them more, but building their own infrastructures. Apple already has iTunes and plenty of deals with content providers. Why on earth would they get Netflix which has a worse business model? It's just plain garbage. This is a great example of "talking your book".
- mikeryan 15y agoYou're right buying Netflix would be ridiculous. They'd be much better off going after a studio like Disney or WB and buying content - they already have an audience and distributing digital content is a known entity. With that amount of cash, they would want content rights, not distribution rights.
- nl 15y agoThe thesis of this post is incorrect. As hncommenter13 pointed out, the breakdown of long term securities vs cash is very wrong. Additionally, even if it were correct Apple could easily borrow billions of dollars in cash either from a bank or by selling bonds. They'd have no trouble getting the money, which makes the "$10-30 billion dollars" limit pretty artificial. I'm not convinced it matters anyway - there aren't a lot of things worth more than that which Apple would be interested in. Looking at a list of the most valuable US companies[1], I guess the following might be interesting: Intel, Verizon, Cisco, HP, Qualcomm, Walt Disney, Comcast. Realistically, I think Walt Disney is the only real possibility there (and there are other media stocks that could be interesting - Time/Warner, News Co etc). The other possibility is an unlisted company: Facebook (but I don't think Zuck would relinquish control). [1] http://money.cnn.com/magazines/fortune/fortune500/2011/performers/companies/biggest/ http://money.cnn.com/magazines/fortune/fortune500/2011/perfo...
- stevenj 15y agoApparently, Steve asked Warren Buffett what he thought Apple should do with all of the cash a couple years ago: http://www.cnbc.com/id/46540227/Warren_Buffett_Steve_Jobs_Didn_t_Take_My_Advice_to_Buy_Back_Apple_Stock http://www.cnbc.com/id/46540227/Warren_Buffett_Steve_Jobs_Di...
- RandallBrown 15y agoVizio seems unlikely to me because they're a bargain brand. If Apple bought them it would only tarnish Apple's brand. Could you imagine buying an Apple television set that was of Vizio quality? Even if they completely started from scratch and only used their factories, their would be enough people saying "This is really a Vizio" that it would look bad.
- jonursenbach 15y agoI don't know what experience you've had, but every Vizio TV I've used has been fantastic.
- cloudwalking 15y agoApple is a company that vertically integrates. What they're missing from their verticals is content. They already have a content provider, iTunes, so I don't think they'll buy Netflix or Hulu. I expect Apple will make a move on a content provider soon (Disney? HBO?), but not tomorrow.
- guelo 15y agoIt is sad how tax dodging schemes by the uber wealthy are considered normal business procedure instead of the low-life thing it is. Hey Apple, in case you hadn't heard you have a ridiculous amount of money, you can afford to pay the taxes that you owe.
- davidw 15y agoVia index funds, I own a bit of Apple stock, and I'm not uber-wealthy. Uber-wealthy people are those that have/earn "zillions" of dollars.
- guelo 15y agoYou're not the one making the tax dodging decision, some multi millionaire Apple executive is.
- davidw 15y agoThe point you're missing is that taking money from Apple takes money from plenty of people who are not wealthy. If you want to tax redistributively, you should tax the people who actually have the money, not companies. If the company mostly belongs to the "uber wealthy", then they'll get taxed anyway. If it's mostly in the hands of grannies of modest means with a few shares each, then they won't, which is a lot fairer.
- guelo 15y agoI wasn't arguing tax philosophies, I was talking about dodgers of current tax laws.
- nikcub 15y agoI think they will announce a small-ish one-off dividend, a long-term dividend yield target, and a stock split. For context, Microsoft had $43B in cash when it issued its first dividend, which was a total of $900M (it also split its stock at the time, which Apple may also do). It paid another dividend a year later, a bit larger, and has raised their yield a few times (not moving the stock much). Cisco's first dividend was when they had $40B in cash and it was also only worth a couple of points. For dividend distribution purposes, Apple has $100B+, 66% of which is not in the USA (not bad, it is 90% for Microsoft and Cisco). They can easily afford a one-off 2-3 point dividend tomorrow and then announce a regular dividend yield of 2-3 points again without repatriating any cash. I doubt it will be larger than a few points, which means that the stock will likely fall sharply tomorrow (as it did with both Cisco and Microsoft) as it seems that the market is expecting a much larger dividend. Note: it is possible to issue a larger dividend without repatriating overseas assets by borrowing against those foreign assets, but I doubt they would do that.