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So is this the official IBM-ification of Apple? They’re going to resort to financial engineering to prop up their stock? I mean I understand. A lot of key staff

So is this the official IBM-ification of Apple? They’re going to resort to financial engineering to prop up their stock? I mean I understand. A lot of key staff have shares and options that vest over time and they don’t want to lose this talent to a competitor. But still. 110B could do a lot more than merely increase the P/E. I guess it’s a bullish signal: it says the company thinks its stock price is lower than it should be. I dunno.

jncfhnb 3y ago
If you can’t offer growth over time, you are supposed to offer dividends or buybacks for shareholders. That’s the whole point of owning the stock.
- infecto 3y ago
  And buybacks mean no immediate tax implications for shareholders.
  - exe34 3y ago
    Now they can use this as collateral to take out a big loan, buy some other productive company, use the profits from that to pay the loan and not pay any tax, because it's a loan. Wealth begets wealth.
    - jncfhnb 3y ago
      Does that story make sense? Why would an entity accept your very liquid shares in Apple rather than wanting a typical loan arrangement? The common example for this is for non liquid shares that you can’t really sell.
      - hparadiz 3y ago
        When you apply for a mortgage they ask you to show all your assets regardless of how liquid they are. Having a high value brokerage account is a huge plus since they can go after it in the event of a foreclosure.
        jncfhnb 3y ago
        Mortgages are generally not full recourse, meaning they can’t do that. The collateral is the house, not your assets.
      - exe34 3y ago
        That's how Elon bought Twitter. He didn't just have the cash lying around.
        jncfhnb 3y ago
        That’s an uncommon situation for illiquid shares of people with huge stakes of their own companies
    - cycrutchfield 3y ago
      Well yeah, loans aren’t income. Should people pay income tax when they receive a mortgage?
      - exe34 3y ago
        With a mortgage, the house itself is the collateral. In this case, the profits on the shares "aren't realised until you sell them", so it's not real profits, but somehow you can use them as collateral to get a loan and grow your total wealth - without spending a penny or even having to get a job. In that case, I think if you're using shares as collateral, the profits on those shares should be taxable.
        cycrutchfield 3y ago
        So each time you do a cash-out refinance of your home, that should be taxed as income? You still own your house, you haven’t sold it, so why should you be taxed repeatedly on it?
        jncfhnb 3y ago
        Taxing the gain or loss on the new valuation of the home and adjusting the cost basis going forward doesn’t seem like an outrageous idea
        exe34 3y ago
        Not the whole value, just the gains.
- deleted 3y ago
  [deleted]
gumby 3y ago
They have so much cash, and the business is so valuable there isn’t a better place to put it.* So you give it back to the shareholders, and a buyback is tax advantaged for the shareholders compared to a dividend. * if you are, say, Pepsi, and you have a very good year, you might want to “bank” some or all of those profits for a lean year or for some future investment. But the CFO doesn’t put $10B in a bank account, they invest it. If they put 10B into Apple it won’t have any legal implications (Apple is so huge) and it’s probably a better return than anything else available. But when you are Apple the sums are so huge and the choice of places you can invest so limited, that giving it back to the shareholders and letting them decide is pretty much your only option. A good problem to have.
- JKCalhoun 3y ago
  That kind of money ... they could build their own fab? Other than that, maybe R&D? Even if Apple were known as an R&D company (and they haven't been known for that since Jobs returned and among other things got rid of ATG), probably wouldn't even need that kind of cash to run.
  - dtech 3y ago
    I'm sure they do a lot of R&D. They built their own CPU for goodness sake. But there's diminishing returns, at some point the ROI for the next candidate investment isn't good enough to make it a valid choice over a buyback or dividend.
    - alt227 3y ago
      Minor nitpick - they didnt build their own CPU. They licensed a design from ARM, tweaked it, and sent it to TSMC to manufacture it.
      - gumby 3y ago
        They have an architecture license, so can do quite a bit beyond simply "tweaking" it. They have some degree, presumably a significant degree, of "blank sheet" implementation. At this point, probably the main benefit of the ARM license is just the patents.
scarface_74 3y ago
How is it “financial engineering” to give money back to the owners of the company? Should they spend it on an acquisition when most large acquisitions fail to add positive value? Even if they could find an attractive large acquisition target, some regulator somewhere in the world is going to block it.
- andy_ppp 3y ago
  TikTok would be a good purchase for them I'd say. They certainly are not competing. It would be interesting if they also managed to do ads on TikTok in a user privacy focused way.
  - yreg 3y ago
    Out of all the tech giants TikTok fits into Apple's portfolio the least.
  - airstrike 3y ago
    Apple doesn't really do big M&A and probably doesn't want to touch the issues that come with TikTok with a 10-foot pole
  - scarface_74 3y ago
    Every single time they have tried at anything social, it’s been an abject failure. They are not a “services” company outside of upsells from their own customer base.
airstrike 3y ago
> I guess it’s a bullish signal: it says the company thinks its stock price is lower than it should be. I dunno. That's precisely what this is. It's financially prudent for a company with this much cash to buy back their stock when it's (relatively) cheap. It also doubles as signaling to the market. It's cheaper and better than issuing dividends. In addition to accounting/reporting, the CFO's job is to decide if/where to spend capital and if/how/when to return it to shareholders. Buying back stock when the price drops is not really financial engineering—it's just finance, period.
eunos 3y ago
Recently I also saw somebody writing about IBM-ification of Google. So is it the ultimate fate of Big tech?
- airstrike 3y ago
  It's way too early to say Apple is turning into IBM because it did some stock buybacks...
draw_down 3y ago
[dead]
webninja 2y ago
If you’re a shareholder, this is great news. If you’re not, I don’t know what to tell you. Think of it more like Berkshire Hathaway. A publicly traded company’s purpose is to generate a return on investment for it’s shareholders.

jncfhnb 3y ago

If you can’t offer growth over time, you are supposed to offer dividends or buybacks for shareholders. That’s the whole point of owning the stock.

infecto 3y ago
And buybacks mean no immediate tax implications for shareholders.
- exe34 3y ago
  Now they can use this as collateral to take out a big loan, buy some other productive company, use the profits from that to pay the loan and not pay any tax, because it's a loan. Wealth begets wealth.
  - jncfhnb 3y ago
    Does that story make sense? Why would an entity accept your very liquid shares in Apple rather than wanting a typical loan arrangement? The common example for this is for non liquid shares that you can’t really sell.
    - hparadiz 3y ago
      When you apply for a mortgage they ask you to show all your assets regardless of how liquid they are. Having a high value brokerage account is a huge plus since they can go after it in the event of a foreclosure.
      - jncfhnb 3y ago
        Mortgages are generally not full recourse, meaning they can’t do that. The collateral is the house, not your assets.
    - exe34 3y ago
      That's how Elon bought Twitter. He didn't just have the cash lying around.
      - jncfhnb 3y ago
        That’s an uncommon situation for illiquid shares of people with huge stakes of their own companies
  - cycrutchfield 3y ago
    Well yeah, loans aren’t income. Should people pay income tax when they receive a mortgage?
    - exe34 3y ago
      With a mortgage, the house itself is the collateral. In this case, the profits on the shares "aren't realised until you sell them", so it's not real profits, but somehow you can use them as collateral to get a loan and grow your total wealth - without spending a penny or even having to get a job. In that case, I think if you're using shares as collateral, the profits on those shares should be taxable.
      - cycrutchfield 3y ago
        So each time you do a cash-out refinance of your home, that should be taxed as income? You still own your house, you haven’t sold it, so why should you be taxed repeatedly on it?
        jncfhnb 3y ago
        Taxing the gain or loss on the new valuation of the home and adjusting the cost basis going forward doesn’t seem like an outrageous idea
        exe34 3y ago
        Not the whole value, just the gains.
deleted 3y ago
[deleted]

gumby 3y ago

They have so much cash, and the business is so valuable there isn’t a better place to put it.* So you give it back to the shareholders, and a buyback is tax advantaged for the shareholders compared to a dividend. * if you are, say, Pepsi, and you have a very good year, you might want to “bank” some or all of those profits for a lean year or for some future investment. But the CFO doesn’t put $10B in a bank account, they invest it. If they put 10B into Apple it won’t have any legal implications (Apple is so huge) and it’s probably a better return than anything else available. But when you are Apple the sums are so huge and the choice of places you can invest so limited, that giving it back to the shareholders and letting them decide is pretty much your only option. A good problem to have.

JKCalhoun 3y ago
That kind of money ... they could build their own fab? Other than that, maybe R&D? Even if Apple were known as an R&D company (and they haven't been known for that since Jobs returned and among other things got rid of ATG), probably wouldn't even need that kind of cash to run.
- dtech 3y ago
  I'm sure they do a lot of R&D. They built their own CPU for goodness sake. But there's diminishing returns, at some point the ROI for the next candidate investment isn't good enough to make it a valid choice over a buyback or dividend.
  - alt227 3y ago
    Minor nitpick - they didnt build their own CPU. They licensed a design from ARM, tweaked it, and sent it to TSMC to manufacture it.
    - gumby 3y ago
      They have an architecture license, so can do quite a bit beyond simply "tweaking" it. They have some degree, presumably a significant degree, of "blank sheet" implementation. At this point, probably the main benefit of the ARM license is just the patents.

scarface_74 3y ago

How is it “financial engineering” to give money back to the owners of the company? Should they spend it on an acquisition when most large acquisitions fail to add positive value? Even if they could find an attractive large acquisition target, some regulator somewhere in the world is going to block it.

andy_ppp 3y ago
TikTok would be a good purchase for them I'd say. They certainly are not competing. It would be interesting if they also managed to do ads on TikTok in a user privacy focused way.
- yreg 3y ago
  Out of all the tech giants TikTok fits into Apple's portfolio the least.
- airstrike 3y ago
  Apple doesn't really do big M&A and probably doesn't want to touch the issues that come with TikTok with a 10-foot pole
- scarface_74 3y ago
  Every single time they have tried at anything social, it’s been an abject failure. They are not a “services” company outside of upsells from their own customer base.

airstrike 3y ago

> I guess it’s a bullish signal: it says the company thinks its stock price is lower than it should be. I dunno. That's precisely what this is. It's financially prudent for a company with this much cash to buy back their stock when it's (relatively) cheap. It also doubles as signaling to the market. It's cheaper and better than issuing dividends. In addition to accounting/reporting, the CFO's job is to decide if/where to spend capital and if/how/when to return it to shareholders. Buying back stock when the price drops is not really financial engineering—it's just finance, period.

eunos 3y ago

Recently I also saw somebody writing about IBM-ification of Google. So is it the ultimate fate of Big tech?

airstrike 3y ago
It's way too early to say Apple is turning into IBM because it did some stock buybacks...

draw_down 3y ago

[dead]

webninja 2y ago

If you’re a shareholder, this is great news. If you’re not, I don’t know what to tell you. Think of it more like Berkshire Hathaway. A publicly traded company’s purpose is to generate a return on investment for it’s shareholders.