4 ms·

I would argue that Apple's cost of capital is 0%. They don't have a better way to invest the money, which is evidenced by their almost $200B sitting in the ban

I would argue that Apple's cost of capital is 0%. They don't have a better way to invest the money, which is evidenced by their almost $200B sitting in the bank doing nothing for their company or shareholders (seriously, how about a Microsoft-style massive one-time dividend). I would guess they ship their phones by air to keep delivery times fast and consistent.

thedogeye 11y ago
Do they really keep it as actual cash? Aren't they investing it somewhere? I think they have a big hedge fund up in Nevada.
- wmil 11y ago
  It's in "marketable securities" so not exactly cash but close. The other issue is that much of it is overseas money, so Apple will take at 35% tax hit if they repatriate it.
  - danieltillett 11y ago
    Yes they are waiting for their employees (congress) to pass another "one time" tax break that will let them repatriate all that cash tax free.
    - MCRed 11y ago
      It should be tax free. The money was made overseas from products made overseas and sold to overseas customers by overseas entities. Taxing money coming into a country is really bad economics and amounts to just pure greed. Countries should want money coming into their markets. Not punishing it.
      - tacticus 11y ago
        then payments from child companies to parent companies that end up as profit should be taxed in those other countries.
      - danieltillett 11y ago
        Remember every dollar not paid by Apple and the like is an extra dollar that some other poor US tax payer has to pay. Given that everyone wants the services that taxes pay for (if not move to Somalia) then the taxes should be raised in a way that causes the least amount of distortion to the economy. Letting some companies pay no tax and others 36% is highly distortionary. I would also be more convinced of the idea of not taxing the money coming in to the USA if it had actually been taxed in the countries where the profits had been made - let me introduce you to the Double Irish Arrangement [1]. 1. http://en.wikipedia.org/wiki/Double_Irish_arrangement http://en.wikipedia.org/wiki/Double_Irish_arrangement
  - putlake 11y ago
    Repatriation is somewhat of a red herring. Money is fungible. Even if it is technically (on the books) "overseas", it can be (and usually is) invested in U.S. markets.
tacostakohashi 11y ago
I would argue that their cost of capital is 1.55% for a five year tenor, or 3.45% for a 30 year tenor. http://www.bloomberg.com/news/articles/2015-02-02/apple-said-to-plan-5-billion-bond-offering-in-fourth-since-2013 http://www.bloomberg.com/news/articles/2015-02-02/apple-said... For 30 days, it would of course be even lower, but not zero.
- thedogeye 11y ago
  That's what they borrow at, but presumably they're doing so because they can invest it at a higher return. It's the opportunity cost that we care about.
Aloha 11y ago
Apple also likely wouldn't move that inventory onto its book, until its received, not when its shipped.
smoyer 11y ago
I'd guess they use a hybrid approach ... the statement about iPhones always being on the verge of selling out is a red herring. Whether you ship by air or sea, so long as you do it consistently, the number of phones you have available is a constant based on the rate you're manufacturing them. All the air versus sea argument does is change the lag in receiving them. Assuming the rate they can be manufactured can be adjusted based on demand, you want to make sure you're always on the verge of selling out to avoid carrying more inventory. So my guess is that they normally ship by sea but increase the manufacturing rate and ship some percentage of phones by air to keep the stores "just stocked enough".
- sachingulaya 11y ago
  Ocean is great for west coast logistics. But then you can either do overland trucking or air to the rest of the US.
Retric 11y ago
Apple has anounced they are returning 200B to there shareholders over the next few years. The somewhat shocking reality is that's only 5 years woth of proffits which is arguably a perfectly reasonable cash hoard. However, the real issue is the depreciation on components makes shipping cutting edge electronics by sea untenable. Put another way Apple does not want to wait another 25 days before releasing their new phone or be forced to ramp up production on an even less proven technology. PS: Another option is to ship the phones by air but the packaging by sea. However, phones are small enough that it would not be woth maintaining a U.S. factory for final assembly.

thedogeye 11y ago

Do they really keep it as actual cash? Aren't they investing it somewhere? I think they have a big hedge fund up in Nevada.

wmil 11y ago
It's in "marketable securities" so not exactly cash but close. The other issue is that much of it is overseas money, so Apple will take at 35% tax hit if they repatriate it.
- danieltillett 11y ago
  Yes they are waiting for their employees (congress) to pass another "one time" tax break that will let them repatriate all that cash tax free.
  - MCRed 11y ago
    It should be tax free. The money was made overseas from products made overseas and sold to overseas customers by overseas entities. Taxing money coming into a country is really bad economics and amounts to just pure greed. Countries should want money coming into their markets. Not punishing it.
    - tacticus 11y ago
      then payments from child companies to parent companies that end up as profit should be taxed in those other countries.
    - danieltillett 11y ago
      Remember every dollar not paid by Apple and the like is an extra dollar that some other poor US tax payer has to pay. Given that everyone wants the services that taxes pay for (if not move to Somalia) then the taxes should be raised in a way that causes the least amount of distortion to the economy. Letting some companies pay no tax and others 36% is highly distortionary. I would also be more convinced of the idea of not taxing the money coming in to the USA if it had actually been taxed in the countries where the profits had been made - let me introduce you to the Double Irish Arrangement [1]. 1. http://en.wikipedia.org/wiki/Double_Irish_arrangement http://en.wikipedia.org/wiki/Double_Irish_arrangement
- putlake 11y ago
  Repatriation is somewhat of a red herring. Money is fungible. Even if it is technically (on the books) "overseas", it can be (and usually is) invested in U.S. markets.

tacostakohashi 11y ago

I would argue that their cost of capital is 1.55% for a five year tenor, or 3.45% for a 30 year tenor. http://www.bloomberg.com/news/articles/2015-02-02/apple-said-to-plan-5-billion-bond-offering-in-fourth-since-2013 http://www.bloomberg.com/news/articles/2015-02-02/apple-said... For 30 days, it would of course be even lower, but not zero.

thedogeye 11y ago
That's what they borrow at, but presumably they're doing so because they can invest it at a higher return. It's the opportunity cost that we care about.

Aloha 11y ago

Apple also likely wouldn't move that inventory onto its book, until its received, not when its shipped.

smoyer 11y ago

I'd guess they use a hybrid approach ... the statement about iPhones always being on the verge of selling out is a red herring. Whether you ship by air or sea, so long as you do it consistently, the number of phones you have available is a constant based on the rate you're manufacturing them. All the air versus sea argument does is change the lag in receiving them. Assuming the rate they can be manufactured can be adjusted based on demand, you want to make sure you're always on the verge of selling out to avoid carrying more inventory. So my guess is that they normally ship by sea but increase the manufacturing rate and ship some percentage of phones by air to keep the stores "just stocked enough".

sachingulaya 11y ago
Ocean is great for west coast logistics. But then you can either do overland trucking or air to the rest of the US.

Retric 11y ago

Apple has anounced they are returning 200B to there shareholders over the next few years. The somewhat shocking reality is that's only 5 years woth of proffits which is arguably a perfectly reasonable cash hoard. However, the real issue is the depreciation on components makes shipping cutting edge electronics by sea untenable. Put another way Apple does not want to wait another 25 days before releasing their new phone or be forced to ramp up production on an even less proven technology. PS: Another option is to ship the phones by air but the packaging by sea. However, phones are small enough that it would not be woth maintaining a U.S. factory for final assembly.