

138 Billion Units (Apple's Cash Position) - danielzarick
http://dcurt.is/100-billion-units-of-strategy

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hncommenter13
This 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-...](http://investor.apple.com/secfiling.cfm?filingID=1193125-12-23398&CIK=320193)

~~~
dcurtis
Thanks. 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/1738322915x0x536...](http://files.shareholder.com/downloads/AAPL/1738322915x0x536523/381559d7-04a1-40d5-8e2a-236e3f867158/AAPL%20Q1FY12%2010Q%2001.25.12.pdf)
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.

~~~
latch
There are non-US companies they can buy. I've heard that was a main driver in
MS' purchase of Skype. They didn't want to repatriotize assets, so they just
bought a foreign company.

------
stevenj
Apparently, 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_Di...](http://www.cnbc.com/id/46540227/Warren_Buffett_Steve_Jobs_Didn_t_Take_My_Advice_to_Buy_Back_Apple_Stock)

------
notatoad
netflix 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?

~~~
RandallBrown
Netflix has a pretty solid architecture for streaming video. It's definitely
better than Apple's. Their content deals are also for subscription streaming
where Apple's are for one time streams and downloads. I'm not sure if that
actually matters or not.

Apple could buy them just to be anticompetitive and block all the competition
from having it (which would be huge imagine if the Apple TV was the only way
you could stream Netflix to a TV). I don't see the government allowing that
though.

~~~
notatoad
>Apple could buy them just to be anticompetitive

could they really? i thought there were laws against that.

~~~
RandallBrown
I don't know if they can or not. They can certainly try.

------
nikcub
I 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.

------
nl
The 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/perfo...](http://money.cnn.com/magazines/fortune/fortune500/2011/performers/companies/biggest/)

~~~
njharman
Why would apple want to get into content creation?

~~~
nl
Apple could replace cable TV (if they chose to. I don't think they will, but
it is possible..)

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dfc
Why do most of the reports I have seen list apple's cash at 96B?

~~~
latch
Because 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.

~~~
dfc
There is no way this jives with any accepted accounting practices...

~~~
latch
Well what "reports" are you talking about? Blogs? Articles? Apple isn't
reporting that it has "$96 billion cash."

------
RandallBrown
Vizio 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
I don't know what experience you've had, but every Vizio TV I've used has been
fantastic.

------
cloudwalking
Apple 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
It 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
Via 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
You're not the one making the tax dodging decision, some multi millionaire
Apple executive is.

~~~
davidw
The 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
I wasn't arguing tax philosophies, I was talking about dodgers of current tax
laws.

------
phil
Interesting post, but there's a lot that's wrong here. For example, it's
really not true that Apple tends towards vertical integration.

~~~
dcurtis
Really?

\- 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.

~~~
phil
Well 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
Well 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.

