Hey, see that? I created an infinite money machine! Now that's a good argument for those original $200 billion being super useful when "put to work" by storing them in bank accounts, right?
Anyway, since the parent implied that "hoarding cash" (a.k.a. saving) was somehow bad, I wanted to clear that up. They would only be reducing the money supply if they were literally hoarding physical bills in a private vault.
So the actual trick is not that banks lend out more money than they have previously gotten as deposits, but that the fraction they lend out is eventually stored at different banks, while the original deposits that allowed for these loans to be created still continue to exist at the first bank and thus the loans practically are a duplicate of these deposits, hence "money was created out of thin air". As long as the banks all manage to keep the fraction of reserves above the pre-set limit, this indeed guarantees a maximum total money supply not to be exceeded.
Banks are constrained by demand, they can create credit at will.
If Apple deposits $200 billion and the ratio is 1/10, then the bank can loan out $180 billion of that 200; it must keep $20 billion in reserve - 1/10th.
In your scenario, the bank has negative $1.8 trillion in reserve.
But exactly how it all works out depends on a countries legal and financial implementation details.
In 1997, Apple was on the verge of bankruptcy . That experience deeply scarred the company's culture. Prior to that, Apple didn't hoard cash (relative to revenues). Afterwards, it did.
At this point, the instinct is overplayed. But cultures are difficult to change. So the obsession with runway remains.
It's pretty simple why they have such a big cash pile. They literally don't have a better place to put it.
Not saying it is.
The last time Apple’s culture was re-forged, runway was an existential priority for Steve. It remained a priority for the rest of his life. As such, it remains one today. Call it a ritual, if you like; an act once practical, now maintained for being part of a culture.
The limitless alternative to amassing cash piles is returning it to shareholders. Apple does that, but it is averse to accelerating its pace.
iPhones produced in India, presumably.
Or in any other place.
Even if they sold zero iPhones next year, there's still a lot of iPhones in the world that need services and apps.
How exactly is that “a lot more”?
Perhaps they want to be prepared for losses much larger than their peak historical losses.
In 1996, Apple's market cap was ~$3B and they had about $1.7B in cash and short term investments. That's over half the value of the company. If they had proportional amounts of cash today they would have a trillion dollars.
I think the context of the talk about bankruptcy wasn't leverage like most companies have now, but simply that people might stop buying Macs and no revenue would be coming in.
The hoarding of cash I associate with Fred Anderson, who was CFO from 1996-2004.
This is a sign of distress. The equity markets were attributing minimal value to the non-cash parts of the business.
In 1996, Apple had about one fifth of its net turnover in cash. Today, it’s close to four fifths. Operating-to-operating metrics are a better indicator of management’s preferences than operations-to-markets.
See "Item 6. Selected Financial Data"
...which is closer to the 1996 ratio of cash to revenue than today’s.
There is a lesson on corporate financing here, but I am not sure what it says.
In the past 10 years, Apple has bought back over $400B worth of Apple stock, mostly at under $200/ share. This has massively reduced the number of shares on the market and been hugely rewarding to shareholders. They have shared their plan with shareholders, pretty much every quarter they put updates on how it's going.
They have a good summary of how they are performing on their plan on their site: https://s2.q4cdn.com/470004039/files/doc_financials/2020/q3/...
I'm not sure what kind of plan you had in mind, but what Apple has done has been spectacularly good for shareholders.
Meanwhile they think it's better to hold the cash rather than pay tax on it. The shareholders own the money either way.
Most people who want to tax corporations actually just want to tax the super-villanous rich people. But here's an interesting idea: just tax rich people more.
By increasing costs for all companies, you are making products more expensive for all consumers. It's effectively a regressive tax.
You also need to remember that a majority of Americans are invested in the stock market. A healthy economy is good for everyone.
I believe that money that gets paid out from a company to investors (dividends) should be taxed as regular income, but the income of the company itself should be untaxed. That way we avoid the distortionary effects of double-taxing money but we still tax the evil rich people you're so concerned about.
Taxing profits has zero impact on costs. The most it would affect is the viability of companies that are on the border of profitable/not profitable because it would detract from their ability to attract capital.
Apple is quite possibly the furthest away from this scenario you could possibly imagine. Taxing their profits will have zero impact on apples costs.
>here's an interesting idea: just tax rich people more
The funny thing is that whenever you try to do that a coterie of economically illiterate paid-to-be-wrong journalists come out telling you how much you're ruining things for everybody else and how little the rich will really be affected.
You can almost measure the actual impact of a tax by the intensity of the screams in the popular press about how much the average joe will get screwed and how little the rich will be affected.
And, of course, taxes that really are like that get branded differently - they're "necessary evils" or simply just ignored.
The stock market is not "the economy", "the economy" is not doing too well, but the stock market keeps steaming along while a lot of people struggle and congress does its handwringing over the cost of meager stimulus packages. Maybe some extra tax revenue would be useful.
Dividends can already get special tax treatment, and many corporations are averting taxation entirely. For a lot of situations we're already at your ideal scenario in a round about way, except we're failing to tax the super rich.
I'm more concerned about how that tax revenue could benefit society.
How much in taxes does the average worker pay over their lifetime?
Not to mention, this money was already taxed, just in another country where that money was earned. Seems like a good deal, to bring that money back into our economy and get it spent on goods and services domestically.
"We'll allow you to bring back $185 Billion and spend it here locally, helping the entire economy, but only if you pay us $10.5 Billion!"
I'd be OK with zero tax on this money. Get it flowing back into the economy where it can do real good things. The US Government isn't going to miss $10.5 Billion at the rate we're already giving it away to people.
The alternative is what we have already. Everyone loses; no one gets any piece of that money in the US.
How much does the average worker make over their lifetime? Not fucking 200Bn
Right now, we get zero, and I'm pretty sure we wouldn't be able to come up with some way to compel them to give us a sinlge penny of it.
I'm not, personally, very concerned with giving another $10 Billion to the US Government. It's a small amount in the scheme of things.
However, getting $200 Billion injected into the local economy would have a profound effect.
Cutting off your nose to spite your face, sort of thing.
The exact opposite is true. Taxing revenue and salaries affects workers and the overall health of the company. Taxing profits affects mainly just shareholders - especially for larger companies.
There are several papers on this.
If nothing else, it can keep paying their all of their employees, not just the work-from-home IT crowd, during a pandemic shutdown.
With $260bil revenue and $55bil net income, Apple’s monthly expenses are around $17bil. That means they need $102bil cash on hand for emergencies.
As someone else mentioned, they’ve experiences near bankruptcy before. Maybe they never wanna be there again.
That’s the point of an emergency fund. It’s for when the unthinkable happens.
Croatia for example is a country with a GDP of $63bil. 20% of their whole economy is tourism.
This year tourism is down 90%+. Oops
Even if Apple sold zero iPhones next year, they would still collect a lot of revenue from all the App Store Sales and iCloud services.
It would probably take a decade of zero iOS updates and no new iDevices being released to make Apples revenue decline so dramatically.
The risk an emergency fund has to guard against is of course offset by your level of diversification of revenue streams. And again, Apple knows better about their situation and risk tolerance than I would.
I was completely ignorant about this menace until I started reading couple of books to educate myself —- Treasure Islands and Moneyland...recommend them both.
Since then I just use the term offshore to encompass any of those hundreds or so possible structures.
Not only can Apple finance those factory and process investments (if they chose to), having a letter of intent from a deep-pocketed customer like Apple helps Foxconn et al. procure loans and offset the risks.
Imagine if they started engaging in pointless acquisitions in the idea that this cash should be put to use. You'd have another Nokia, another Sun..
From an external standpoint, competitors have to be aware that "you can't manufacture like apple" and that they will always be forced to make compromises on features/packaging/price in comparison to an apple product.
and $100 billion is only one year's worth of Apple's earnings:
Ah, finance sites claim 100B in cash. Rest is not cash, nor on hand, but 100B in securities awaiting maturation.
Maybe the know what technology will break out, but is not ready yet (autonomous cars, AR), and waiting to invest when the time comes.
Apple designs an iPhone, has it produced in China, sold to Apple HK, then sold to Germany.
Profit margin in China by Foxcon? Small
Profit margin in the offshore jurisdiction (e.g. Hongkong). Big. Taxes in HK for this transaction: Zero
This transaction also does not show up in the US trade balance. ("Black matter in accounting")
For example: Between 2014 and 2017 Apple paid $35 billion in taxes.
While you can argue they should pay more in taxes, the fact is they pay vastly more than their peers. Amazon in particular is notoriously good at keeping their tax bills low.
I don't know what is fair in terms of taxes and I'm not suggesting Apple is a perfect tax citizen, but they do pay a good chunk of cash out to keep the White House lights on.
1. I don't know why I get downvoted
2. I would not say a corporate tax rate of 0.005% is high.
This is on public record: https://www.macrotrends.net/stocks/charts/AAPL/apple/total-p...
> I would not say a corporate tax rate of 0.005% is high.
I'm not sure what that number comes from so I can't say, but since they paid $10b/ year for the past 9+ years, they'd have to have 2 trillion dollars in profit in a single year for that rate to be accurate.
Take the example of maps, it was clearly a way inferior product to the best in market Google Maps, still a lot of users(my physical and social media circle at least) persisted with it. This gives them immense power to grow out products that can become really strong platforms in the future.
Also, their ecosystem lock in is really strong. I think in due time it is really going to stifle competition. For example, it would be really interesting to see how the headphone industry adapts to this where incumbent brands like Bose, Sennheiser with their own brand power have seen their market share erode very fast. Apple has already sold 100+ million airpods.
But few companies would love to do what it takes to get it.
Things like protecting customer privacy and taking security seriously.
I once saw a 1 hour presentation on the cryptography design of the iPhone compared to an Android phone. The IOS design used layers of fine-grained encryption and was obviously carefully thought out to protect the consumer from: device theft, misbehaving apps, illegal searches by law enforcement, and even nation-state levels of spying.
The Android phone had a feature that basically said "Encrypted: Yes".
That's the difference. I see that difference everywhere, with every organisation. The right attitude gets rabidly loyal customers, the wrong attitude relegates you to the low-cost section of the store.
When was this? Do you have a link? Was this like the usual grandiose presentations that Apple usually does? Cause I don't think this how it is for last few years.
Disc: Google but nowhere close to Android other than using an Android phone.
Speaking of which, YouTube is another one of those Google properties that clearly doesn't care about the user. Things like: For me, YouTube streams from the wrong city because of a bad Geo IP database somewhere in Google, and so 4K streams stutter even on a gigabit fibre internet connection. Google makes it very clear that there is nothing anyone outside of Google can do about this. Not me, not my ISP, not anybody. (PS: I pay $15 monthly for YouTube Premium, about the same amount I pay for Netflix. Netflix streams flawlessly, and they have a support service I can contact to solve streaming issues if it doesn't work as expected.)
Similarly, YouTube's UI is very slow on Firefox for no good reason other than: "Google doesn't care about anything but Chrome".
These all have reasons for why they are the way the are. I get it. Geo IP databases are inaccurate and a hassle to update. Firefox is not the biggest browser, and Google focuses on their own products first. I get it.
But as a user, these kind of things erodes my trust in Google, and makes me realise that I'm the "product", not the customer. My interests are not Google's interests. My interests are Apple's interests, however, which is why I have an iPhone and will never buy an Android phone under any circumstances.
Netflix takes streaming seriously. It’s always really smooth even on low powered devices. The Amazon app on our 5 year old Vizio TV still crashes after some use, so does the YouTube app. Netflix however is always responsive and doesn’t require restart.
GP is right, very few companies have the discipline to not chase after shiny things.
Then I see issues like this.
I see major privacy design violations like this.
That privacy violation is ridiculously terrible design which leads me to believe it's mostly marketing gimicks over business priorities.
It was even worse driving in the UK. Google Maps told me "at the roundabout take the 3rd exit on St. George St.". Well, does the driveway-looking exit, or the store entrance count as #1 or do I ignore that one? Also, their street names may be precisely correct, but streets on the roundabout are not labelled by their names, but by the city/town that the road goes to next. Apple Maps, by contrast says "exit the roundabout at the 3rd exit going towards Canterbury" (or something like that). I can't remember if they said the exit number or not, but all you had to do was confirm that the exit with the sign saying "Canterbury" was more or less the 3rd exit and good to go.
Then there is the problem where I'm not using navigation and looking for a street name. Google Maps used to label major streets, but now they do nothing of the sort. You might get the major highway if you're lucky, and there will be a minor street with a label somewhere, but the major street off the freeway exit? You can't find the name until you zoom in until the street is the only thing visible, and then I guess Google Maps decides that they might as well display that useless street name, since there's nothing else that can be displayed. Mind you, Apple Maps is only marginally better for that, but still.
Google Maps is better for finding things, but I fired it for navigation.
Google -- for a while at least -- cared deeply about web user experience and performance. The Google start page ushered in an era of minimalist UIs that load fast and don't bombard the user with fifty irrelevant things. They came up with the trick to send more than the 4 initial packets after the TCP connect so that they could send the entire front-page content in the minimum feasible number of round trips. They're still working on protocols like HTTP/3 and QUIC with similar goals.
Facebook... umm... let met think... err... I got nothing.
These aren't advertisements, but I think they feel a lot like an advertisement in terms of what Google encourages others to post on their website.
Wasn’t it just found in the large ElasticSearch hack that a number of no-logging VPN providers were in fact logging?
At the end of the day they are a corporation whose job is to make profit not possibly die by being idealistic. I would even argue that the privacy thing, while commendable is a selling point more than an ideal they hold dear.
I agree. Note that I didn’t mention privacy. We both understood that implicitly. That’s partly marketing. But it’s underwritten by some truth, if not a comprehensive truth.
Values, in my view, are meaningful if strived for. They don’t need to be perfectly attained to be valid. Apple has made tradeoffs and incurred costs to strive towards protecting privacy, and it’s been consistent in that aim over its history.
Even to this imperfect standard, I struggle to come up with analogs for the others.
Take the example of Maps, for anyone to create a good maps experience they need a lot of money, A $1000 phone with about $200-300 actual component costs has enough margin for other things, even software. So the price is kind of included in the phone.
Even if we just give $10 of this to Maps as it is a core experience, that is $2-3 billion per year.
For other companies trying to compete, it is either ads or subscription. So even if you charge $20 per year, you need 100 million paying users. Apple also incurs the cost of running it but it gets hidden the price of the phone, others don't have this luxury. Though, I think certainly a company like Samsung which has significant device revenue can try this approach.
Also, in case of ideals if I have to give an example of a company that tries to uphold one ideal very well would be, Google's efforts to improve diversity. https://diversity.google
- 5GB of free iCloud storage in 2020. I can imagine the countless number of people who have lost photos that weren’t backed up because they didn’t upgrade their iCloud storage plan. 50Gb should be the minimum when you buy a new phone.
- subscription apps not at least being able to say something vague like “go to our website to create an account”.
- not being able to change the default mail, browser, calendar, maps, music app. Some of that will be correctly in iOS 14.
Apple’s pro-privacy stance in merely a strategy credit. That’s not their business model.
Just like FB can say with a straight face that they won’t put data on servers in non democratic countries - they aren’t allowed there anyway.
Cook also kissed Trump’s golden ring and let him tell lies about Apple’s US manufacturing plans during a photo op.
Hardware, maybe by enforcing APIs to be accessible to all hardware manufacturers. But at the end of the day, if they build a new successful product either inhouse/acquisition, should it be stopped just because they have money/brand loyalty. I don't agree with that.
Same applies to their ban on competing browsers in their application store which should have been simply forbidden by anti-trust a long time ago.
When a company so consistently behaves in such nasty manner, I'd say they don't deserve any respect, let alone loyalty.
Can I pay a $99 one time fee and bypass Spotify’s 30% and get my share of all of Spotify’s users subscription fee? Like Spotify does with respect to Apple?
1. I’m sick of charging everything constantly. I feel like my phone, AirPods, laptop and watch batteries are always needing too much attention. I would prefer larger devices with bigger batteries.
2. The screens for these devices are too fragile. The devices are beautiful, but require ugly cases or regular, expensive repairs.
3. There are too many missing devices in Apple’s ecosystem. A pro computer under $3k. A TV. A smart speaker that isn’t crippled. Smart home devices that don’t suck. Apple should stop trying to compete (poorly) with Netflix and should focus on their ecosystem of devices and services.
Capital should be either sunk hugely into the R&D to change the world or should be returned to shareholders to better allocate it.
That said, These guys aren’t playing the game 1 qtr at a time. Not even a year at a time. They play the 100+ year game and likely they don’t see this money as “big”.
That seems very antithetical to Apple's fundamental approach to product design. Sure, they have some first-generation stinkers, but I think it's fair to say Apple tends to err on the side of waiting until they can release something to their standards.
Then saw that two weeks before end of quarter they started a “back to school” promotion (in June?) that throws in a free pair of AirPods with a Mac or iPad purchase. Details here: https://www.apple.com/promo/pdf/EN_US_BTS_FY20_TandCs.pdf
With a $479 iPad Air that’s 33% of the price of your purchase.
New Apple products can easily be sold on Amazon or Ebay for close to face value, so this is a extremely easy and generous retail arbitrage opportunity.
My point is I didn’t see any language around this promotion in their earnings report but suspect because it is so generous that both legitimate customers and resellers are taking advantage of this deal, thus disproportionately lifting sales for Macs and iPads vs other categories like iPhones which was essentially flat YoY.
Their surprise beat was then in part influenced by this big promotion and not necessarily totally organic demand...
Edit: They do something like this every year but this one started in Q2 unlike last year in Q3 and includes much cheaper iPads, and is for Airpods for the first time (a much more desirable freebie over Beats)
my point is this started before Q2 ended and includes much cheaper iPads. Again, this gift is 33% of the cost of entry level iPad Air. Also Airpods are much more broadly desirable than over the head Beats.
2019 promotion: https://www.apple.com/newsroom/2019/07/macbook-air-and-macbo...
In my area of Maryland they do, and anecdotally I think they also have in at least one part of Utah. But in my area they emphasized that they were for those with the greatest need, not everyone.
Second, what the material cost is doesn't matter, at least on its own--a gifted airpod is one that's not sold. The opportunity cost is real, even if the material cost is low.
FWIW, I did buy a $10 clone. The hardware was actually astonishingly polished for the price point, but the software to control it was indeed "ass".
Apple’s raison d'etre is to make money.
I don’t understand why it’s a pointless exercise to theorize why sales went up when no one expected it otherwise
Though Saudi Aramco was the first company ever to hit 2T (back in December), so Apple wouldn't be the first, if it makes it.
This sounds an awful lot like the the situation where the imperial palace was worth more than California.
While I’m celebrating the great quarter, how much will blowing out Q3 impact Q4 by way of not having the equipment people want? They also announced a several week delay and in delivery of the next gen iPhone. Might be negligible?
Although I'd contend that the later is not capitalism.