Apple has massive cash reserves that it can't really put to use. That cash isn't doing much of anything for anybody, so growing it any further is pointless. Going cash neutral here means "instead of uselessly adding to our cash reserves, we're going to aggressively dispose of our revenue", which presumably means dividends (they wouldn't have the cash reserves they do if they thought they had other productive ways to spend the money)
My bet is on their own fab(s) at some near-future point. They are one of the few who can afford the infrastructure (buildings/equipment) and talent, and they totally rely on a supply chain that is currently dubious, and has the real potential to get a lot worse. And it would fit into all current and likely all future projects Apple does and would likely do since they have proven they are more than capable of designing their own chips.
Hmm. As a chip designer, I think there is no chance this will happen. Running a modern foundry is a huge investment and while they move a lot of silicon volume, it is not enough to support a foundry. Not even close. Second, a foundry is a relatively low margin, high volume, high risk business. That is not the kind of business area that Apple enters. Third, running a modern foundry is an incredibly complex process with a huge level of specialized knowledge requiring years of experience to make it all reliably work with high yield. As someone who has been in the business for over 30 years, I won't hold my breath waiting for Apple to build their own semi foundry.
On the other hand, might they contribute some investment to help TSMC expand into the US or other locales to further improve their priority and pricing? That is likely to happen. They often make large investments to help their partners spool up and meet the required volumes for Apple business.
It makes logical sense from a supply chain standpoint, but I fail to see how the fact that Apple is good at designing chips has any relevance whatsoever to the idea that Apple may or may not be good at manufacturing those same chips.
"Everybody knows" that a big chunk of the M1/mac performance dominance right now is due to their buying out huge amounts of TSMC capacity at leading edge nodes. Thus, much of the recent M1/M1Pro/M1Max "great leap forward" (pun intended) are directly attributable to TSMC specifically.
If every ROI-seeking multibilliondollar hedge fund in the world can't build a leading edge node fab or two to compete with TSMC, what suggests that Apple's money would do any better?
Note that this isn't rhetoric - Apple may well be able to do this, and better than some/most; I just don't have any data at hand (myself, it may exist) to suggest that the Apple cash reserves are in any way smarter at this task than big institutional dumb money reserves (which dwarf Apple in market aggregate).
A decade and change prior we could have said the same thing about doing in-house chip design instead of just buying off-the-shelf Samsung parts. Or designing their own GPU technology instead of just licensing PowerVR cores. Apple did not have those skills internally and there was no guarantee that those projects would pan out.
If there is one thing Apple is actually "good at", it's hiring people who are good at things they don't specialize in, and using those people to build out their own capabilities. So if Tim Cook decided that they need in-house fabs, they would use their massive cash reserves to hire and buy whoever and whatever they need to set up in-house fabs.
Apple's best bet here would be to co-fund TSMC building fabs just dedicated to Apple, which they would operate as a joint venture or whatever arrangement makes the most sense. It wouldn't make any sense to go it alone on new fabs when they have the tremendous expertise of TSMC to utilize. It might also be reasonable to distribute the fabs as much as possible to different locations around the world, rather than concentrating them near China / in Taiwan (put them in the US, in Europe, in Asia).
It sometimes certainly works strategically to deprive other companies of chips by buying up TSMC's supply, however that can also obviously work against Apple in a big way. If you really believe in your products and the demand for them, you'd want the dedicated supply from fabs you co-own.
You’re close to describing the current arrangement, a mutually profitable agreement to develop and use new capacity. There wouldn’t be much to gain from TSMC not owning the fab because TSMC is better at selling the older process capacity to other chipmakers, which lets TMSC offer favorable terms to Apple. For Apple to own fab would essentially mean for Apple to build a slightly smaller clone of the entire TSMC organization.
If Apple were to start doing their own fab they would likely start with some of the simpler support chips and work their way up in complexity through networking before getting to the CPU. This fits their historical pattern of quiet experimentation with new technologies well ahead of large investments. Bringing PMIC and Bluetooth fully in-house, for example, could yield benefits in supply predictability and give them more design freedom for low power wearables. Later they might do the cell modem. Main CPU is a harder sell, letting an external partner like TSMC handle it allows them to move on quickly while the partner sells the older process capacity to AMD, Intel, etc.
Not the most likely scenario in my opinion, but it's how they would do it.
> "Everybody knows" that a big chunk of the M1/mac performance dominance right now is due to their buying out huge amounts of TSMC capacity at leading edge nodes. Thus, much of the recent M1/M1Pro/M1Max "great leap forward" (pun intended) are directly attributable to TSMC specifically.
That sounds like good common sense, but you don't get the huge leaps in performance that we're seeing with single process advantage (7nm vs 5nm). Qualcomm has 5nm process ARM chips and they barely compete against what apple was shipping on 7nm ~2yrs ago.
> but I fail to see how the fact that Apple is good at designing chips has any relevance whatsoever to the idea that Apple may or may not be good at manufacturing those same chips.
> If every ROI-seeking multibilliondollar hedge fund in the world can't build a leading edge node fab or two to compete with TSMC, what suggests that Apple's money would do any better?
Apple had 0 chip designers working for them not so long ago. They saw the writing on the wall that they were not going to be able to get where they wanted to go, as quickly as they wanted to, relying on a company that didn't see the writing on the wall, and falling further and further behind. Apple had hardware engineers to design their products using chips from other companies, and software engineers to make them do something useful, and design engineers to make them pretty. Then they decided to hire some chip engineers, some really good ones at the top, because they can afford to and they had a will to and concrete purpose. On their very first attempt at a new cpu, they were running with the best of them. How long has Apple been designing chips and how does it stack up against Intels cream of the crop and how long have each been at it? I do not see why Apple would not succeed if they put their minds, money and leadership style to it.
> "Everybody knows" that a big chunk of the M1/mac performance dominance right now is due to their buying out huge amounts of TSMC capacity at leading edge nodes. Thus, much of the recent M1/M1Pro/M1Max "great leap forward" (pun intended) are directly attributable to TSMC specifically.
Right, which is exactly why I think they will start to rely less on something that is only manufactured/available in a single political hotbed of a country, Taiwan, because Apple is now reliant on the best/most advanced process only offered by TSMC/Taiwan. Those leading edge nodes are not available to TSMC plants in any other country that I'm aware of. The crown jewels are kept in-country, under tight control. China is very vocally stating that Taiwan will be "reunited" with China and being fairly hostile about it. Apple might be peering into their crystal ball, wondering what that eventually means for their heavy reliance on that single country and top of the line products that make them their money. That's a very new worry that didn't exist when they were using Intel chips, which were manufactured in multiple countries. Apples future currently lies in whatever China ends up choosing to do with Taiwan. That's a major single point of failure and scary position to be in. If I were Apple, I'd want to ensure more control over my product line into the future and history has shown that is a very big priority for them, to their benefit. I'm quite sure the China/Taiwan situation is giving everyone at Apple quite a headache. It's hard to predict and Cook's steering a trillion dollar ship. If you have the money, hedge your bets.
It would also open up an additional major revenue stream, after they've perfected it for their own products.
> Apple had 0 chip designers working for them not so long ago.
Apple's acquisition of PA Semi was over a dozen years ago.
I agree that the second best time to plant a tree is today, but I also think that nothing today is indicative of Apple's likelihood of success at operating a fab 5-10 years down the line from today.
They tried cars and (so far) seem to have failed. I have nothing to suggest that their odds at succeeding in chip manufacture would be anything other than 50/50.
I'd hope that money could be put towards researching ways to make their machines less fragile, or how to engineer an M.2 slot in a professional device with more than enough room. Maybe a thinner camera?
Infinite money doesn’t translate into infinite R&D, unfortunately. As pointed out by books like The Mythical Man Month, you can’t necessarily speed up development by adding more engineers/resources.
Put another way, infinite R&D will produce diminishing returns very quickly in the same time frame with the same constraints. R&D is a very long game to play, and depends on anticipating and adapting to more favorable constraints.
Edit: that said! The benefit of investing in it anyway is potentially changing the course or severity if those constraints by having more control over them.
"Cash" in balance sheet accounting-speak isn't limited to the dollar bills under Tim Cook's mattress. It refers to a large number of essentially "cash equivalent" things that can be converted to cash quickly and easily, albeit at essentially risk-free rates of return.
You maintain a cash reserve so that, if there is a (hopefully) short-term market correction, you're not stuck with having to sell assets in a dip to meet payroll, etc. Not really much different from people in that regard although obviously at a different scale.
Drug lord Pablo Escobar once burned $2 million cash to keep his family warm while they were hiding in a cave. It is also said he lost 1 billion cash per year due to rats eating the bills and/or dampness spoiling them.
I'd imagine more like Scrooge McDuck in swim trunks diving into a large vault of gold coins.
Also, I doubt there's really a matress. He just sleeps on the money directly. Stacks of banded bills is probably pretty stiff vs just loose bills all piles up organically. Like each night before bed, he takes a few new stacks of cash reserves and makes it rain before diving in.
The other user is right. In a low interest rate environment it’s well possible for risk-free to underperform inflation. You can see this in the current short-term US treasury rates. This is one of the reasons so much money is piling into riskier assets.
Because the company would have gone bankrupt in the late 90s had Microsoft not given them a loan (and it's likely the only reason MS did so was because they were facing monopoly scrutiny). Jobs swore that would never happen again and made sure everyone on his executive staff and board of directors was on the same page.
That is a bit of a mis-statement. Apple was in trouble at that time, but it was not on the brink of a bankruptcy (despite the constant use of the word "beleaguered' by the press), and Microsoft's investment did not materially affect Apple's ability to continue. The investment was intended as a show of faith from Microsoft (and turned out to be a good investment).
The far more important part of that announcement was the commitment of Microsoft to continue development of Microsoft Office for the Mac. That was the single biggest symbol that Apple was going to continue. Without Office the Mac was likely doomed to an ever smaller nitch, and everyone knew it. That one commitment on Microsoft's part cemented the Macintosh's place as a big player, and kept Apple from dwindling to the point where bankruptcy would have been a real worry.
It’s really not. Their financial results for FY97 was a loss of $1 billion. That was after posting a net loss of $816 million for FY96. At the time of the Microsoft stock purchase it was down to $1.2 billion in cash… you can do the math on their runway had Jobs not quickly turned things around.
Only in an accounting sense is their money stored "around the world". It's all managed by their Nevada investment company Braeburn Capital. They can freely move it to banks in the US or to anywhere else they need it, it's only "overseas" in the sense that they recognized the revenue elsewhere.
Cash and cash equivalents is the line on the balance sheet and includes things like T-Bills and other low-risk investments. Apple almost certainly does better than inflation and regardless, it's completely normal treasury management to return ~0% since if your shareholders wanted exposure to riskier assets, they'd buy those assets with their own money.
> They can freely move it to banks in the US or to anywhere else they need it, it's only "overseas" in the sense that they recognized the revenue elsewhere
Yes, they could, however the point made above is valid - if they did that, they'd have to pay a chink of US corporate tax on it, and unless they have a use for it in the US, that'd be analogous to throwing money away.
In recent years, Apple has been taking out big loans in the US (or selling bods - same effect) collateralized by their overseas cash equivalents whenever they need an infusion of USD. Paying 2% interest is much cheaper than paying 10-15x that in taxes.
I haven’t used Apple Card, but it was apparent when I financed with their previous partner Barclays that they had their own say at least in the application and approval process. It was wildly different from applying for credit in any other scenario I’ve experienced. They’re clearly backed by other credit vendors but that doesn’t mean they’re not operating their own financial institution.
They have a lot of productive options to choose from, but it's either charity, or improving their products beyond being faster. Apple would sooner dump money into the ocean than do either.
Apple could hire more engineers to make it's software less buggy at least and to fix a lot of long time small annoyances. And to double their devtools engineer count to make the entire company and all of their external developers more effective.
You think adding more engineers would make their software less buggy? Really? This seems contrary to literally everything I have ever read, experienced, or in any way known for my entire career, including reading books written about software engineering 30+ years ago.
As far as I understand it, you probably can add engineers to make software less buggy, but:
1. the improvements will probably come at roughly the logarithm of the number of people added at best (and, you can do worse without discipline and/or with a dysfunctional organization, possibly even negative), and
2. after their ramp-up period, like 6-9 months, during which each person might contribute a small negative load in mistakes, draining existing talent's time with questions, etc., and
3. you prioritize and value fixing bugs over adding new features, and
4. you probably want to structure those engineers in ways where they can contribute off of the critical path, like QA, dedicated to straight bug fixing, etc., and
5. You probably need an almost "microkernel" like team for very large projects--because the communication overhead grows as n^2, you need a small core, and ways to scale and build without growing the communication overhead--teams working on well defined and isolated subsystems off core, various "modules" that interface with the "microkernel core team" without imposing n^2 communication overhead between everyone working it, without breaking the product or making serious mistakes from not having n^2 connections
just thoughts, really. my intuition is: do everything right, and you can get log(added people) productivity increase time delayed (with a short term dip as those people get up to speed), up to, unfortunately, negative gain if you do much wrong
One way it can work is if devs are already overcommitted on multiple projects, so letting them focus more does help. E.g. horizontal scaling, rather than piling more devs onto the same project.
They could create more products with their own teams. Apples cloud offering pales in comparison to Google's and part of the reason is they are just missing too many services. iCloud web feels like a bare minimum effort that doesn't get any attention.
I don't know how successful this would be, but they could also start building and selling more apps/programs but perhaps this could be seen as anti competitive.
They have been consistently releasing new product lines. We don't need 20 different models of the macbook but there are plenty of software experiences that Apple has no offerings in.
Which is why it just doesn't work so well compared to Google products. I'm an Apple user on basically every platform but cloud services are a collaborative experience so I'm not going to host anything on iCloud when it works like crap for half the people I need to work with.
They have become a little better at this, facetime can now be joined by Android and web users as long as an ios user starts the call.
It's debt to cash-in hand ratio. Apple currently, as of March 2021, had US$120.2B of debt [1]. So, if they have $120.2B of cash, then it neutralizes their balance sheet. And, that's what the net cash neutral position is.
As other explained, it's to keep cash inflows and outflows as close to even as possible. They have enough cash for future investments and thus don't need to stockpile any more. Apple has been saying this for awhile, and at this point I see it as a joke/humblebrag ('we're making so much money we literally can't spend it all').
Apple has been continually buying back shares with the goal of having as much cash on hand as debt (simplification). This returns the cash to shareholders.
>“This year we launched our most powerful products ever, from M1-powered Macs to an iPhone 13 lineup that is setting a new standard for performance and empowering our customers to create and connect in new ways,” said Tim Cook
one platform for all their products. (one ring to rule them all) how much did Apple saved by going with their own in-house designed chip?
I’d say both yes and no - Apple’s now booming services division (which includes the App Store) only started to produce meaningful revenue and profit after introducing a range of ancillary and subscription services.
Absolutely agree that any change to their business model will be a hit on their revenue - but I believe people may be grossly over stating how much of Apple’s services division profit is coming from that 15/30% share. Running the app store is easily their most costly service and stable users aren’t in the habit of buying apps - but those people sure are paying their monthlies on iCloud/storage and music. (Also not to forget that apple get a cut from every Apple Pay transaction.)
b) It's under scrutiny but the legal consensus being formed is that Apple simply needs to allow links to alternate payment systems. It doesn't need to allow sideloading or offer alternate app stores.
c) Some countries are looking at forcing Apple to offer a "choose your phone/mail/calendar app" screen on initial phone purchase which does have precedent and looks far more likely.
Well, their contracts with AWS should expire in a year or 2. Also, they've used AWS, GCP, and Azure.
It only makes sense to migrate to their own cloud.
They're already offering Xcode Cloud. The logical step afterwards would be a public cloud. This is where the big money is.
> They're already in the business of making complex web pages
I think Apple are famous for not having this core competency compared to its competitors?
> so why special case it?
Why do companies outsource anything? Why doesn't Apple employ its own janitors? Because it's not what makes them money and their engineers are astronomically expensive.
Dividends are not an efficient mechanism to return cash to investors. The recipient is forcefully taxed.
Share buybacks technically accomplish the same; the proportional increase in shareholder value should be the same. However, investors who do not want to recognize income that year do not have to; whereas investors who need the dividend income can sell a small number of appreciated shares.
I need to look at this more, but don’t dividends mostly return real current earnings where share buybacks are moving your return to future earnings which may never exist?
Also, many people are harmed by this tax treatment because a couple making 80k a year pay no tax on the dividend capital gains?
I am just saying dividends v share buybacks are not the same and have other effects.
Yeah. They're different. Dividends give you cash on the barrel each quarter that is very sticky about heading in a downward direction--but tax treatment is pretty much like ordinary income in most cases.
Stock buybacks may drive stock prices upwards in an unpredictable way that may lead to being able to sell appreciated stock in a tax-advantaged way a couple years out.
Theoretically, it's all the same after tax effects but we don't live in that theoretical world.
For the 2020 tax year, you pay 0% on long-term capital gains if you have total income of $40,000 or less; 15% if you have income of $441,450 or less; and 20% if your income is greater than $441,450.
Interesting, I never paid attention to that. I would guess the number of singles/couples earning $40k/$80k total per year or less and own enough stock to get material dividend income must be miniscule.
Lots of retired affluent people fall into that category. A $4M portfolio would throw off $80K in annual dividends assuming an average 2% dividend rate.
A retired couple with $4M net worth excluding home value is 97th percentile. $1M is 90th percentile.
And they surely would have a significant proportion of assets in bonds yielding a couple percent rather than stocks, so earning tens of thousands in only dividend income is probably super rare.
Is it possible that its not 100% shortage problem but rather a problem with Apple's iPhone business? It has been a decline for a while now. They have nowhere as big of a market share and generally they've shifted towards services as a hedge.
Most discussions and news sites report shortage issues but I wonder if there is an underlying deeper reason.
Oops, I meant to say deccelerated. But it appears to be worse - stagnant at 14%. So, I think the real reason they need to ask themselves - why? They've tried a few things with low cost iPhone SE models to gain market share but it has failed thus far. Perhaps it is the inertia of switching OS/GUI, or perhaps it is an indictment of how bad the iPhone UI has gotten. Or, that Android and other phone manufacturers are offering mutually exclusive things that iPhone simply cannot satisfy. It surely isn't the shortages.
Or perhaps we need to be asking ourselves: Why do we demand ever-increasing growth in order to declare that a company—hell, even a product or a segment within a company—is "healthy"?
Smartphones hit a saturation point a while back. At this point the only ways for Apple to grow marketshare are to a) lure away current Android customers, or b) convince first-time smartphone purchasers to go with iPhones at a higher rate.
Neither of those things are trivial, and not being able to do so for a little while should not be taken as an indication that something is wrong.
I agree, once alot of providers stopped offering subsidized prices for phones with contracts I feel like myself and others stopped buying a new iphone every 2 years. The larger models cost as much as a laptop and that is a really steep cost for the average American to deal with every 2 years.
The phones also started stagnating in additional utility for new models. Smaller and smaller portions of people gain anything going from one model to the next. A $500 iPhone SE has plenty of camera and processing power for people, and it is basically an iPhone 8.
No, it hasn't been growing. It has been stagnant and stuck at 14% for quite a while.
Shouldn't we question whetever comes out of the shareholder's meeting? The classic is 2017 BTC boom that deluded NVidia's shareholders, no one questioned it and then in 2018, Jensen speaks up in the shareholders mtg that we're now in a Bitcoin hangover. Obviously, they've accelerated since then, but the point remains.
It's important to play a devils advocate even if you're wrong. No one in this thread seems to be doing that.
I really have no horse in this race, just putting out contrarian views from the herd.
Gross margin on the the increase in services sales looks astonishing. Has there been a one off increase in eg fees for Google search in services revenue?
It always had a lot of potential in terms of profitability, theoretically you can get the marginal cost of a digital item to nearly zero if you have a large scale.
Agreed but lots of Apple’s growing services don’t have low marginal costs - Apple Music - or they are investing heavily - Apple TV - so this seemed a bit surprising.
Services revenue is at risk due to increased antitrust scrutiny worldwide. The more Apple focuses on services, the bigger the potential downside on their valuation.
iPhone 13 is not going to sell well. And while I believe they will sell a good amount of laptops this holiday season, they are relatively low margin products and do not represent cross selling opportunities as you do with phones.
This is to say, Apple “needs” a new major product. Car is a moonshot but I personally think they can easily tackle the gaming space. They have all the right pieces to create $500B market cap.
The iPhone 13 has a ~3 week shipping estimate right now. So it seems to be selling just fine. Maybe that's due to the chip shortage, but regardless, they are selling as many as they can make right now.
For some reason Apple seems to pay no attention to anything other than casual games. They completely crippled the mac gaming scene which was doing OK when they killed 32bit and never implemented vulkan support. IMO they can't embrace VR without going back and helping the game developer scene in getting the tooling they need to make mac support easy.
At some point, probably. Very unclear when and what it looks like at this point. Aside from niche commercial use cases, I certainly haven't seen anything that especially interests me.
Why do you think laptops are low margin? The margins have always been good and since they switched to Apple Silicon, their margins can only have improved.
Where are you finding that laptops are a low margin product for Apple. Apple tends to shoot for 36% margin. It's not like the Mac segment is a small portion of sales and profits for Apple.
Can someone more business savvy explain what that means?