Apple’s heaping pile of cash continues to sit around accumulating low level interest. While most shareholders claim to be bothered by the lack of this money’s use. The debt-free Cupertino based technology company claims to be preserving their flexibility, by letting the sum build up.
“Apple Inc. (AAPL) shareholders haven’t had much to carp about, with the stock up 1,474% since 2003. But if there is one complaint, it’s the company’s refusal to do anything with the $20.8 billion in cash and short-term investments it has socked away. The cash just sits there, earning little more than the average savings account,” Peter Burrows reports for BusinessWeek.
“Our preference is to maintain a strong balance sheet in order to preserve our flexibility,” Chief Financial Officer Peter Oppenheimer told investors earlier this year.”
Flexibility aside, if Apple thought this money had a better home other than their bank account, it would already be there.
Apple has been adding $1 billion in cash to the ever-growing pile of money, each quarter. Some analysts are saying that with Apple’s strong computer, iPod, and iPhone sales, the company could very well pass Microsoft (MSFT), which has $23.7 billion in cash saved. “”[Apple] could have $40 billion in the bank [in two years],” says analyst Gene Munster of Piper Jaffray (PJC).
Burrows continues to report the following, “The steep accumulation may not be obvious to investors. One reason is the way Apple accounts for iPhone sales. It books the revenue from each iPhone over 24 months because the phones are sold as part of a subscription through AT&T (T) and other carriers. But Apple gets all the money as soon as customers buy, so cash hits the balance sheet long before revenues show up. A second reason is Apple appears to be getting more for each iPhone than analysts expected. While AT&T and others charge customers $200 for the entry-level model, some analysts now estimate the carriers pay Apple $500 to $600 a phone for the right to charge users lucrative service fees.”
Apple’s stock has been hammered through the last 4 months or so, but overall since the iPhone was released, the stock has soared. Some investors and shareholders are content with Apple continuing to build up a very impressive pile of cash. Others would like to see Apple make some more acquisitions, “Valuations are low, and Apple has the marketing horsepower” to turn promising technologies into hits, says Murray M. Beach, managing director at investment bank TM Capital.
“One radical possibility would be for Apple to snap up content. Some analysts think the company should explore acquisitions in the music business, taking advantage of the major labels’ dire straits. Though that may create conflicts, Apple could use its knowledge of shoppers to create innovative sales incentives and promote new acts. “The music industry has come to believe that their industry will be smaller,” says one source close to Apple. “Apple wants it to be a bigger, more profitable industry,” Burrows explains. Apple declined to comment.
“Apple has many options beyond mergers and acquisitions. With prices for raw materials skyrocketing, American Technology Research analyst Shaw Wu thinks Apple should provide funds so its suppliers can stock up before prices rise more. Apple could also take equity stakes in startups working on technologies important to its future. For example, Apple has a glaring need for better batteries for its new iPhone,” Burrows reports.
Although it wouldn’t make sense for Apple to completely acquire a new company based on the need for longer lasting batteries. Other components that are used in the iPhone, that drain the battery life as well. It’s not just one key technology that determines the current battery life for the device. (Think GPS, 3G, Wi-fi.)
“Analyst Charles Wolf of Needham & Co. figures the company doesn’t need more than $5 billion on hand, but he says investors aren’t likely to complain,” Burros explains. “I’d say something if this was a sleepy company with no growth,” says Wolf. “That’s not Apple.”
Surely Apple has plans for the ever-expanding sum of money. With top level guidance such as Apple’s, Wall Street can’t do anything but sit back and speculate. When Apple decides to make a move with that money, we will all know about it.
Original source of this article is Peter Burrows, senior writer for BusinessWeek, based in Silicon Valley .
