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What should Apple do with all that cash?

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Apple just had another monster quarter, pulling in revenue of $29 billion. It was also able to put away $10.4 billion in cash, bringing its total cash and securities to $76.2 billion. Below is a chart from Asymco that illustrates the way Apple’s (s aapl) cash has grown over the past five years. Unlike companies of similar size and age, Apple doesn’t regularly make acquisitions or pay a dividend to shareholders. It’s extremely conservative about what it does with its money, which has become, well, a little controversial.

Apple cash
Asymco's chart of Apple's cash hoard following the company's Q3 2011 earnings

Here’s what some of the most vocal are saying about what Apple should do with its mound of cash.

  • Bernstein Research analyst Toni Sacconaghi in the Wall Street Journal called it “a level of cash that’s preposterous by any metric.” He says Apple should either buy back shares of its stock or issue a dividend.
  • Over at Fortune, Philip Elmer-DeWitt argues against such a movie and warns “don’t be fooled” by those Wall Street analysts howling about Apple paying a dividend. “What these men want done is for Apple to give the money to ‘the stockholders,'” he writes. “What they don’t say is that they are the stockholders. Institutions own more than 70% of Apple’s shares and would be the primary beneficiaries of any buyback or dividend.”
  • Daily Finance suggested Apple could buy a company with its hoard of cash. DF didn’t suggest any company in particular should be targeted. But it did point out that “[w]ith a market cap in excess of $360 billion, it could easily use its stock as currency” to make an even larger acquisition.
  • Other eyebrow-raising suggestions thrown out there include Apple getting into the TV or gaming business, or snapping up Facebook, Hulu, or Netflix.

If the past is a predictor of the future, Apple is likely to do nothing drastic. This is not the first time the company has come under fire for its conservative spending ways. At a shareholder meeting last year, Jobs was peppered with questions regarding his plans for the money (he joked he was going to “throw a toga party” with it) but he answered very directly about how Apple think about its cash on hand: namely that it provides “security and flexibility.”

“When you take risks, it’s like jumping up in the air, and it’s nice to know the ground will be there when you land,” he said at the time. “We run our company conservatively from a financial point of view because you never know what opportunity is around the corner … We’re very fortunate that if we needed to acquire something we could write a check for it and not have to borrow money.”

With the ongoing war in the mobile industry over intellectual property taking place right now, that attitude is proving awfully prescient. Earlier this month Apple was able to put down $2.6 billion as part of a consortium that bought Nortel’s mobile patent portfolio, an amount that’s relatively tiny compared with the rest of the cash Apple’s got stashed away.

8 Responses to “What should Apple do with all that cash?”

  1. What should Apple do with all their billions? Bring all the money they have stashed overseas, pay taxes on it to help our deficit, and help jump start some businesses in our ailing Rust Belt.

  2. Site7000

    It’s not an easy question to answer. I think Jobs is happy with the way things are now and very reluctant to buy a large, established company because of the impact it would have on Apple’s corporate culture and his ability to know every detail of what’s going on, not to mention the problem of government approval of any purchase that might make sense. Buying patents is a more comfortable play, although I was astonished Jobs didn’t buy the Palm portfolio when it was on the market. Given the extreme uncertainty with the world financial picture, I can see the value to having a very large cushion against adversity. And the thrill of buying a $1B campus and a $1B server can’t be denied. But still…enough is enough. Putting $10B per quarter under a mattress does not make sense. Something needs to be done to get better value out of that money.

    • SBMobile

      Why buy a company that’s not going to exist in a few years? Why buy patent-portfolio’s that are probably covered by currently owned patents already? Apple has just changed the business model for the “billion-dollar” company! Why waste well earned capital on dividends & buybacks when the company is totally solvent. Buybacks are needed to protect companies from long-term losses. Apple’s overall business growth is un-real. Between the iPhone, iPad, iPod Touch & Mac, Apple is looking at astronomical growth, year-over-year. They’re headed to a stock price of $600-$1000; a market cap over $400B + title of #1 company in the world; well over $100B in cash. Why would they ever listen to the ‘geniuses’ that’ve been betting against them for the last 5 years. These analysts crying for a buyback are the same people that own the majority of Apple’s stocks. So it’s all a lot of ‘hot air’ at the end of the day.

      • Steve Webb

        What would you, the stockholder, do if Apple gave back money. If the answer IS NOT “buy more Apple stock”, then you can just get the money by selling your Apple stock. If the answer IS “buy more Apple stock”, then you might as well tell Apple not to give back the money.