You might have seen the headlines: Apple (Nasdaq: AAPL) has the sort of problem we’d all like to have… what to do with $100 billion. Yes, you read that right. Apple has a lazy US$100b (okay, $97.6 billion, but what’s $2.4b among friends) in cash – a pile which has been growing faster than you could count it and burning a hole in shareholders’, if not management’s pockets. Let’s put that in some context. Last year alone, Apple increased its cash hoard by nearly $38 billion. You know how I said it was growing faster than you could count it?…
You might have seen the headlines: Apple (Nasdaq: AAPL) has the sort of problem we’d all like to have… what to do with $100 billion.
Yes, you read that right. Apple has a lazy US$100b (okay, $97.6 billion, but what’s $2.4b among friends) in cash – a pile which has been growing faster than you could count it and burning a hole in shareholders’, if not management’s pockets.
Let’s put that in some context. Last year alone, Apple increased its cash hoard by nearly $38 billion. You know how I said it was growing faster than you could count it? I wasn’t kidding – Apple added US$1,200 to its cash stash every second of last year.
How much cash?
Apple’s cash stockpile is larger than the GDP of all but 57 countries. Of course, the numbers really get crazy if Apple hits expectations and keeps adding to its cash pile in the quarters ahead:
- After next quarter, Apple’s cash hoard will be able to pay the entire total of the US federal government’s costs for education in a year.
- In two quarters, Apple’s cash hoard will be able to pay for the inflation-adjusted cost of the Marshall Plan (US$115 billion).
- By the end of next year, Apple’s cash hoard will be larger than all of the corporate taxes America collected in 2009 (US$138 billion)!
Of course, none of those apply if Apple decides to return cash to shareholders, but perhaps we shouldn’t be surprised that Apple is looking at options for how it might use that cash.
If Apple could justify keeping a war chest in the past, surely the current holdings are way above its needs. If you’re not sure, let me share a couple of numbers with you. Apple could buy – outright – Bank of America, Amazon.com, Disney, Goldman Sachs or Boeing.
In a couple of quarters, Apple could buy both Goldman Sachs and Boeing!
What do you do when you have too much money?
Some investors have long called for Apple to implement a regular dividend. Steve Jobs resisted that call for years, but when you consider that Apple had ‘only’ US$15 billion in 2007 and $34 billion in 2009, the current chunk of change is in a whole different league – especially with no signs that its phenomenal growth is likely to slow any time soon.
Another option for Apple is a special ‘one time’ dividend. This strategy lets it return some of that cash to shareholders, while avoiding creating an expectation for regular dividends – particularly if the company thinks it might need a large amount of cash on hand for a future acquisition or development.
Commentators have long speculated that Apple could potentially pursue a big acquisition to complement its current business. Options such as purchasing a telecommunications provider or music/movie rental business have long been suggested. On one level they make sense – after all, iTunes has a similar business to the US movie-rental and streaming service Netflix, and the amount of data being consumed through iDevices must be a fair proportion of overall cellular data traffic.
Still, Apple has long avoided large acquisitions of existing businesses. It prefers to build from the ground up, and most acquisitions thus far have been purchases of either technology or know-how that it could integrate into existing platforms or new products.
To be honest, a combination of both a one-time special dividend, and the implementation of a small regular dividend is a pretty likely option (but then, who knows with Apple), as is a stock buy-back.
One thing is for sure – Apple has more cash than it can use in its core business (no pun intended). It’s a problem that most boards and CEOs would kill for. We’ll know Apple’s plans soon enough.
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Scott Phillips is a Motley Fool investment analyst. You can follow him on Twitter @TMFGilla. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).