US Outlook: What would you do with $100bn?
This is the increasingly pressing question for Tim Cook at Apple, which is sitting on a cash pile quite unprecedented in corporate history. If he doesn’t give a lot of it back to shareholders, and quickly, he is going to have an investor revolt on his hands.
The iPhone maker’s chief executive did at least rule out one possible use for the money this week. “We’re judicious, we’re deliberate, we spend our money like it’s our last penny,” Mr Cook told a Wall Street conference. “We’re not going to go have a toga party or do something outlandish.”
So, no togas. The company is also not going to make a giant acquisition. There could hardly be anything more damaging to its image. Apple invents stuff. It doesn’t acquire.
In some ways, Apple’s cash hoarding is the psychological legacy of its near-death experience in the Nineties, before Steve Jobs returned to lead its renaissance. Coming so close to bankruptcy was a constant reminder that what’s hot in tech one day can be deeply uncool or even obsolete the next. A plump cash cushion gives you time to adjust if things go wrong.
And when things go right, when you have the world at your feet, why would you hand cash back to shareholders? Mr Jobs used to say that he knew what consumers wanted even before they did. How much less likely are shareholders to know?
But don’t forget that it is shareholders’ money, and that you can take these things to extremes. A treasure chest of $97.6bn in cash and investments is extreme, and with Mr Jobs gone, the Apple board and Mr Cook have shown themselves more willing to consider a sensible dividend strategy. This week Mr Cook urged investors to be patient, but the time for patience is over.
Cash keeps pouring through the door. Apple sold 37 million iPhones in the final three months of last year, more than 15 million iPads, and even 5 million Macintosh computers, whose sales have soared along with Apple’s cachet among consumers. In that quarter alone, the company generated $17.5bn in cash. That is far more than it could possibly invest in new product development, even if Mr Jobs’s modest goal of reinventing television is just the start of its ambition.
And something else has happened in the past few weeks. Apple’s shares have surged on speculation that Mr Cook will finally unlock that treasure chest of money. If Apple says it will pay a dividend, it will suddenly become eligible for inclusion in income-focused investment funds. This new source of demand is why the stock passed $500 for the first time on Monday, just seven months after it shot through $400. The company is the most valuable on Earth, worth $475bn; it is not a fly-by-night tech venture that could disappear tomorrow. It should be paying a dividend, and the investors who are heading to its annual shareholder meeting next Thursday expect Mr Cook to announce one.
If he doesn’t, you can expect some serious dissent, perhaps even a legal challenge. And if pro-dividend shareholders want to make their point with a protest at the meeting next week, I have a suggestion. Turn up wearing a toga