Apple dropped a bombshell in their last earnings statement. In the midst of a nagging recession, they posted their best quarter ever, raking in $7.31 billion of profit on 28.57 billion of revenue. iPhones and iPads both posted triple-digit year-over-year growth, and its Mac business grew by 14 percent.
These numbers make investors and analysts excited, but what got people really buzzing was another number—$76.2 billion, or the amount of cash Apple has on hand. Like kids in a toy store, analysts and observers just couldn’t help themselves in trying to find ways to spend that money. Speculation ran rampant, ranging from stock buyback schemes to dividends to purchasing Hulu (which is a terrible idea if you think about it for more than a minute—Hulu’s value is in its content deals, which could very easily disappear).
Apple, on the other hand, seems to be playing it coy, like it always does. The company has never been one to publish its game plan, but its conservative approach may be due to more than just secrecy. Apple does a sizable portion of its business overseas—62 percent of last quarter’s revenue—so much of its profits may be parked out of the country. “Apple may have the same issue Microsoft and many other major U.S. exporters in high tech have, namely, a lot of the cash is in foreign currency,” said Shane Greenstein, a professor of management and strategy. “If that cash is abroad then it is not really fungible cash, like cash for a dividend would be.”
Money parked abroad also doesn’t incur taxes until it is repatriated, so there’s some incentive to keep it there until it’s needed. Apple and other technology companies are lobbying Congress for a foreign income tax holiday, so the firm may simply be waiting for their wishes to become reality.
In the meantime, Apple can always invest the money overseas. And they have, albeit on a limited scale. For example, Apple spent a rumored $7.8 billion on a contract for displays with Samsung. But such parts contracts are a pittance compared to Apple’s cash on hand. Part of that, Greenstein said, is “the opportunities for investment are quite different abroad, and they may simply not see anything that merits spending that kind of money.”
For the foreseeable future, Apple will likely sit on its hoard and wait for opportunities to present themselves. There’s not much pressure for them to do otherwise. Investors don’t seem motivated to push for a dividend; they’ve probably been placated by the stock’s meteoric rise. Apple’s recent growth has come from in-house products, so there’s little need to buy other firms. In the meantime, we’ll just have to sit and wait to see what Apple does, like always.
Photo by Zolk.