Apple's cash grows, but no hint of its plans

SAN FRANCISCO (Reuters) - Apple Inc has nearly $29 billion of cash on hand, a pile of money exceeded at only one other tech company, but if the past is any guide stockholders aren’t likely to share in the wealth any time soon.

Customers look over an Apple iTouch at the company's retail store in San Francisco, April 22, 2009. REUTERS/Robert Galbraith

The iPod, Mac and iPhone maker does not routinely pay a dividend, repurchase stock, or acquire companies, so what it will do with its war chest presents something of a mystery.

Many analysts are skeptical that Apple will distribute any of the money via dividend or buy back shares, saying being flush is never a bad thing, especially in an uncertain economy. But not all analysts agree.

“I think the pressure is definitely mounting,” said Scotia Capital analyst Gus Papageorgiou. “It’s just too big a number ... the cash belongs to the shareholders, the shareholders don’t need Apple to invest the cash, they need Apple to generate the cash.”

Other analysts say there is some pressure on Apple from shareholders, but that it isn’t huge because the company has demonstrated a knack for grinding out growth even in a down market, which helps mute much of the grousing from investors.

Apple has a history of hoarding cash for a rainy day, said Jeffrey Lin, an analyst at TCW Group. TCW Asset Management owns roughly 2.4 million Apple shares.

Although he would not mind seeing a dividend, Lin said stock buybacks have not been proven to boost share prices. Moreover, that’s not why people buy Apple’s shares.

“A lot of people would like to see it happen ... but I think more people care about the bottom line,” Lin said. “If the company’s beating numbers and executing well it’s hard for somebody not to own ... you may not like it, but it’s not going to keep you from owning it.”

Apple’s investors have seen handsome returns without the benefit of buybacks or dividends. The stock has nearly quadrupled since the start of 2005. Over that same period, the Morgan Stanley High-Technology index of major tech stocks has declined by more than 15 percent.

Apple shares are up more than 45 percent this year, twice the gain of the Morgan Stanley Hi-Tech index.

The company last approved a share repurchase program in 1999, when it authorized a $500 million plan. It last bought back shares in 2001. The company used to have a recurring dividend of 3 cents but scrapped it after 1995.


Apple had nearly $29 billion in cash, cash equivalents and marketable securities as of March 28. Only Cisco Systems Inc, with nearly $30 billion in cash and investments, tops Apple in that category among U.S. tech names. But Cisco’s $5 a share in cash pales next to Apple’s more than $31 a share.

Morgan Keegan analyst Tavis McCourt said the cash provides Apple with advantages, allowing it to lower its cost structure by entering into large pre-paid contracts with vendors to buy items such as LCD screens and flash memory.

“I don’t think they have to do anything, nobody’s holding a gun to their heads. Companies feel pressure to do something with cash when they’re not giving investors any value for it.”

Apple’s shares and products are holding up well in the downturn, and McCourt said he would he would expect the Cupertino, California-based company to face more pressure from investors if its fundamental trends were eroding.

Apple is not tipping its hand. When asked about the cash in April, Chief Financial Officer Peter Oppenheimer said, “We are investing it very conservatively, I’m comfortable with our investment portfolio and in these times having the cash feels very good to us.”

An Apple spokesman referred questions to previous company statements about preserving financial flexibility to make strategic investments or acquisitions.

But Collins Stewart analyst Ashok Kumar questioned how much good the cash is doing on the company’s balance sheet.

“The low-hanging fruit would be a buyback and/or a dividend. If you look at what they’re generating in interest ... it’s not like they’re putting it to much use.”

According to Apple’s quarterly report filed with the U.S. Securities and Exchange Commission, the weighted-average interest rate it earned on its cash, cash equivalents and marketable securities was 1.53 percent in March quarter, down from 3.93 percent in the same period last year.

Unlike other tech companies, Apple does not acquire very often, choosing instead to develop its technology in house. Its last deal came a year ago when it acquired P.A. Semi, a designer of low-power microchips, for a reported $278 million.

Reporting by Gabriel Madway, editing by Tiffany Wu and Steve Orlofsky