Friday, January 27, 2012

Apple Will Put Its $100 Billion To Innovate and Disrupt; So Shut Up About Dividends And Stock Buybacks

More than 46 billion in revenue, 13 billion in profit, and, now, we learn that Apple has close to $100 billion in the bank in various cash and short-term investment vehicles, there has not been a shortage of what Apple ought to do with all that money "in the bank".  I know this much:  there will be no dividends or stock buybacks.

It's not Apple's style.Tim Cook and Peter Oppenheimer told analysts during its financial call that the Apple board was in active discussion about what "constructive" ways Apple can use its cash, it gave folks hope that Apple is headed towards rewarding shareholders in one way or another.  Despite that, it's not happening.

If Apple wanted to distribute money or buyback shares, it would have done it a long time ago.  A year ago even.  

This is why I think Apple will put that money to work in ways that will solidify its future in mobile and ecommerce.  This will happen in such a way that even some of its cash rich competitors will not be able to do.  After all, its closest competitor has about $30 billion in the bank but that is still quite different from having $100 billion in the bank that Apple has.

I think all of this is related to how Apple will take iOS and the iPhone into a new direction.  And it could happen with iOS 5.  

One quick example I can come up with is this.  Suppose Apple comes out with such an innovative HDTV that will cost in the range of $4000-$5000.  Not many folks can pay that kind of money right off the top.  So perhaps, Apple could use its money and create sort of a credit line for anyone who wants to own such a TV.

Apple can also give users financial deals on Macs and iOS products.  The same can be done for schools where Apple can set up funds to help students finance iPad purchases.  

Certainly, Apple will continue to invest in supply lines and innovate in new manufacturing processes.  

All of what I mentioned are likely on the table for Apple regarding what it wants to do with its cash.  The point is $100 billion is an opportunity, not a burden as some on Wall Street would like us to believe.  Apple is a company that is in an unique position to make the most of this opportunity.

During President Obama's state of the union address on Tuesday, a term that is likely going to be a corner stone of his reelection campaign is "build to last".  Most would agree that Steve Jobs' legacy isn't the Mac, iPod, or the iPhone but Apple itself.  

Giving $100 billion back to the shareholders just isn't something helps an enduring Apple.  But using it to further innovate and implement new technologies and disrupt new markets will continue to buiid on Steve's legacy.

Note:  It's possible the Apple board of directors might offer some token stock buyback to satisfy some Wall Street critics but I doubt it'll be anything meaningful.

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