> I hate to say this is a bad idea, but dividends signal to the market that you have no better way to spend your money than just giving it back to investors to spend elsewhere.
The ever-present notion that the leadership team of what is now one of the largest companies in the world has no real idea what they are doing is fascinating to me. Perhaps they deserve a bit of credit.
Getting good returns from a 100 billion dollar investment is hard. Just as an idea of scale that's enough money to more than double world wide fusion research spending for the next 30 years. Suppose they started down that path and 20 years from now started building useful and highly profitable fusion reactors that beat coal power plants. Now what if that failed. Measuring the risk / benefit curve on such an investment is hard. But, Apple could afford to fund 5 other projects on that scale without touching their cash horde.
IMO, Apple starting down the dividend path is simply the only reasonable course when faced with that sort of cash flow.
> Getting good returns from a 100 billion dollar investment is hard.
You don't play with 100B in the same way that you play with 100K.
There are few times when a really compelling buyout opportunity emerges. And it is at those times that you want the warchest. Until then, you need to keep the dry powder.
As an example, Buffett wouldn't be able to negotiate the really sweet deal with BofA last year (5B, paper profit ~ 2.8B at the onset) without the cash balance.
I don't think this hits their warchest at all. The # I heard on NPR this morning was about 2.5B/Quarter, but their profit is about 13B/quarter. Even with a 10B stock buyback plan, that's not quite a quarter of profits. Disregarding the buyback, they should still be adding to their warchest. I believe it's only when they announce a special, one-time type of dividend that it signals they don't think they will have anything to do with the money. For example, Ford basically did that a few years ago (although in retrospect 10B in electric research or something might have been wiser).
You're right. Apple has so much cash that the only thing that makes sense is to both pay out quarterly dividends AND buying back their stock. Even though AAPL is still considered a GROWTH stock.
NOTE:
Apple earned ~$13b profit last quarter and it's only going to grow. $15b x 4 quarters = $60b PROFIT PER YEAR.
They can easily afford $45b over the next 3 years considering they have more money than God.
They're riding a hit. I know this borders on heresy here, but the iPhone/iPad ecosystem is really just one very good product that hit an amazingly lucrative sweet spot in an emerging market. They're printing money with it because they got there first and best (c.f. Microsoft), not because their "leadership team" is reliably able to produce hit after hit.
Even Jobs only really got one money-printing-quality hit like this in his career. Most of "his" other stuff was great, sure, but mixed with equally great competitors (Pixar -- Toy Story was huge, but so was Titanic) or never managed to break into the market due to bad timing or market conditions (Mac OS).
Seriously: if all that Apple can do with that $100B is produce a top flight movie studio or a distant-second competitor to an established monopoly, it's not enough. They should give the cash back instead.
Pixar didn't enjoy iPhone-like profitability (edit: that's not the same as revenue, everyone knows that, right?). And the reason is that it had very successful competitors. The Mac likewise. That's not good enough. Apple investors can make their own decisions about buying into new products like that. The GP post was implying that the "leadership team" was likely to do better.
My point is that (1) no, they really can't product another iPhone-like hit (that's a once-a-generation thing) and that (2) Jobs is dead, so there's a serious question about the "leadership team" that investors need to see as a risk. Is it really "safer" to leave your share of that $100B egg in one basket, or just to put it into a mutual fund?
Personally, I'd say Pixar seems to be the Apple of the movie industry. A few products, done right, and hugely profitable:
> As of February 2012, its films have made over $7 billion worldwide, with its $602 million average gross by far the highest of any studio in the industry. In addition all the films produced by Pixar are among the fifty highest grossing animated films of all time, with Finding Nemo (#26), Up (#43) and Toy Story 3 (#7) all in the top 50 list of highest-grossing films of all time. - http://en.wikipedia.org/wiki/Pixar
> My point is that (1) no, they really can't product another iPhone-like hit (that's a once-a-generation thing)
They've already put out three in a generation - iPod, iPhone, and iPad. Lumping those three distinct systems into one is intellectually dishonest.
And... the expected Apple fan flames have begun. Pixar, iPod and iPad didn't have anything like the iPhone's level of profitability. I lump the latter in with the iPhone because the current implementations are one platform (no one calls it, ahem, "intellectually dishonest" to talk about "windows" profitability instead of "windows home" vs. "windows server" numbers).
But there's no need, so I'll simplify. If all Apple can do with that $100B is generate another Pixar, Macintosh, iPod or iPad, it is not enough and they should give the money back. To make it seem like a good bet, they need to produce another iPhone. And they can't, because no one can do that at will. We'll see another hit like that in 15 years or so if we're lucky.
The iPhone was the next step in omnipresent computing. You always have your iPhone. It's two steps down from laptops (leap-frogging the tablet, which has come after the iPhone). The next step is either glasses with computer screens (kind of geeky), or voice-interface computers.
With a voice interface, you can shrink a computer down to the size of a wristwatch. Getting data out is a problem (display glasses? some kind of projector?) is an issue, but not insurmountable.
> To make it seem like a good bet, they need to produce another iPhone. And they can't, because no one can do that at will. We'll see another hit like that in 15 years or so if we're lucky.
You can't really compare iPhone and Pixar that way. IPhone was a product by an established company that was already producing the iPod. Pixar on the other hand was a startup (sort of), which Steve Jobs invested $10 million in and sold for $7.4 billion, quite an impressive return on investment.
This completely misses the point (or rather: completely confirms what I'm saying). The question at hand is "What should Apple do with $100e9US". What relevance does an investment of 0.01% of that total have, even if they could get that RoI on demand. With (pinky to mouth) One Hundred Billion Dollars you need to be aiming much, much higher. And they aren't. And even if they could they're just a bunch of Jobs-less yahoos playing with cash that landed in their laps. Be honest: they aren't going to create ten thousand Pixars with that money, they'll be lucky to get five. And they can fund five (or fifty) on existing revenue without the cash reserves.
What's with this idea that they have to pick one and only one thing to do with a hundred billion dollars? What's with this idea that they should spend it all so they don't have any reserves?
I'm not sure. Depends on if you count the iPod, iPhone, and iPad as 1 or 3 products. the 2006 iPod seemed very different from the 2007 iPhone. To my mind, those are different things. I can see the desire to blur the iPhone and iPad, it's just a change in form factor. Thinking back, not many people thought tablets would take off. They seemed sorta like 3d tv.
Although I do not completely disagree with you, Apple's leadership team has reliably produced hit after hit in the last 10 years: iPods, iTunes, Macbooks, iPhones, iPads, app store, etc. That doesn't mean this success will go on forever, but right now, Apple is batting pretty well.
The ever-present notion that the leadership team of what is now one of the largest companies in the world has no real idea what they are doing is fascinating to me. Perhaps they deserve a bit of credit.