It's likely a dividend or a major infrastructure investment. If it were a major user-facing acquisition (such as a carrier or media company) or a new initiative they would have done an event for it.
Of all the speculation I've heard, my favorite is this bit of dreaming from TheNextWeb:
"Then there is the chance that Apple has decided to do something insanely revolutionary with its cash: figure out a factory template that will allow it, and other tech companies, to bring manufacturing back to the U.S.. This is right up CEO Tim Cook’s alley, as COO, he completely reinvented Apple’s manufacturing and supply chain. It also fits with the legacy of Steve Jobs’ vision of the NeXT factory, making products on U.S. soil."
Until the towns and cities that grown up around new industries bloom and generate wealth? I was listening to a radio interview where an the idea was discussed where GDP should be decommissioned for GDE: gross domestic environment, where wealth is determined on the general health of your people and natural resources. Then I would have no problem with day-traders making money hand over fist because a new forest preserve or public transport system was allocated.
A public transport system powered by rainbows, no doubt.
I have no idea what you're suggesting, practically. Wealth isn't "determined" by some arbitrary choice of economic statistic. Wealth is a store of value to the person who owns it. If you value forest preserves there are organizations who will happily take your money to create and expand them for you.
>Wealth is a store of value to the person who owns it
Which is presently accurately measured by our fiat system? Were the Dutch crazy to base their early stock market on tulip bulbs? Considering a historical perspective I don't see what's so different about choosing 'how many trees I have in my forest' vs. 'how much gold I have'. There are perfectly measurable elements in a human/humane society to base wealth off, especially as measuring technology improves. Maybe I should get better interest returns if I go for a decent 20 minute jog every day? I don't see why our future can't be one of measuring wealth on something else entirely (and yes I am being glib about using forests and jogging as an example but I think we're all clever enough to figure something out).
I just have no idea what you're suggesting. It seems incoherent to me. You value what you value, I value what I value, and money and markets are how we exchange things we value less for things we value more.
If you want to start a bank that pays people better interest rates for running every day, what's stopping you?
And the value of Fidelity's Apple stock would go down by $2.6 billion. The $100 billion in cash is currently factored into the share price. Dispurse the cash and the market will discount the share price to match.
Personally I'm hoping for something more interesting than a special dividend. It does seem strange to have the announcement before the trading day begins though. I would think any big announcement would come after the close of trading.
Edit: Clarified that it is Fidelity's Apple stock that would be revalued.
Factoring cash into share prices is fine if you're in Econ 101 or you're Warren Buffet, but in practice stocks usually go up when they announce an increase in expectations in dividend payouts. At some point the market does not trust firms to manage their extra cash to line shareholders' pockets rather than their own, and beyond that point the market wants to see dividends paid out.
My understanding is that the stock price is actually adjusted downward by the per/share dividend on the ex-dividend date. For regular small dividends this change is not really noticible in the noise of regular trading but for large/special dividends it is.
You can see that the difference between the close on Nov 12 and the open on Nov 15 is $2.63 where the difference in the surrounding days in about 20 times less.
And the value of Fidelity's Apple stock would go down by $2.6 billion.
That's not what happened with Microsoft did a one-time dividend of $30bn. On July 19th, 2004, their stock price was 27.94. They announced it on July 20, 2004. The stock closed on 28.86 on July 21. The stock ran up to almost $30, and the day of the dividend dropped to 27.39.
On July 19th, their value was $301.7bn
On November 15th, it was $297.8bn.
(Numbers computed by Wolfram Alpha.. kaching!)
Believe it or not, there is value in ongoing dividends that makes "Fidelity's Apple stock would go down by $2.6" incorrect. Income funds, for example, would not buy Apple right now because it's not a "yield" stock. If they pay a dividend, those funds can then buy it under their prospectus. This opens up the overall pool of buyers for the stock and can stabilize and even raise the value over time.
Apple's market cap would go down by the amount of the dividend but it doesn't follow that Fidelity's stock price would drop, as their market cap does not reflect the value of their holdings.
Yes. I was a bit ambiguous. I meant that the value of Apple stock that Fidelity owned would go down, not that Fidelity's own stock would drop in price.
That is exactly my point. The people saying that a dividend is important seem to think that it is 'found money'. My point is that it is really just converting one asset into another (stock to cash).
Another way to convert stock to cash is to sell it.
I realize that there are tax considerations though that make this all a bit more complicated.
My two worthless cents: an acquisition. Who they'll acquire is anyone's guess...a carrier (probably not), a content provider (maybe), or something more technical (my insane guess: ARM).
Not that I know more than anyone else, but I don't feel Apple really paying a dividend out. They've never really seemed too beholden to shareholders in the past (well, the Steve Jobs past anyway), and I think they'd rather invest the cash in something that would benefit the business more. It's not as if the share price is in a bad place, after all!
Apple and Tim Cook have made it clear that they have more cash than what is required to run the business. Apple is spending billions on data infrastructure, manufacturing, pre-purchasing components and expanding retail operations; despite all these investments, they still have more cash than what they need.
They will likely generate another $50B in cash this calendar year. Even if they want to maintain the $100B war chest, they could pay out ~$50/share/year. I think a share repurchase or dividend (whatever they think will return more value to the shareholders) is highly likely.
Revenue in the current quarter should be less than last quarter, but YOY growth is still insane. iPad 3 launch seems to have gone well, which will help the next quarter.
It's reasonable to at least project the same growth for future quarters, year on year, as Apple got in their Q1 (which includes christmas, iPhone 4S launch, death of Steve Jobs, ...).
This year should have a rev of most of the Mac line (hopefully Pro if they don't kill it, too, although it doesn't move the needle on revenue), iPad 3 selling an absurd number of units, and an iPhone 5. The big innovation I've seen with Apple in the past couple product cycles is keeping their older iOS products on sale at a reduced price point, so now you get to choose iPad 2 or iPhone 3GS/4 on price vs. any competitor (and still better), or iPad 3/iPhone 4S as absurdly better at about price parity. Makes more sense than trying to create low end and high end products simultaneously.
Sprint is in their range (8.7 market-cap expect a premium on top of that), but they really gotta be committed for that. ARM's business model makes anything but a investment a waste. AMD or NVIDIA would be more interesting.
I just don't know why a dividend would be more than a press release after markets closed.
I think you're mixing up cause and effect here. Even if it's true that stock buy backs are frequently undertaken by companies which doubt their future growth potential (I have no idea if this is true), I don't think there's any danger of a buyback from Apple sending this signal. They're in a historically unique position, and whatever their decision, it's not going to be analyzed solely based on the status of other companies who have undertaken similar actions.
It's taken as a sign that the company doesn't have anything more productive to do with the cash than buy back its own stock. This could be a positive or a negative.
If Apple had $5b in cash and decided to buy back stock, that would be a bit bearish -- they certainly can continue to make incremental cash investments (in supplier agreements, new products, etc.). $100b (which is actually probably $110-120b now, a month later) is way beyond that. Getting $50b returned to shareholders wouldn't be a sign of lack of investment options for Apple.
Stock buy backs are used to reduce the number of outstanding shares available - which results in shares increasing in value due to earnings per share now increasing. It is one way to "mask" slowing growth.
That's my guess. Or else they'll announce that they're starting a space program!
My understanding is that ably $66 billion is offshore. I really expected them to sit on the cash until the US government gave them some sort of tax amnesty
A space program is about the only worthwhile thing apple could do with that money. The world doesn't need any more novel distractions, or rich investors.
Nitpick - the world needs all the rich investors it can get, just not any more rich speculators.
(where investor = someone looking to finance innovation and long-term value/wealth creation; and speculator = someone looking to get rich quick on market volatility, pump & dump, etc.)
I think a dividend is imminent because at the rate of inflation that is likely to occur over the next several years, holding that much cash is a huge mistake. If there isn't a use for it in the long-term, and they can reasonably expect to print more, I agree that they should start dispersing it to shareholders.
Typically I would think the beginning of a dividend program to be a signal that the company has hit an innovation wall and doesn't know what to do with its cash. I think this doesn't really apply to Apple because cash is going to continue to flow freely into it a ridiculous rate for the foreseeable future. Hardware is extremely profitable, and they are still better positioned than anybody else to ride the shift to mobile. I still think Apple is a strong buy.
> at the rate of inflation that is likely to occur over the next several years
Do you have a reliable source on this?
> Typically I would think the beginning of a dividend program to be a signal that the company has hit an innovation wall and doesn't know what to do with its cash. I think this doesn't really apply to Apple because cash is going to continue to flow freely into it a ridiculous rate for the foreseeable future.
Apple's been building up this cash stockpile for so long that it's pretty clear they've long had more than they know what to do with. Having a cash position isn't really necessary either--at this point in time Apple could easily borrow at rates much lower than their expected return on investment anyway.
Yes- it's called the Federal Budget. When the US continually runs a deficit and prints money to make up the difference, that cash goes into the economy without any real output in GDP. That causes currency devaluation, and in turn, inflation.
Towards the end of 2008, $700 billion dollars were injected into the economy while the US was in the midst of running a multi-trillion dollar deficit. Taxes weren't raised, so that money came (an continues to come) from thin air. There is virtually no chance inflation does not steadily increase in the coming years. I can confidently say that because I see no reason to believe that there will either be a sudden burst in GDP to increase tax revenues, a reduction in spending, or an increase in tax rates sufficient to make up the difference. Remember, economic effects tend to lag. The mortgage crisis occurred after several years of irresponsible borrowing and lending.
I'd be curious to hear more about your inflation expectations. Specifically, why Krugman et. al. are incorrect in arguing that the economics of stimulus work differently in a depressed economy (or why you think the diagnosis of the US as a depressed economy is incorrect).
Also, I'd be curious as to why you think this didn't happen in Japan, and what are the critical differences in the US that will cause inflation here.
I'm curious because I hear the "inflation must come" argument often, but I haven't heard it squared against Krugman and Japan. I'm not an expert, so any guidance would help my understanding.
I'm not sure what Krugman was referring to, but I'm guessing he was making the case that because people tend to not spend money as freely in a depressed economy, that the risk of inflation or hyperinflation is mitigated to an extent. Effects of inflation become exacerbated when there is an acceleration in spending, whether it be on goods or currency or commodities, because nobody wants to hold the currency. For the past few years, this hasn't been a problem because people are scared and seeking safe havens, which is how most people view the dollar. This doesn't change the underlying fundamentals.
Here's the thing- there is a fundamental law in economics called supply and demand. Nobody, not the US, nor Japan is immune to it. If you increase the supply of something, and there is not a corresponding increase in demand, that thing becomes less valuable. In the US there has been an enormous increase in the money supply with no corresponding increase in real output. That makes the money circulating in the economy less valuable. Whether the costs of goods go up today, tomorrow, next week, or three years from now is somewhat immaterial. All of the evidence is in place that at some point the costs of goods will almost certainly go up, unless there is a shift in demand or a decrease in the money supply.
EDIT: Now we see that Apple is going to be dumping $45 billion into the economy. Not a good signal of strength for the dollar.
Thanks for the enlightenment. Reading between the lines, the case of Japan's missing inflation might be a variant of "in the long run, we're all dead," given the decades of stimulus and low inflation. It'll be interesting to see how it plays out here.
Apple didn't exactly stuff that $45 billion into mattresses or anything, it was already "in the economy". Large corporations keep cash invested in securities.
at the rate of inflation that is likely to occur over the next several years, holding that much cash is a huge mistake
Market expectations for inflation are usually factored into interest rates already. While the market could be wrong, Apple probably shouldn't get into the business of speculating on inflation rates.
>Market expectations for inflation are usually factored into interest rates already.
Actually that is not true. Historically Interest rates on currency-based investments have not caught up with inflation and taxes. Majority of Apple's cash is invested in long-term securities though so their investment is protected from inflation.
Whether currency-based investments have historically provided positive real returns is an entirely separate matter from whether it is possible to time investment in currency-based investments based on expected future inflation rates.
>at the rate of inflation that is likely to occur over the next several years, holding that much cash is a huge mistake
Actually majority of Apple's cash is invested in long-term and short-term securities so they are protected from inflation.
I don't think Apple will pay a dividend.
1. the Massive increase in Apple's stock price is more than enough compensation for shareholders. A dividend will just be drop in the bucket compared to the capital gains investors are going to earn in the next months or years. Paying dividends at this stage is a waste of money.
2. Apple's PE is around 16. AAPL is still VERY cheap. Compared to Google(20) and Amazon(134), both companies not nearly as profitable as Apple.
3. There is still a lot of room for growth (TVs, China, NFC, etc.).
4. Stock buybacks is more tax-efficient compared to paying dividends since the investors will have to pay the 15% tax rate if they get paid dividends.
5. Share repurchase may FURTHER increase stock price since it will increase EPS, ROE (Return on Equity) and ROA (Return on Asset) and decrease PE. Improved financial ratios will make the stock look even more attractive to investors.
CONCLUSION:
Given these 5 factors. I believe Apple WILL NOT pay a dividend.
Amazon's PE is very misleading. Their revenues are much higher than their profits and can be monetized more in the future. They aren't trying to maximize profits, currently.
My uninformed opinion is that Apple will either announce a dividend or a stock split.
In theory a stock split/reverse-split has no impact on a stock's price movement, but those studies were done in the 90s. More recent studies on various stock exchanges have shown that splits/reverse splits have a statistically significant impact on price movement, with splits signaling a bullish move.
Splits may also help in narrowing the bid-ask spread which improves price discovery.
On the other hand, splitting a stock will increase transaction costs of delta-neutral hedged portfolios since strike prices of derivatives are closer and more delta are needed.
A stock split doesn't really have anything to do with their massive pile of cash, and they said that's all they'll be discussing on this call.
A dividend, while not out of the question, has not been something they've acted willing to consider in the past. That would be quite the change in their stance.
You are right of course. I was thinking a split followed by the announcement of a dividend. In this way hedge funds and index funds can offload some of their AAPL exposure to retail investors who do seek a dividend.
I think Apple under Tim Cook is quite different, and is taking shareholders' interests very seriously. Why else would they adopt the resolution to have Apple directors being voted in by majority in the last shareholder meeting?[1]
Buying Back Stocks or Dividend doesn't do any good for Apple, Apart from its shareholders.
I am thinking on Worldwide Data Carrier Network. But Apple doesn't own ANY frequency spectrum. And there isn't a single worldwide common Whitespace for them to use.
Buying Intel isn't out of reach. You only need 51% of Intel Stocks. And Apple can afford that. IT fits them in many ways. And i think Intel is pretty cheap for its price in terms of investment.
Buying a position in a company like Samsung (solid-state memory or screen tech), Foxconn (manufacturing), LG Display (screen tech) makes sense. Apple is a hardware company, so pretty much all their investments are in hardware or software that increases the value of or margins on their hardware (like chips designers and firms that increase the value of OS X or iOS, which in turn increases the value of Mac and iOS based devices)
IMHO Foxconn makes more sense than any other investment because Apple is directly contributing or jointly inventing cutting edge manufacturing technology with Foxconn. An example of such technologies is the precision cut aluminum enclosures of the aluminum Macbooks.
An investment in Foxconn would suggest that Apple has a desire for being the hardware basis for a lot more devices in a person's life than just a computer or smartphone device. Since the future is an internet of things, the best way to get a foothold in the premium end of the internet of things is to have a solid foothold in the largest and most capable manufacturer of electronic things.
On the other hand, Foxconn has a $1.1 trillion market cap, so they could at most purchase a bit less than 10%.
A sizable position in Foxconn could also virtually guarantee that Apple is the only company that will have access to manufacturing technology and quality in volume that is always 1-2 generations ahead of its peers. You can't compete with Apple on quality if you can't get access to the hardware manufacturing capabilities until after Apple abandons it and moves onto newer better technologies. It's the equivalent of a hardware checkmate.
I'm not sure where you've read that Foxconn has a 1.1 trillion market cap. According to Bloomberg they have a cap of 149.5B [1]. Which makes significantly more sense than Foxconn being worth way more than Apple!
I think part of this will be a major initiative to invest in education. We know Jobs was interested in re-inventing education and we also know he told President Obama he couldn't find enough qualified workers. The for-profit education market is booming right now. Could this be a sort of iSchool focused on engineering, computer science, design, etc? Apple could make a really good argument to their shareholders that they must invest in the next-generation of Apple workers to continue growing.
It could be Adobe. They've dumped Flash. They've embracing the iPad and released some truly innovative apps. Despite the historical rift between them and Apple, their tools are still the go-to suite for virtually every app created for iOS, and a strong contender when users seek alternatives to Apple's offerings like the Final Cut Pro X thing. Then there's this:
"I'm dying to do a blog on ADBE stock but can't do so now (we're in a quiet period). Maybe Monday, after earnings."
If they bought Adobe, then the enterprise marketing at Apple would really be in for a change (Adobe has some big enterprise offerings). AMD / ATI is easily in their range.
Adobe have been actively downsizing their enterprise offerings and refocusing on media.
“Adobe has made a decisive choice to move away from traditional enterprise software markets and to focus on digital marketing and media. It will also shift aggressively to a cloud delivery model. These moves follow an August 2011 message to customers that Adobe would no longer update LiveCycle Content Services ES2. These actions signal that LiveCycle Process Management ES2 and LiveCycle Content Services ES2 are no longer important to the company’s strategic direction.”
http://www.gartner.com/id=1850714
So they could easily afford a controlling share, not that they'd have anything interesting to do with it. As far as the Mac goes, Intel is doing more or less exactly what Apple would want them to do, and as far as iOS goes, Intel is already irrelevant.
If anything Apple seems to be moving away from Intel chips and emphasizing their own ARM designs. Much more likely they will release an ARM-based laptop.
Nope--running x86 software natively (see: Windows, Linux) is still a competitive necessity. If Apple wanted their laptops to run on embedded-class processors with an x86-incompatible ISA and no other venders than themselves, they would have stayed with PowerPC.
I don't expect Apple to abandon x86 any time soon but I would not be at all surprised to see them bring out an ARM-based Macbook Air with fantastic battery life and no heat. Most laptop users have their CPUs idling 80-90% of the time as it is.
I don't see any upsides for them in an Intel acquisition.
What's the point of a MacBook Air that's x86-incompatible? Unless they abandon x86 they'd either need to emulate it or fragment their product line, neither of which is an appealing option.
As this is being announced prior to the market open on a Monday you can be sure this is good news (at least to investors and Wall Street) and the stock will go up. Bad news is released after the markets close on a Friday.
