Note To Apple Shareholders: Stop Trying To Spend The Company's Cash

Dec.16.11 | About: Apple Inc. (AAPL)

When reports started to circulate on Tuesday that Apple (NASDAQ:AAPL) was considering an acquisition, I immediately thought to myself, what else is new? Not because the company has a long history of lavishly spending its cash, but because it doesn’t. For this reason, everyone continues to come up with innovative ideas of ways it should spend its capital. But the problem is, no one has bothered to ask Apple. This time the rumor surrounds a small firm called Anobit that specializes in chip technology and is estimated to be worth upwards of $500 million.

Apple has a problem - it has plenty of money and remarkably, it does not know what to do with it. So it keeps it. If you are like me, you are both envious and frustrated at the same time. Obviously, it’s a great problem to have. The company has been so successful at chronically producing golden eggs such as the iPod, iPhone and the iPad that this summer it surpassed the cash balance of the U.S. Treasury. I could not make up my mind if this event was an indictment of Apple or our government.

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Stop Hoarding Cash

In a lot of ways, the company’s perceived cash-hoarding has offended a lot of people. Some analysts have compared Apple to a kid who just loves to watch his piggy bank grow. One will have to go back to 1996 when it last made a significant acquisition when it purchased NeXT Software for just north of $400 million. I would argue that the real prize of that deal was the fact that Steve Jobs came along with it. Other than that, there have been no other deals worth mentioning.

So the question is, why do these rumors of acquisitions continue to come up? Especially when one considers its proven track record of being able to build whatever it wants, it does not need to buy anything. More remarkably, it has proven that it can build what consumers haven’t realized that they want yet. I think we all can agree on this. But investors want more – but more specifically, investors want some of Apple’s cash.

Buyback Shares or Issue a Dividend

It’s not going to happen and I agree with the company on this stance. The same reasons that have brought it to prominence will be ignored should the company go this route – and this is what many investors fail to understand. While I agree it would be the “obvious and easy” option of sharing its wealth with investors, it would also send a signal that the company has reached a “creativity-block,” or worse has run out of neat ideas. Indeed, getting the cash will make shareholders happy, but I fail to see how that helps the company produce and compete in any meaningful way. If you disagree, don’t hold your breath. If Steve Jobs never did it, don’t count on current management doing it either.

Buy Something Already

It seems Apple’s cash is burning in everyone else’s pocket except its own. If the alternative above won’t come to fruition in terms of a buyback or dividend, it comes back to the obligatory “then buy something already.” It has been rumored it wants to buy Sirius XM (NASDAQ:SIRI), a deal that I never thought made sense. These days, the most recent rumors have turned to Netflix (NASDAQ:NFLX). But my contention is why? It did not need an acquisition to come up with the iMac nor the current iPhone. Who did it acquire to develop iTunes? It seems investors are quick to forget why they have invested in the company in the first place.

It has taken on Research In Motion (RIMM) and won. It continuously brushes threats off its shoulder form the likes of Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and (dare I say) Microsoft (NASDAQ:MSFT) – how’s that for irony? Yet it stands tall above everyone else as the leader of the tech sector. So the idea that investors want it to operate as if it is playing “catch-up” makes little sense. Cisco (NASDAQ:CSCO) tried acquire its way into every market and last I checked it was trying to sell off divisions.

It remains to be seen if this deal for Anobit amounts to anything other than the typical chatter. It would also signal that perhaps Anobit has something that Apple is unable to build themselves – in which case I would have no choice but the give the company the benefit of the doubt.


As I’ve said earlier, investors should not hold their breath waiting for Apple of give away its cash in any way that does not add direct value to the company. Instead, if investors truly want the company to continue its growth, preserving its cash will allow it to do that since growing cost money. Apple has many new markets that it has yet to dominate. With the iCloud now on the horizon and the thoughts of Apple-TV starting to re-emerge, launching new future products will come a lot easier by having cash than being without.

Disclosure: I am long AAPL, SIRI, MSFT, CSCO.