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Apple added $38 billion in cash last year

Last year I suggested that Apple could reach $100 billion for 2011. That was based on the addition of about $20 billion during 2010. Apple added $38 billion to reach $97.6 billion at the end of 2011.

The following chart shows the composition and scale of Apple’s cash holdings.

At the closing price, Apple’s market value is equivalent to 4.3 times the value of their cash.

  • Matt Richman
    • Anonymous

      iOS has always outsold Android, every quarter for the last 4 years that they have been competing. Maybe you are pointing out that iPhone all by itself outsold Android last quarter?

    • Anonymous

      Matt,

      I checked your link. 

      Congratulations for a good bit of analysis. Very impressive for a 16 year old! Keep it up and you will go a long way!

      Apple had blow out sales of iOS this latest quarter. My notes are as follows:

         * 315 million cumulative iOS device sales. 

         * 62 million in December quarter. 

         * 15.4 million iPods vs 19 million in year-ago quarter. 

         * iPod Touch accounts for more than half of iPods sold. 

         * iPod market share remains over 70% according to NPD. 

      My Calcs for iOS sales in Qtr. 
         * iPhone     37.04 million
         * iPad          15.4 million
         * iTouch       9.2 million
                            ——-
          * Total       62.0 million
      ====================

      It is going to be interesting to see if you are right and iOS beat Android this last Quarter. Perhaps Android did a bit better than your estimate that Google would activate 59,653,187 Android-based devices during this latest quarter, because of the annual surge in sales in the Christmas quarter?

      • Fanfoot

        Cook said they sold over 62 million iOS devices in the last quarter.  Which would suggest 62 = 37M iPhones + 15.4M iPads + 9.6M iPod Touches.  So iPod Touches represent 9.6/15.4 = 62% of iPods sold.  Approaching 2/3rds, certainly well over half.

  • Anonymous

    I’m sure you will find some fault with it,  but overall your forecasts almost exactly what you predicted. Slightly conservative in all areas. Good work!

  • Sam Wilson

    Did your analysis include acquisitions? Considering the $400-500MM cost of acquiring Anobit, you are that much closer to the mark.

    • Canucker

      And their leading role in the RockStar patent portfolio from Nortel (in excess of a billion $).

    • http://www.asymco.com Horace Dediu

      A year ago I did not anticipate acquisitions, but more importantly, Idid not anticipate the huge increase in CapEx. That easily accounted for the miss on Cash.

  • Stacy

    Always enjoy the great analysis here, thanks. Apple is just crushing it. I am hopeful that other companies will take note that doing the hard work to innovate and make something really special can pay off.

    • http://www.asymco.com Horace Dediu

      The world would be a better place if companies copied Apple’s processes rather than their products.

      • Anonymous

        Nailed it!

      • Anonymous

        How so? Apple is an innovator more than an inventor so if companies spent more effort innovating than inventing we would in fact have more similar products and “copies”. Who would then be doing the inventing? Also what is the balance of legal results of Apple against its competitors? It seems to have lost more cases than its won so the idea of competitors copying its products is based more on a notion than real fact.

        The world would be a better place with less pollution, less nuclear arms, more efficient eneergy production etc.

      • Anonymous

        Very, very big companies rarely truly invent. IBM. 3M. Most do not.

        However, small companies invent but most cannot make it scale. So small companies cannot be Apple, but big companies can try to emulate the process of innovation. We would be arguably better off if more big companies truly tried to make their customers delighted with their products.

      • Anonymous

        You don’t get patents on “innovations”. You get patents on “inventions”.

  • Edward

    Horace, this may seem a bit of a dull question, but I was just wondering why cash and cash equivalents remains relatively stable while all the growth is in long-term securities?

    • Anonymous

      Apple knows how much money they will need in the short term future, so it’s more profitable to put the rest into long-term securities.

    • Anonymous

      This is Apple’s choice. LT securities have maturities over a year, while ST securities have maturities under a year. When those securities mature, Apple has to roll them into new ST securities. It’s probably an incredible headache to have to keep buying new ST securities in such large quantities so often. They’ve chosen a number that they can manage, about $25 to $30B, and put the rest in LT securities. There’s really no liquidity difference if the securities are all of the same quality, i.e. Treasuries or Agencies.

    • http://www.asymco.com Horace Dediu

      Long term securities probably have a better rate of return.

  • Anonymous

    I second Edward’s question. I don’t understand why the main thing going up is long-term securities, or really even what that means. I’m no finance guy, that’s for sure.

    • http://profiles.yahoo.com/u/CO36G2RP7H3Q43ZWVK4IQAQLAM Ronald

      As Rudolph said, long term securities tend to provide better returns, but can tie up the money for a “longer term” (duh!). Apple just needs to keep enough money in cash and short term securities to cover operations, and puts the rest of the money where it is invested better. Its kind of like what an individual investor does … keep enough money in the bank to cover expenses and provide a bit of a buffer for unforseen circumstances, and then put the rest of the money away in a mutual fund or some other long term investment.

      • Anonymous

        The deeper question is why exactly do they seem to target $25 billion for short-term savings, when that’s 2-4 years worth of operating expenses under really busy circumstances — it could be stretched out a lot longer if the were in a sales slump.  There’s something magical about $25 billion that causes it to be an equilibrium in their planning.

      • Fanfoot

        I presume this is unknowable.  However, given that Apple has often used their financial muscle to purchase vast quantities of product ahead of production needs, or to finance factory equipment, or to gain a guaranteed supply in tight markets, etc. I assume that this is the number they figure they MIGHT need.  Say coming up on the iPad 3 production…

    • Anonymous

      The long term secures can consist of many items, bonds that are laddered, stock ownership in their supply chain, bonds of other companies and possibly their business partners etc…

      • http://www.asymco.com Horace Dediu

        It’s not a mystery what these assets are. Apple publishes the mix of assets in their 10Q. Last time I checked they were govt. and corporate bonds, both for long term and short term.

      • lb51

        Thanks, but it wasn’t my intent to be specific for Apple’s holding. I was generalizing what may be held as long-term for any company. I was answering what long-term securities might be.

  • Rudolf Charel

    Edward, you ask: why all the growth is in long-term securities?
    This is probably because the return is higher on long term compared to short term securities.

    • http://www.facebook.com/rzamishka Roman Zamishka

      It’s mostly because of Apple’s business strategy. Tradition strategy suggests that if you strike gold with a very profitable ‘star’ performer, you use that money to invest in further research and to expand into new markets. To fuel this research you invest the war chest in short term and cash which are liquid (meaning they are easier to sell off quickly if you need to fund some new project).This is partially how you end up with conglomerates that have diversified significantly over time from their original business. Apple does not expand into new markets that often, they have a relatively compact portfolio: macbooks, iphone, ipad. They don’t do a lot of Google/Microsoft style “throw stuff at the wall and see what sticks” research, so their assets don’t need to have their assets be as liquid and can invest it in long term securities.

      • Anonymous

        Roman,

        You are mistaken.

        Long term securities, such as 10 year Treasury Bills, are just as liquid as short term securities. 

        Both long and short term securities can be bought and sold instantly, either by pressing a button or by instructing your bank or broker to do so.

        The reason they are shown in different parts of the balance sheet is to comply with accounting requirements.

      • http://twitter.com/WaltFrench Walt French

        We should *presume* that Apple’s holdings are very low-risk and very liquid investments, but there’s no requirement of that. Many investors reach for higher returns by buying less liquid or more risky bonds.

        Sometimes it helps, sometimes not.

        Ditto for long- versus short-term. Longer term Treasuries pay a higher yield (couldn’t much pay a lower one). But if inflation starts rising, or interest rates generally rise for other reasons, the price you can sell ‘em for falls. (Check any elementary description of “bonds” for details.) Apple seems uninterested in getting caught up in the various schemes that some Treasury Depts fall prey to (often, some Assistant Treasurer trying to be a hero while listening to Wall Street whispers), so probably have a very low-risk, vanilla portfolio.

        And a PS: many firms with large overseas cash balances have the funds sitting in NYC banks, dollar-denominated. They’re only out of reach by the requirement that touching them “repatriates” them and generates the tax event.

      • Anonymous

        Walt, I was only correcting Roman’s assumption that longer term securities are less liquid than shorter term ones.

        Personally I think cash is a wasting asset. It is necessary to hold some cash reserves, whether as an individual or a company. But holding surplus cash for its own sake is poor management of assets.

        I am pretty sure Apple’s money is well invested in secure securities, but the returns must be miserably low. 

        And PS, according to ChKen in these comments a few days ago (i.e. before the latests earnings) Apple have paid tax on most of the cash held abroad:-

        ChKen, 
        My reading of Apple’s 10K is that Apple has already accounted for and set aside enough cash to pay for US corporate taxes on $30B of the $54B in foreign-held cash. The remainder, only $24B is intended to be held overseas long-term. Thus, if it brought back that remainder, Apple would be liable for an additional $8.2B in US corporate tax. That’s a big number, but a lot smaller than the amount it would have to pay, if it had not already accounted for and set aside cash for the majority of the $54B in foreign-held cash.

        From Page 62 of the recent 10K:
        “The Company’s consolidated financial statements provide for any related tax liability on amounts that may be repatriated, aside from undistributed earnings of certain of the Company’s foreign subsidiaries that are intended to be indefinitely reinvested in operations outside the U.S. As of September 24, 2011, U.S. income taxes have not been provided on a cumulative total of $23.4 billion of such earnings. The amount of unrecognized deferred tax liability related to these temporary differences is estimated to be approximately $8.0 billion.”http://tech.fortune.cnn.com/2012/01/20/how-santorum-gets-apple-to-move-from-china-to-charleston/

  • Abdel Ibrahim

    Awesome chart. This is a piece I wrote suggesting the iPhone could overtake Android phones this year: http://www.thetechblock.com/articles/2012/apple-iphone-closing-gap-android/

  • http://twitter.com/alberthartman Albert Hartman

    You can get absorbed in the details of how big those Apple numbers are. But zoom back and look at the bigger picture. A whole world, 6 billion new people is rapidly coming on-board with capable handheld computers containing a base complement of features that are incredible. Much like the internet was over the last 20 years, this is the foundation on which the next big leap forward will be built.

  • Karl A.

    I have been holding AAPL based on your theory that pricing it below 5x cash is safe. I will be holding on until market caps is more than 5x cash or they start spending that cash.  If it’s a dividend, then I will hold on until distribution.  Thank you.

    • jawbroken

      Never heard this advice given on the blog, or any advice about what price is “safe”. Where did you read this?

      • http://wmilliken.livejournal.com/ Walter Milliken

        I think this is a reference to Horace’s post: When will Apple’s share price reach $500?, where he shows a strong correlation between share price and cash holdings which is around 5.

      • jawbroken

        Very disingenuous to present that as a theory about what AAPL prices are “safe”.

      • Karl A.

        My mistake.  “Safe” was my own opinion, not Horace’s. I know that nothing is guaranteed in this market. I had to find a comfort zone for myself. Horace’s observation seemed to me a reasonable basis for pricing the stock.  Bulls for the co. have complained about low p/e but given the very large cap, value based on cash made sense to me.  As long as they keep adding to cash, I am betting the stock would follow. Will re-evaluate when they make significant decisions about the cash, or upward movement of p/e.

  • Anonymous

    To me, the biggest takeaway is that Apple failed to keep up with demand, in spite of really “taking a risk” and ramping production. I’ve been seeing a certain conservative aspect regarding fear of over-production for quite some time. There’s an argument to be made that they should be risking even more, now that they have all that cash to protect them if they bet wrong. Any thoughts?

    • Canucker

      There’s a downside to over-ramping in that having a product too accessible in all markets at once could lead to a vulnerability. Right now, their failure to meet demand isn’t crimping the sales too much which suggests they are close (90%) to matching production with demand. Also, the initial ramp is always the most difficult and if they increase the pre-release ramp up there is increasing risk of leaks. Anticipation works well. Lastly, they seem to have matured the global roll-out now such that the staged releases allow switching of previous year products to other markets where the latest device is not yet available. The build out of carriers is also maturing so that there are few hiccups with bringing new markets on line (China remains an issue there). 

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  • http://twitter.com/Yelmurc Brian W. Crumley

    While its fun to speculate what Apple could do with all this cash. I find myself wondering what they really will do. Overall they need to increase shareholder value so would a buyback or dividend really be the best use for the money or would entering new markets and generating new area’s of profit be the ideal use. Whether this would be the television market or something new entirely having this amount of cash allows Apple to take those risks. 

    • Anonymous

      Brian,

      Apple don’t need any more cash “to enter new markets” or to generate “new areas of profit.”

      Also buying a large company would almost certainly be earnings dilutive as well as slow Apple’s growth rate.

      The best use of Apple’s cash is what it has done until now i.e. to buy small add-on companies which can increase Apple’s technology advantages and to invest in gaining competitive advantages by financing and securing production facilities in its supply chain.

      But $100 billion is more than enough cash reserves to do the above.

      If Apple cannot usefully use its surplus cash then the Board Of Directors have a duty to return the surplus cash to the shareholders, who own the company.

      The best way to do this is to commence regular dividends. This will attract a whole new set of shareholders amongst funds who are legally required only to invest in dividend bearing shares. (A one off dividend would not attract these new shareholders)

      Also, if the Directors want to enhance shareholder value further they should do a substantial share split. Although technically this does not affect the total share value, psychologically share splits have a significant effect by, amongst other things, making shares more accessible to smaller investors.

      • Glimmerman

        Appreciate you advising Apple how to manage their company better on the day they announced the second most profitable quarter of any company in American history.

      • Anonymous

        Nice irony Glimmerman,

        However much you or I might admire Apple’s management, who unquestionably have done brilliantly in growing the company, are you really sure that they are so perfect that they are flawless and so can do no wrong?

        Surely it is a legitimate question for shareholders to debate whether or not their company should distribute surplus funds to shareholders?

        If you can show why they should hold the cash, earning almost nothing, rather than distribute surplus funds to shareholders, please enlighten us.

      • Anonymous

        Yes it’s a legitimate question.  It’s been asked and answered and Apple management has said no, no, and no.

        If you don’t like the answers, use your proxy votes to change things or change the board.

        Or just sell your stock.

        Otherwise shut up.

      • Anonymous

        “its been asked and answered”

        ronin48, Oh mighty one,who commands anybody who disagrees with your almighty. infallible opinions to “shut up”

        So you know what decision the board have come to?

        Didn’t you follow the earnings call? They said the board was thinking about it!

        But anybody who disagrees with you is not allowed to opine?

        Strange world you live in. And you expect me to follow your investment advice and sell?

      • jawbroken

        What kind of duty are you referring to? A legal one or a moral one?

        I still find the suggestions that a stock split would have a significant effect on the price suspect. Where are you getting your data from that suggests this? How would you do the calculation to work out the optimal split? Any idea of the ballpark impact on the price?

      • Anonymous

        “What kind of duty are you referring to? A legal one or a moral one?”

        Both legal and moral.

        Legally the board of directors have a fiduciary duty of care towards the shareholders, who legally own the company. Leaving cash to accumulate with the extremely small returns is not good use of the money. As an owner of the company I can make better use of money than my company, which does not need the money. I can make a much better return than the around 2% return the company can get on the money either on deposit or in short or long term. I think almost all shareholders can get better returns.

        The Board have a moral duty as well as legal duty to cary out their fiduciary duties with due care and diligence, which includes looking after the interest of shareholders.

        With regards to splits, why do you think companies do it? It is almost entirely  a psychological  effect, but it works in most cases too enhance or accelerate shareholder value. Anecdotally I know that almost every company I have owned shares in, have benefitted from a share split. 

        There is little question that share splits make shares in a company more accessible to smaller investors. If you take Berkshire Hathawy as an extreme example of a successful company that for ideological resins refused to split, the share became so expensive at over $100,000 eacc that few small shareholders could afford them.

        This article claims “Academic research has shown that companies declaring stock splits and special dividends tend to do well for a period of time after the announcement of these events. The stock split theory discussed in the academic paper “Underreaction to Self-Selected News Events: The Case of Stock Splits” by professors David Ikenberry and Sundaresh Ramnath”

        http://www.sinletter.com/2006/12/profiting-from-special-situations/?id=103

      • jawbroken

        So are you going to sue Apple if they continue to hold onto this cash?

        As for anecdotal evidence for the benefits of a split, it seems obvious that companies are likely to do well after a split: they are clearly doing well before the split, causing their price to rise to a level at which they consider a split necessary or desirable.

        Your example of Berkshire Hathawy shows that it’s possible for shares to be inaccessible to smaller investors but it doesn’t, on the face of it, say anything about whether their market cap would be higher or their investors better off if they split 1000:1.

        I’m not saying there’s no level at which a split might be desirable; if there was a single AAPL share priced at $400b then I would likely agree with you. You’re talking about a company with almost a billion shares that are priced at, say, $450, though. How big of an impact do you think people that cannot even afford one of a billion shares are having on the price? If accessibility to small investors is the only thing that matters then perhaps they should split 10,000:1 so everyone with a nickel can grab one.

      • Anonymous

        Apple most likely did a split to increase liquidity and marketability to other investors that might otherwise not be interested in owning or trading Apple. Their stock price was not a question of being unaffordable to retail clients. At current price levels, the price is palatable for institutions who own 70+%.

      • Anonymous

        The fiduciary duty is to run the company well and profitably to deliver shareholder values.  Tell us how Apple hasn’t done that and done it better than almost any other company.

        There’s no fiduciary duty to give a dividend or do a buyback or split.

        Back to school with you.

      • http://www.asymco.com Horace Dediu

        Fiduciary duty means that managers must put the interests of the owner above their own. It does not mean that they have a responsibility to make owners rich or any specific behavior.

      • Anonymous

        There are several big projects apple might embark on that could potentially require hundreds of billions of dollars in financing – and I’m not just talking about big aquisitions.

        Many people fail to consider that apple might be thinking a lot bigger than anyone else can even contemplate doing.

      • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji

        I would love to see them invest in expanding their datacenters worldwide to support cloud services.  I don’t think having only one in North Carolina is going to cut it for the type of scale they’re planning.

      • Anonymous

        They already have multiple data centers. The North Carolina facility has simply gotten most of the attention. 

      • http://twitter.com/Yelmurc Brian W. Crumley

        This is more of a question than a comment. Does anyone know if holding onto this cash would historically increases the price of shares proportionally or does the data suggest that the value of the cash diminishes as it grows.  

      • Anonymous

        Wasting the money by giving it away to shareholders reduces the value of Apple stock.

        The fact that Apple’s current market cap is only 4.5 times its savings means that Apple’s stock value is insured by its savings.  It has a value below which it cannot fall.

        Imagine if instead Apple gave away 90 billion dollars, leaving it with 10 billion in the bank. Sure – it can keep its operations.  But now its stock price will go up and down with voodoo psychological fears and stock manipulation by pundits.  Apple’s stock would then be at risk of a serious decline in value on any misstep.

        Apple’s competitors – Microsoft and Google each have over 40 BILLION in savings.  But no one is crying for them to give the money away (more than Microsoft has already done).

        What I would like is for Apple to continue savings until it’s market cap is EQUAL to its savings.  You can be assured then, that investing in Apple will not result in a loss – unlike any other stock.  And that Apple will keep going UP in value.

        Savings = security in investing in Apple stock.

      • Anonymous

        The cash is already heavily discounted. I think it was Brian Gleacher of ISI on CNBC today who had a price target of $550, which he broke down this way:

        15x ttm of $35 gives you $525 plus 1/4 cash, $100, gives you another $25.

        So he valued Apple’s $100 at only $25. It’s already discounted heavily.

      • vsp

        Money makes money. And that’s what banks do if they are managed properly. The reason why banks got into trouble is that they do not behave like banks but got involved in Ponzi schemes. Banks all over the world are broken, taught by Wall Street on how to cheat customers and corrupt governments. Apple could buy a mid-range bank with low encumbrances or minimum debt and slowly grow and change the industry. There were many industries that people, at first, scoffed Apple for being involved. With the right people that Apple hires at the helm, now Apple is the golden standard in all these industries. 

        For those who clamor for a dividend, Apple could invest its huge hoard of cash in its own bank and then earn dividends for its shareholders every year or even quarters. In this way, Apple does not need to dilute its cash hoard but put it to work to the satisfaction of its shareholders. How about it, Apple? You can have your cake and eat it too.

      • Anonymous

        Just for kicks, what do you think would happen if Apple bought a high multiple company like Amazon? Would the market raise Apple’s multiple, or would it then start recognizing Amazon’s business for what it is currently, very low margin, or would Amazon’s low margins drive Apple’s valuations even lower!?!

    • http://www.asymco.com Horace Dediu

      They don’t need to increase shareholder value. The only thing they need to do is have many satisfied customers.

    • http://search.websonar.com:8080/ Duane Bemister

      My guess is as soon as they can meet demand they will lower prices and eliminate the competition.

      • http://www.asymco.com Horace Dediu

        My expectation is a bit more nuanced. I believe they will introduce new, lower priced products in order to compete for segments they are not competing in today.

      • http://search.websonar.com:8080/ Duane Bemister

        I think they will start with the iPad. When they announce the new one I would expect the current version to drop below $300.00. They recently did a test market with their own employees at $250 to evaluate the response. I believe this will be a first move to retake the education market. We are banking on this for WebSonar. We will soon be able to index and then display the text portions of iBooks to any browser. We also own the schoollibraries.net domain that we are making available as a a free distributed framework for anyone to use to share education resources right down to the personal library level.

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  • http://www.swift2.blogspot.com Swift2

    The majority of smartphones sold by Verizon this quarter: iPhones.

  • Anonymous

    Fanboys, the lot of you.

    • http://twitter.com/WaltFrench Walt French

      And boy, do we love it! Nothing like the sweet smell of success! 

      Wish more of it rubbed off on me. Too bad it just sticks in your craw.

    • Anonymous

      Apple has turned out to be the second best investment in my 20+ years of trading. The first was buying bond options and futures during the late 80′ when 10 year rates were in the mid 8%. I am still rolling those contracts and they continue to grow. As for Apple, I purchased 12K shares in 2001 and still holding them.

    • Anonymous

      Funny thing about the fanboys though: when the term was coined in the nineties, there were maybe a million of them. Now there’s a hundred million of them. How come being a fanboy is so contagious? Could it actually be anything to do with the products? Naaahhhh…

      • Anonymous

        My comment was meant to be “tongue-in-cheek”. My wife and I love our iPhone 4S’ and my daughter loves her hand-me-down iPhone.

        ________________________________
        From: Disqus
        To: benrandolphwv@yahoo.com
        Sent: Wednesday, January 25, 2012 3:52 AM
        Subject: [asymco] Re: Apple added $38 billion in cash last year

        Disqus generic email template

        vhs431 wrote, in response to benWV:
        Funny thing about the fanboys though: when the term was coined in the nineties, there were maybe a million of them. Now there’s a hundred million of them. How come being a fanboy is so contagious? Could it actually be anything to do with the products? Naaahhhh… Link to comment

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  • Z Kariv

    A great ilustration of hard work and inovation!
    Is this cash and equivalents pose a risk of takeover due to its large % of the cap?

  • TonyaH

    BTW… Congratulations Horace on your Q1 forecast, well done in a quarter so many were far off.

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  • http://www.cyclelogicpress.com Neil Anderson

    That $38 billion cash Apple added last year … is that more than Google’s total revenue? :)

  • Lex McFarley

    Apple has been accumulating the large cash position because there aren’t allot of good options.  It doesn’t want to do a large acquisition (in the 10s of billions), because absorbing such a large company poses problems of integration and if the co doesn’t have a high profit margin, like Apple, it will dilute Apple’s profit margin which will cause the stock to tank.  Historically, dividends haven’t helped companies with stock growth.  Remember Microsoft giving a dividend?  Well its stock hasn’t gone any where in 10 years and it is a cash cow like Apple.  I would be amenable for a stock split, either 2 or 3 for 1, as the high stock price probably keeps small investors away.  Botton line is that Apple’s revenue and profit will continue to grow as it expands the iPad and iPhone sales into the enterprise, additional U.S. markets (t-mobile), and additional world markets and world phone carriers.  Apple will soon start selling the iPhone on China’s largest carrier. Apple has sold 55 million iPads in 1  and 3/4 years.  It could end up selling  60 million iPads in 2012 alone.  And then sell 100 million iPads in 2013.  Disclosure:  I am a very happy Apple shareholder.

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  • Anonymous

    Congratulations Horace !!! Your enthusiasm in the last section of the recent 5×5 episode, Asymconf, where you excitedly emphasized how the growth curves on the recent log charts revealed that the continuation of Apple’s exponential growth was self-evident, was so prescient. Today’s results continue to validate your excellent analytical work, mirroring what you predicted! Fantastic job! -Bert

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  • Doji

    i like Apple, it’s like ”French cuisine” vs”buffet restaurant”. How Apple mastered consumer mind control with the law of scarcity!
    if you really want understand how Apple is different, you will immensely benefit from reading Christensen book-innovator’s dilemma’, ”Blue ocean” strategy from W. Chan Kim and Renée Mauborgne and Jim collins’s new book”GREAT By CHOICE”.

  • http://pulse.yahoo.com/_5BHLNE6HC75ETNMNDKEEKLMF3M Steve Pederson

    For you guys wondering why “securities” and not “cash” you need to understand that at this level even “cash” is not safe. Cash sits in a bank account… and bank accounts are not insured in the billion dollar range.

    The key is “marketable” securities. This means stuff that can be sold at any time. And we know from Apple’s statements (and lack of income/gains from them) that this is very low risk (and low return) stuff.

    As I think about it… just preserving the value here is a non-trivial task.

    And I think the market discounts its value for fear Apple will be tempted like a normal company into making big acquisitions. Just look at GOOG and MMI.

    Me: I think at some point there is just not enough capital out there to buy AAPL shares at a fair value, and that Apple should use its cash to soak up some excess shares. But they should do it like they do everything else–with attention to detail. Buy on weakness please. (Still I think the day they announce a willingness to buy back stock it’ll rise another 10%.)

    • http://www.facebook.com/profile.php?id=100000728233984 Kristian Iskanius

      We do not know well what kind operations Apple does with it’s subsidiary Braeburn Capital. It would be interesting to know what this “Bank of Apple” does.

  • Doji

    I understand why humans fall victim of large number paranoia, the 100B cash Apple hold is nothing more than a powerful deterrence to defend it’s IP portfolio to go ‘thermonuck’ as Steve jobs said against the ‘cut and paste’ artists.

    It also protect the company to not fall behind in difficult time.

    The one think people should appreciate is how Apple is very conservative when it comes to spend its cash. It’s very different when you compare it to google who spend a ton of cash in products that go nowhere and then terminate them after they spend so much time and money.

    Apple is not acquisition savvy and pretty well control it’s in-house innovation but it’s facing massive scaling when it comes to position itself in market dominance like it did in the music industry

    make no mistake Apple will not open up itself for a big hit in the face of uncertainties and fast moving world. The company knows better than anyone that a powerhouse like it with global reach should possess the means necessary to advance in multiple global markets( china, latin-america and elsewhere)

    • http://www.facebook.com/people/Shameer-Mulji/1685212657 Shameer Mulji


      Apple is not acquisition savvy……”

      Actually Apple is very acquisition savvy probably more than most companies in their industry and their size.  They obviously don’t make the mega-billion acquisitions but what they have acquired is really good and helps improve the innovation in their products.  Here’s a link I posted that’s good read;

      http://www.fool.com/investing/general/2011/12/27/why-apple-never-goes-big.aspx#lastVisibleParagraph 

  • Fanfoot

    Hey Horace, would love to see some analysis of the Pew numbers just released that suggest a 9% increase in tablet ownership in the US in the last month.  Seems impossible.  220 million adult Americans x 9% is some 21 Million.  But Apple only sold 15 Million iPads WORLDWIDE in the last quarter.  Assuming 40% of that is US, or 6 Million.  Plus another 5.5 Million Kindle Fires maybe and we’re still a long way from 21 million.  Seems highly unlikely.

    Plus of course anecdotaly I just don’t see that many in use in the real world, even in the tech community, to suggest a 20% penetration in the US overall.  I just don’t think we’ve hit that level of penetration yet.

    • http://www.facebook.com/profile.php?id=36815984 Alex Valassopoulos

      You have to take into account that the margin of error for the first survey in mid-December is +/-2.2pp and for the second (which is actually the combination of two different surveys) in January is +/- 2.4pp. That means that tablet penetration in the beginning could be as high as 12.2% and in the end as low as 16.6% leading to an increase of 4.4pp which seems like a more reasonable number

    • Timo S.

      One possible explanation could be that people answering “yes” in these surveys really do not own the tablets themselves, but someone else has bought one for the whole family. Buying one tablet for the family might turn 2-4 or even more non-owners to “owners”.

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  • http://www.facebook.com/profile.php?id=100000728233984 Kristian Iskanius

    We have to remember that this year Apple will be $200B company in revenue and $100B in cash is not much for that kind company.

    • Anonymous

      @kristian
      What companys of greater value than $200B are holding more than $100B in cash?
      What level of cash would you say was reasonable?
      My head is reeling.

      • http://www.facebook.com/profile.php?id=100000728233984 Kristian Iskanius

        Couldn’t quickly find a better list, but here is older one. Now Apple is so big that they don’t need to follow anybody. They can do what they sees to fit. (If you don’t like it then sell your stock.)1. Toyota Motor: US$195 billion2. General Electric: US$154 billion3: Apple: US$76.2 billion*4. Volkswagen AG: US$73.2 billion5. Microsoft: US$62.2 billion6. China Mobile: US$58.2 billion7. Total S.A.: US$47.3 billion8. Petroleo Brasileiro S.A.: US$46.6 billion9. Cisco Systems: US$45.4 billion**10. Exxon Mobil: US$45.3 billionThe point what I was trying to make is that when your revenue is $200 Billion a year then $100 Billion is not a huge amount of cash.As you can see Toyota has double the cash and their revenue is something $228 Billion dollars annually.en.wikipedia.org/wiki/List_of_companies_by_revenue

  • Osayi

    Is there any way to identify these long-term marketable securities?

  • Shanti

    Shocking graph, Horace.

    I would highlight the US/overseas split in the cash holdings, btw. While US corporations like Apple continue to lobby & wait for a 2nd tax amnesty for overseas profits since Bush’s gift in ~2003, those holdings have a diluted effect…except with Apple’s huge supply chain in Asia, maybe less of a problem than for other US companies.

    • Anonymous

      At prior quarter end, my reading of Apple’s 10k on page 62 is that Apple has already accounted for $31B of their $54B in foreign cash as if it had already been repatriated. That’s why Apple’s marginal tax rate is so high 24%, when one would think it would be lower given 2/3rds of its revenues ate foreign.

      Only $23.2B has not had US taxes accounted for as Apple intends to keep that cash offshore indefinitely as working capital. I’m sure Apple would love a tax repatriation holiday, but I don’t think it would be dilutive now to bring $30B back as Apple has already accounted for it, by my reading.

  • TimC

    Long term prediction – Apple to have market cap of $1 Trillion in 2018

    • Anonymous

      Why are you expecting growth rate to slow so dramatically? This will happen by Feb 2014.

    • Sylvan

      It all depends on whether the market will continue to treat Apple as if it was a fluke that will falter any quarter now or as a the most innovative tech company in the world that is only continuing to gather steam.

    • Anonymous

      Try 2014.  Do the math.

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  • Hamourabi

    Apple cash accumulation suggest $170 billion at the end of 2012 !

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  • http://twitter.com/sampenrose Sam Penrose

    As I have suggested various times in this space, Apple’s stock price refutes the consensus theory of the firm: http://www.slate.com/blogs/moneybox/2012/01/25/apple_s_dirt_cheap_stock.html

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  • Dda

    Is it a good time to buy apple shares then?

  • Anonymous

    “Apple added $38 billion in cash last year”…and it’s P/E simultaneously dropped to 12.7. That’s some SERIOUS P/E compression there….

  • Anonymous

    “Apple added $38 billion in cash last year”…and it’s P/E simultaneously dropped to 12.7. That’s some SERIOUS P/E compression there….

    • Anonymous

      To give that 12.7 some perspective, Microsoft’s P/E ratio is 10.7, while Google’s P/E is 19.2. And Amazon? Still at 98.8.

  • Anonymous

    I’m going to go out on a limb here. I think Apple’s 2nd qtr 2012 is going to shock the heck out of a lot of people – including Apple. I think they’re going to double last year’s EPS of $6.4 billion. And I think Apple stock will lag far behind that big earnings bump. I’m guessing the P/E will uncompress to a max of about 14.5. That would amount to a max price this quarter of (14.5*(13.87+7.05+7.79+6.43)=) $509.53. If they then have an EPS of $12.80 next quarter, that would drop the P/E to (509.53/(12.8+13.87+7.05+7.79)=) 12.27.

    BTW, to hit a P/E of 12.27 this quarter, Apple would only have to drop to $431/share. Anyone want to bet that won’t happen?

    And that gives me confidence to predict that, sometime next quarter, Apple will drop to a P/E of less than 12.

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  • Keys

    Given the rapid ongoing accumulation of cash, the business needs an solution that deploys cash in an ongoing way. I’d think that was either dividends or product / market diversification.

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  • mc

    Kudos for your estimates. You were number 1 across all categories. http://tech.fortune.cnn.com/2012/01/25/apples-blow-out-quarter-once-again-the-street-blew-it/

  • http://twitter.com/JeffBessling  AppleFanboy 

    One small thing they can do with a minimal amount of cash (relative) and would signal to me a very strategic thinking about its best use would be using the cash to buy back the number of shares they issue as options to employees as part of their compensation . At least it will keep these new options from in anyway being dilutive to current shareholders and as a shareholder I think it would be a nice gesture at minimal cost.

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  • http://twitter.com/Dailymoeny Daily Money
    • http://www.asymco.com Horace Dediu

      Delete.

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