What Will Apple Do With More Cash Than God?
Having just booked its “best quarter ever” on Tuesday with earnings that scorched analyst estimates by nearly $2 per share and revenues that were similarly impressive, Apple (NASDAQ:AAPL) is now sitting on one of the largest corporate cash stockpiles in the world. The big question now is what the company will spend it on. According to asymco.com Apple currently has over $10 billion in cash on its books, with another 60-70 billion in cash equivalents to boot, a total of $76.2 billion in cash and marketable securities. This is more than any tech company in the world, almost $20 billion ahead of #2 in cash reserves, Microsoft (NASDAQ:MSFT). The company now has several options on how to spend that dough.
One path the company could take is to up its auction spending and add to its stockpile of smart phone and mobile tech patents, which are becoming increasingly sought after amidst a sea of patent litigation that is currently underway between Apple and major competitors such as Samsung (NYSE:SEO), Google (NASDAQ:GOOG), Research in Motion (NASDAQ:RIMM) Motorola (NYSE:MMI) and others. Patent fights have become a hallmark of battles to secure dominance in the smart phone and tablet markets, with companies looking to land injunctive rulings against competitors that will help keep their own products atop the sales charts. Apple has already been a leader in patent spending, having recently doled out $2.6 billion of its own cash reserves to secure a bundle of tech patents from the Nortel auction. Now, according to Business Insider, Apple is going after another trove of patents on sale from Interdigital (NASDAQ:IDCC), which are so valuable that Google is looking to buyout the entire company just for the rights to its intellectual property.
One Jeffries analyst who values the company’s patent portfolio at $3-10 billion, explains why securing the stockpile could be vital to tech leaders (via business insider), “Through litigation and licensing, Apple (NASDAQ:AAPL) could cause the free Android OS to actually become a burden for OEMs, forcing them to become more conservative in their aggressive pricing plans. This is likely to slow the price cuts Android OEMs are likely to bring. So rather than a $150 Android smartphones (NASDAQ:GOOG), we could see a ~$200 device that is less likely to hurt a lower-cost iPhone.” Patents may indeed mark the frontier of Apple’s coming spending campaign. Armed with a war-chest of cash that exceeds the GDP of 126 countries (see here), the tech leader can doubtlessly spend its competition into submission, should it choose to.
Investors though, have a different idea for Apple’s (NASDAQ:AAPL) spending plans, they want to see some of that cash put back in their hands in the form of higher dividends. Asset Manager Tim Ghriskey says, “If they can’t find ways to use it to grow, they should be returning it to shareholders,” with many others agreeing that the company should use at least some of the cash in the form of a dividend or share buyback to help drive up the stock value. Some analysts, and Apple CEO Steve Jobs, think the company might just gain the most from sitting on the cash for now, using it as a subtle means of intimidation to competitors, and a source of confidence and freedom to itself. According to Jobs, “We strongly believe that one or more very strategic opportunities may come along that we can take that we’re in a unique position to take advantage of because of our strong cash position.”
We’ll see what the future holds for Apple (NASDAQ:AAPL), but count on the always thrifty company, which still remembers that it almost failed from a lack of cash in the 90s, to hold onto a good chunk of that $76 billion and change for the foreseeable future. Investors too should rest assured, says fund manager Mike Bingert, “It provides me enormous comfort that their balance sheet is so strong.”