6 Ways Apple Could Spend $100 Billion [Update: Dividends, Buybacks]

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Apple's CFO Peter Oppenheimer will take the stage this morning to talk about Apple's cash reserves and reveal what plans Apple has for the money. At last count the reserves were nearing $100 billion, and actually growing at a rate that defies belief despite the already impressive stash. During Steve Jobs' time as CEO there was no movement on the cash issue, despite many calls for some action over the years—even when the reserves numbered just in the several billions of dollars...but now Tim Cook is at the helm, and things may change.

What Apple will do with its money is yet unknown, of course. Why would we have an insight into this from one of the most successful and successfully secretive companies ever? But we can make an educated guess, based if nothing else on the sorts of demands that Apple's faced from analysts and shareholders for a while.

A dividend

This would seem to be the thing most people are expecting. It makes sense for a number of reasons: Despite its enormous market capitalization worth and recent stock rice upticks, many observers note that Apple's share price is probably still undervalued—having been suppressed for a while by Jobs' illness and misunderstandings of Apple's potential among non-tech investors. A dividend would, in one swoop, reward existing shareholders with a share of Apple's success and also stimulate a dramatic round of share-buying (particularly among institutional investors who look for this sort of movement when considering medium- to long-term large-scale purchases).

Apple could even pay a relatively rewarding dividend and still hang on to the large majority of its cash, free to use for other strategic plans.

A share buyback

Another thing Apple could do is buy back some of its issued shares, some say. It's a similar way of returning wealth to shareholders because the repurchase will be at a premium over the stock market price, and the remaining shares are technically worth a greater proportion of the company (which is important for future acts, like a dividend payout). Repurchasing is also a way for the company to invest in itself, a sign of confidence—at least for a firm in Apple's position of market dominance and significant growth velocity. The buyback would also push share prices up.

Invest in American infrastructure

One call from the U.S. is for Apple to invest in the U.S. more, perhaps taking its recent moves in Texas as an example. Apple is an American company, people say, and by putting money overseas into plants in China and other nations, its effectively denying U.S. folks employment—you could even take an obscurely moral fiscal stance on this and say it's Apple's obligation.

It's a possible route for Apple. But folks calling for this need to remember that Apple is a global company, and that the majority of its products are sold overseas, not in the U.S. (where it pays what must be a whopping tax bill). A bias toward U.S. investment would worry overseas shareholders. By diversely investing in overseas plants Apple is actually assuring its position, and insulating against political and financial variations between the U.S. and other nations. Apple is also unlikely to build production lines in the U.S. because of wage issues, the complications of union activity, and the fact that mega-complexes of component suppliers, chassis production plants, and hundreds of thousands of workers (each of these things capable of minute-to-minute flexibility to adjust the design of the production process) just don't exist in the U.S. 

Apple may instead choose to build things like data centers on U.S. soil.

Invest in Chinese supplier worker care

In the wake of the events at Foxconn, even with the scandal of Mike Daisey's fabricated version of what goes on in the factories, some may say Apple should invest in its Chinese plants in order to ensure worker protection, fair pay, and rights.

It's arguably a sensible point. With one major exception: Foxconn and its ilk are not Apple properties. They make materials for firms like HP, Dell, and virtually every other consumer electronics firm you can name. Apple's already invested in its dealings with the companies, and has pushed for better worker conditions and allowed audits where none of its peers have. And Foxconn is not just in, say, France—but China, under an entirely different financial, political, and social system where the economy works very differently. Apple cannot over-meddle in these affairs lest it anger the Chinese government, or upset the local economy by upsetting the pay structures.

There is wiggle room, for sure, and Apple may choose to push money this way, but it's hard to see how it could change much, dramatically.  

Invest in supply chain dynamics

This is most likely what Apple will do. It's a strategy that's worked spectacularly well so far, and has resulted in this huge cash stockpile. By buying machinery for firms like Foxconn, paying hard cash to secure premium access to facilities for years in advance, and even by out-buying competitors for last-minute air freight (which is how the iPad 3's arrival in stores was assured) Apple's managed to outmaneuver nearly every one of its peers. Expect more of this, though Apple may keep precise details in the shade lest it reveal too many plans to its competitors.

Buy strategic partners

Could Apple buy Twitter? It's got the cash, and there's seemingly much synergy between the two firms' futures. Should Apple buy Twitter? That's a wholly different question, and it's important because you could ask it of almost any target people say Apple should buy (Facebook, ARM, Google, Microsoft, Spotify...).

Until now Apple's acquisitions have been pretty small, both tactical and strategic—aimed at short-term gains or optimizations to its existing plans (such as those that enabled its own AX chips inside iPhones). Acquisitions like this, while subject to regulation of course, tend to be easier, as no one is going to push the "creating a monopoly" buzzer, as may happen if Apple tried to buy bigger fish. But revealing that you're pursuing a more acquisitive strategy is a good thing, and will boost investor confidence and demonstrate that you have an expansive five-year plan to follow that will definitely result in growth...so it may be something Apple does.

"One more thing..."

This is Apple. Something unexpected could be mixed in with the calmly tried and tested.

UPDATE

Ahead of its press call, Apple's revealed that it will be going with our top two guesses, a dividend payout and a share repurchase program:

...the Company plans to initiate a quarterly dividend of $2.65 per share sometime in the fourth quarter of its fiscal 2012, which begins on July 1, 2012. Additionally, the Company’s Board of Directors has authorized a $10 billion share repurchase program commencing in the Company’s fiscal 2013, which begins on September 30, 2012. The repurchase program is expected to be executed over three years, with the primary objective of neutralizing the impact of dilution from future employee equity grants and employee stock purchase programs.

Speaking during the press call CEO Tim Cook and CFO Peter Oppenheimer were careful to explain that the company has plenty of cash to operate with, hence the decision to move on its cash mountain. The majority of the cash is overseas, and Apple pointed out that under current tax laws it's disincentivized to repatriate it—hence the decision to move on domestic cash. Over the next three years some $45 million will be spent to buy back shares and pay dividends, and that's a huge figure—even while Apple will continue making billions in cash every quarter if its past habits are a guide.

Rewarding and encouraging shareholders plus confidence, innovation, and plenty of products "in the pipeline" were the watchwords of this call. Careful control of words, no hints of things to come, and no surprises.

[Image: Sage Ross under CC license]

Chat about this news with Kit Eaton on Twitter and Fast Company too.

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