Why Won’t Steve Spend?

Apple’s ability to innovate is undisputed, but some analysts complain it doesn’t know (or care) about investing its $46 billion in cash.

Why Won’t Steve Spend?


 With $46 billion, you could do a lot of cool things.

You could build your own Space Shuttle and offer free trips to the moon. You could buy an iPhone, an iPad, and an iPod for every person in the United States and still have money left over to dress them in black turtlenecks and jeans. You could buy all the properties surrounding Cupertino, California, creating a whole city–an infinite loop of sorts–for you and your company alone.

Or you could invest the cash where it gets a few percentage points of interest, and sit on it for 15 years.

That’s just what Apple’s been doing with its hoard. Now some analysts are getting pissed.

In an open letter to Steve Jobs and the board of directors, Bernstein Research analyst Toni Sacconaghi calls on Apple’s top brass to share the love with shareholders by returning some of the $46 billion in the form of a one-time dividend, ongoing dividends, or a share buyback.

Sacconaghi says shareholders he’s spoken with have been pleased with Apple’s ability to innovate and grow, but they have “one common source of frustration–which is now bordering on exasperation.” Namely, Apple’s unwillingness to use its cash or share its vision for using it. Why the exasperation? Because companies are expected to spend such surpluses, either on acquisitions or other long-term investments, and indeed most other companies are.


“Apple’s cash balance is of mythic proportions–higher than the total market cap of all but 49 of the S&P 500 companies,” Sacconaghi writes. He goes on to say that Apple really only needs $10 billion of cash on hand to run operations. With the success of the iPad and iPhone 4, Apple is expected to generate another $20 billion in cash by the end of fiscal 2011–all the more reason, Sacconaghi argues, for Apple to share the wealth.

Although Apple hasn’t formally responded to Sacconaghi, capitulation of any type is unlikely. First, handing out dividends is unusual among tech companies. Sure, Microsoft has done it, but it’s an anomoly. Google, Cisco, and others are still holding off.

More significantly, Jobs warned shareholders during Apple’s annual meeting in February that he intended to hold onto his warchest. “We know if we need to acquire something–a piece of the puzzle to make something big and bold–we can write a check for it and not borrow a lot of money and put our whole company at risk,” he said. “The cash in the bank gives us tremendous security and flexibility.”

According to Apple’s SEC filing for the quarter ending June 26, investments were spread across a range of vehicles with about $7.8 billion in cash and $14.6 billion in short term securities. The balance is in long-term securities.

So whenever that “big and bold”opportunity comes, Apple will be ready to swoop. So far, Apple has focused on much smaller acquisitions, like Quattro for $250 million and Lala for an undisclosed sum (but likely less than Quattro).

Silicon Valley startups looking for an acquisition end game, start your engines.