How Will Apple Really Spend Its Cash Pile?

Agenda-Setting Financial Insight.
March 19 2012 12:36 PM

How Will Apple Really Spend All Its Cash? 

140867086
Apple will hand out approximately $45 billion to shareholders over three years, but its near-$100 billion cash pile is projected to grow. Where will all that money end up?

Photo by LEON NEAL/AFP/Getty Images

Apple is finally giving its shareholders a bite of its cash pile. The company will hand out about $45 billion over three years, including some $30 billion of dividends and $10 billion of buybacks. While that’s a good start, Apple could make $50 billion in free cash flow in the fiscal year ending in September. With sales and profit rocketing - and the bulk of its huge cash hoard still stuck overseas - bigger payouts will surely follow. 

Apple had $98 billion of cash and investments on its books at the end of December. Close to two-thirds is held overseas, and repatriating it to the United States would involve a big tax hit. So Apple is keen to avoid tapping this, preferring to let it grow while it awaits a possible tax holiday. 

That still leaves $34 billion in the United States. Even this domestic stash probably won’t be touched, despite the new payouts. Apple tends to avoid big acquisitions, and the company has been disciplined with its investments in research, development and the like. And the dividend is set to start only in the three months ending in September, by which time another few quarters of cash will be in the bank. 

Assume Apple does make $50 billion in free cash flow this fiscal year, and that a third of that is in the United States. That’s more than enough ongoing cash flow to cover $15 billion a year of dividends and buybacks. Moreover, Apple’s revenue and profit are growing. The company’s top line increased 73 percent in the last quarter of 2011 from a year earlier, and earnings more than doubled. 

Growth isn’t going to grind to a halt, either. The company’s new iPad went on sale last week and Tim Cook, the chief executive, said on Monday’s call that the result was a record weekend. Other new or refreshed products are expected in the fall. 

All that means the near-$100 billion cash pile is still going to grow, not shrink. Not surprisingly, shareholders welcomed Apple’s payout announcement, pushing the company’s market value up by approaching $10 billion. But as the money rolls in, they may soon start asking the big question again: What is Apple really going to do with its cash?

Robert Cyran moved from the London office to New York, where he covers global technology, pharmaceuticals and special situations. Rob began his career at Forbes magazine, where he assisted in the start-up of the international version of the magazine.

TODAY IN SLATE

Technology

Driving in Circles

The autonomous Google car may never actually happen.

Where Ebola Lives Between Outbreaks

Gunman Killed Inside Canadian Parliament; Soldier Shot at National Monument Dies

Sleater-Kinney Was Once America’s Best Rock Band

Can it be again?

Paul Farmer: Up to 90 Percent of Ebola Patients Should Survive

Is he right?

Science

“I’m Not a Scientist” Is No Excuse

Politicians brag about their ignorance while making ignorant decisions.

Politics

The Right to Run

If you can vote, you should be able to run for public office—any office.

In Praise of 13th Grade: Why a Fifth Year of High School Is a Great Idea 

Renée Zellweger’s New Face Is Too Real

  News & Politics
The World
Oct. 22 2014 2:05 PM Paul Farmer Says Up to Ninety Percent of Those Infected Should Survive Ebola. Is He Right?
  Business
Continuously Operating
Oct. 22 2014 2:38 PM Crack Open an Old One A highly unscientific evaluation of Germany’s oldest breweries.
  Life
Gentleman Scholar
Oct. 22 2014 5:54 PM May I Offer to Sharpen My Friends’ Knives? Or would that be rude?
  Double X
The XX Factor
Oct. 22 2014 4:27 PM Three Ways Your Text Messages Change After You Get Married
  Slate Plus
Tv Club
Oct. 22 2014 5:27 PM The Slate Walking Dead Podcast A spoiler-filled discussion of Episodes 1 and 2.
  Arts
Brow Beat
Oct. 22 2014 4:10 PM Skinny Mark Wahlberg Goes for an Oscar: The First Trailer for The Gambler
  Technology
Future Tense
Oct. 22 2014 5:33 PM One More Reason Not to Use PowerPoint: It’s The Gateway for a Serious Windows Vulnerability
  Health & Science
Wild Things
Oct. 22 2014 2:42 PM Orcas, Via Drone, for the First Time Ever
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.