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? 

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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.

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