6 Things Apple Could Do with Its $100 Billion in Cash

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By SUZANNE MCGEE, The Fiscal Times

February 27, 2012

Apple (AAPL) has a problem.

It’s actually not the kind of problem most businesses experience – it is finding no lack of buyers eager to snap up its iPhones, iPads and other gizmos. It’s a problem other companies (like Kodak, to name only one) would love to have, and it flows directly from Apple’s success: It has a lot of cash on its books. More cash than the GDP of several small nations – rolled together. And CEO Tim Cook and Co. are just sitting on it.

Apple shareholders have been patiently, or not so patiently, waiting for Cook to announce just what he plans to do with the hoard, since burying it under the sand on a deserted island really isn’t practical, or a very good way to discharge his fiduciary duty. It has been reasonably easy for investors to be patient, given the remarkable performance of the company’s stock (now trading north of $500, up from about $350 a year ago at this time). But the total amount of cash on Apple’s books – nearly $100 billion – is at absurdly high levels.

It’s reassuring that Cook recognizes, as he said at the company’s shareholder meeting last week, that “it’s more than we need to run the company” and that the board has been thinking “very deeply” about what to do next.

So, what could Apple do with that $100 billion?

1. Acquisitions
Well, Apple just bought Chomp Inc., a company that helps users sort through all the myriad apps out there to find the one they need, for about $50 million. For $100 billion, they could pick up 2,000 more Chomps. Of course, then comes the challenge of integrating them. The vast majority of acquisitions are failures, either because the acquirer has made a bad business decision as to what to buy (perhaps the cash was burning a hole in their pocket?) or because they fail to properly integrate the new company. There’s no reason to suppose that Apple would be any more successful than, say, JDS Uniphase was when it went on an acquisition spree a decade or so ago, and ended up struggling to absorb about 1 percent or so of the number of companies Apple might be able to acquire.

2. Product Promotion
Apple could buy every one of the 313 million U.S. citizens (the legal ones, anyway) an iPod touch on their birthdays. They’d have enough left over to buy each man, woman and child $120 in gift certificates to let them add content to their new gadgets. Of course, if you give away your devices, you’re not really promoting them, so this might be a foolish use of Apple’s nest-egg.

3. Invest in the Future
Apple, and other U.S. technology companies, need skilled employees, right? So why not use the $100 billion to develop them? That chunk of change could finance three years of graduate school at MIT (including living expenses) for about 400,000 students. Of course, the problem with that would be finding jobs for them all after they graduate.

4. Worker Salaries
Apple has been getting some bad press of late about conditions for workers at Foxconn, which runs plants where Apple products (among others) are assembled. With $100 billion, Apple could instantly put an end to the question of unpaid overtime and other issues. In fact, Foxconn’s 1.2 million workers (currently toiling at $1.78 an hour, and working 60 hours a week) could get as much as $27 an hour if Apple chose to share its largesse with them during 2012. Of course, that would destabilize the Chinese economy and shareholders would complain about the money being handed out to Chinese workers.

5. Public Interest
California has a debt problem that’s too large for even Apple’s $100 billion to solve. But it could eliminate unemployment in its home state at a stroke, offering each one of the state’s unemployed citizens a job with a salary of $45,000 a year. (That would be eight times the number of jobs created in January nationwide, so it would do wonders for the national unemployment rate, too.) Of course, that would only last for a year, and shareholders would probably have the same objections that they would to No. 4, above.

6. The Obvious
There really is only one sensible option for Apple, and it’s about time the company admitted it. It’s time for Apple to pay a dividend – a generous and regular one – to its shareholders, and soon, before that ridiculously large cash mountain grows still larger. According to some reports, Morgan Stanley analyst Katy Huberty has calculated Apple can afford to give a dividend that would yield (at a share price of $500) up to 3.8 percent, well in excess of the average yield of 2.2 percent for the S&P 500.

Apple has been taking advantage of its shareholders’ patience and goodwill, and the fact that the stock market has rewarded its success and given those shareholders the potential of hefty capital gains. But why should those investors be required to sell their stock to profit from Apple’s success? That’s irrational, particularly when there is no rational alternative to paying a dividend in sight for Apple’s board.

Apple (AAPL) has a problem.It’s actually not the kind of problem most businesses experience – it is finding no lack of buyers eager to snap up its iPhones, iPads and other gizmos. It’s a problem other companies (like Kodak, to name only one) would love to have, and it flows directly from Apple’s success: It has a lot of cash on its books. More cash than the GDP of several small nations – rolled together. And CEO Tim Cook and Co. are just sitting on it. Apple shareholders have been patiently, or not so patiently, waiting for Cook to announce just what he plans to do with the hoard, since burying it under the sand on a deserted island really isn’t practical, or a very good way to discharge his fiduciary duty. It has been reasonably easy for investors to be patient, given the remarkable performance of the company’s stock (now trading north of $500, up from about $350 a year ago at this time). But the total amount of cash on Apple’s books – nearly $100 billion – is at absurdly high levels. RELATED: Cash-Rich Companies Pump Up Dividend Payouts It’s reassuring that Cook recognizes, as he said at the company’s shareholder meeting last week, that “it’s more than we need to run the company” and that the board has been thinking “very deeply” about what to do next.So, what could Apple do with that $100 billion? 1. Acquisitions
Well, Apple just bought Chomp Inc., a company that helps users sort through all the myriad apps out there to find the one they need, for about $50 million. For $100 billion, they could pick up 2,000 more Chomps. Of course, then comes the challenge of integrating them. The vast majority of acquisitions are failures, either because the acquirer has made a bad business decision as to what to buy (perhaps the cash was burning a hole in their pocket?) or because they fail to properly integrate the new company. There’s no reason to suppose that Apple would be any more successful than, say, JDS Uniphase was when it went on an acquisition spree a decade or so ago, and ended up struggling to absorb about 1 percent or so of the number of companies Apple might be able to acquire. 2. Product Promotion
Apple could buy every one of the 313 million U.S. citizens (the legal ones, anyway) an iPod touch on their birthdays. They’d have enough left over to buy each man, woman and child $120 in gift certificates to let them add content to their new gadgets. Of course, if you give away your devices, you’re not really promoting them, so this might be a foolish use of Apple’s nest-egg. 3. Invest in the Future
Apple, and other U.S. technology companies, need skilled employees, right? So why not use the $100 billion to develop them? That chunk of change could finance three years of graduate school at MIT (including living expenses) for about 400,000 students. Of course, the problem with that would be finding jobs for them all after they graduate. 4. Worker Salaries
Apple has been getting some bad press of late about conditions for workers at Foxconn, which runs plants where Apple products (among others) are assembled. With $100 billion, Apple could instantly put an end to the question of unpaid overtime and other issues. In fact, Foxconn’s 1.2 million workers (currently toiling at $1.78 an hour, and working 60 hours a week) could get as much as $27 an hour if Apple chose to share its largesse with them during 2012. Of course, that would destabilize the Chinese economy and shareholders would complain about the money being handed out to Chinese workers. RELATED: Wage Hikes in China Threaten Electronics Industry 5. Public Interest
California has a debt problem that’s too large for even Apple’s $100 billion to solve. But it could eliminate unemployment in its home state at a stroke, offering each one of the state’s unemployed citizens a job with a salary of $45,000 a year. (That would be eight times the number of jobs created in January nationwide, so it would do wonders for the national unemployment rate, too.) Of course, that would only last for a year, and shareholders would probably have the same objections that they would to No. 4, above. 6. The Obvious
There really is only one sensible option for Apple, and it’s about time the company admitted it. It’s time for Apple to pay a dividend – a generous and regular one – to its shareholders, and soon, before that ridiculously large cash mountain grows still larger. According to some reports, Morgan Stanley analyst Katy Huberty has calculated Apple can afford to give a dividend that would yield (at a share price of $500) up to 3.8 percent, well in excess of the average yield of 2.2 percent for the S&P 500.Apple has been taking advantage of its shareholders’ patience and goodwill, and the fact that the stock market has rewarded its success and given those shareholders the potential of hefty capital gains. But why should those investors be required to sell their stock to profit from Apple’s success? That’s irrational, particularly when there is no rational alternative to paying a dividend in sight for Apple’s board.