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Apple's cash could benefit investors

updated 04:40 pm EST, Fri February 29, 2008

Apple's cash reserve

Apple's cash reserve of $18.5 billion could benefit shareholders in a big way moving forward, according to BusinessWeekcolumnist Arik Hesseldahl. The cash amounts to $21 for each share of company stock, and Hesseldahl believes Apple should return some of that money to shareholders in the form of a buyback. "The time to buy back Apple stock is now," he writes. Shares are 40 percent below a historic high, and Wall Street is focusing on concerns that Apple will suffer as the economy slumps.

The columnist says an aggressive stock repurchase plan will do three good things for Apple: it will send an unambiguous signal that management believes the company's best days are still ahead; word of a buyback would likely give the stock price "the kind of upward lift it needs;" and reducing the number of shares outstanding -- which currently number around 879 million -- would raise earnings per share for investors.

"The size of that boost would depend on how much Apple is willing to spend to buy back its stock," Hesseldahl said.

Apple CFO Peter Oppenheimer told investors and analysts on January 22nd during a conference call that the company prefers maintaining a "strong balance sheet in order to preserve our flexibility to make strategic investments and/or acquisitions." The Cupertino-based company has a strong track record of acquiring very small companies still in the earliest stages of development, leaving many to wonder why it keeps so much cash on hand.

Hesseldahl makes a case that Apple could easily enact a $10 billion repurchase, which would leave ample cash for opportunistic acquisitions as well as flexibility for negotiations of component supply deals.

"How much more flexibility does Apple need," Hesseldahl asks. "And how much bigger does that pile of cash need to be before it's enough?"

by MacNN Staff





  1. danviento

    Joined: Dec 1969


    Here we go again

    Yet again we hear that "apple's stock price MAY go down because of a 'looming recession.'"

    Firstly, Apple's price is in the stratosphere compared to comparable tech companies and has bucked recent slight trends for the market to sink a little.

    Secondly, we again here this bunk about a recession. A recession? Certainly a small percentage of a small percentage of home owners took too-good-to-be-true home loans from investment/mortgage firms pushing the housing market bubble as far as it can go during a period of growth. However, this doesn't necessarily effect other industries. If anything is pushing for this 'recession,' it is the media bias beating the drum of pessimism.

    To a degree, such views might be effective. Recent independent polls show that 80%+ of people polled believe they are doing fine financially, but they are worried about the state of the economy.

    We'll see a jump in Apple stocks when we see some new market share numbers- mark my words.

  1. leamanc

    Joined: Dec 1969


    Obvious headlines

    Companies with a lot of money in the bank could be successful

    A red light could mean stop

    You might be reading this headline right now

  1. Flying Meat

    Joined: Dec 1969


    They need the

    flexibility to buy Dell, and liquidate it's assets. :D

  1. slider

    Joined: Dec 1969


    So Why Buy Back?

    So the argument is that Apple should "spend" it's money buying back shares because Apple might run into an economic slump as the economy continues to decline? Does that make any sense? If anything I'd think Apple would want to keep all it's cash to better survive an upcoming storm. Besides, if the economy is really about to take a tank, then shouldn't Apple wait for stocks to fall further before buying them back if that's what they'd even want to do? I have a feeling this person bought a lot of Apple shares and is panicking. If I was Apple looking at the forecast I wouldn't spend a dime to buy back shares. The last time the economy was starting to tank Jobs said that Apple was going to innovate through that period, it seems to have worked for em.

  1. Terrin

    Joined: Dec 1969


    Apple Buyback

    Yes, Jobs did say Apple would innovate through the dark times. He also announced a stock buy back years ago when the company stock was undervalued.

  1. chucker

    Joined: Dec 1969


    re: so why buy back?

    @slider, you don't seem to understand modern economic: if you are about to head into recession you should spend more, in fact basically you should always do what the markets least expect since it is the markets that determine everything.

    So at this point Apple should do what you would think would be absolutely the worst thing for them to do, like artificially boosting their share price which is already over valued with a buy back - or maybe better still, they could buy Yahoo!

    By the way the same goes for home economics, if you are poor you should get a loan and spend it like there is no tomorrow (because probably there isn't). Capiche?

  1. njfuzzy

    Joined: Dec 1969


    Strategic Reserves

    I think this comes down to platform strategy. What happens to Apple if Adobe (for instace) drops the Mac platform? Apple has billions in the bank to ensure the survival of the platform. They could buy a notable share in any major Mac software provider except Microsoft with that kind of money.

  1. Guest

    Joined: Dec 1969


    Judd Greg

    I just want a mid range tower, that is all

  1. James Katt

    Joined: Dec 1969


    Another Stupid Suggestion

    Why would Apple rid itself of it's cash reserves? The cash reserves are highly useful. They give Apple extreme flexibility to purchase other companies. They give Apple savings for difficult economic times.

    Buying back stock is a waste and weaken's Apple.

    I highly refuse this suggestion. And I am an Apple stockholder.

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