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?"