What is Tim Cook's recipe for Apple's cash?
That is one big question shareholders have for the new chief executive as Apple on Tuesday presents earnings for the fiscal fourth quarter ended September. Actual results—analysts expect revenue to increase 45%, to $29.5 billion, and earnings per share to rise to $7.34 compared with $4.64 a year ago—are less important.
Apple had about $76 billion in cash at the end of the second quarter, while ISI Group analyst Brian Marshall expects this rose to about $82 billion in the latest period. Mr. Cook's famed predecessor, Steve Jobs, was content to let that hoard build.
It isn't clear whether Mr. Cook will take the same tack. The danger is that he blows some on ill-conceived deals. Yet there also is a possibility that Mr. Cook could assuage investor fears on this front by promising to return some of the cash, say through a dividend.
That could provide even more of a boost for Apple's shares. Although the stock, which closed at $419.99 Monday, is just below its all-time high, it only fetches about 12 times earnings; back out the company's cash and the multiple shrinks to less than 10 times. That is a relative bargain considering Apple's fast growth. A dividend, along with the not-so-high valuation, could provide a margin of safety for investors when Apple's growth rate inevitably slows.
The good news is that is some ways off. Apple on Monday said the latest iPhone model, the 4S, sold over four million units in three days. That was far faster than the previous version, the iPhone 4, which sold less than two million units its first three days. The most recent sales won't affect last quarter's results. But they do underscore that iPhones, which are expected to account for nearly half of revenue in the most recent quarter, remain Apple's most important product.
Meanwhile, growth may not be the only way the company surprises investors. According to Morgan Stanley analyst Katy Huberty, the cost of iPhone components has fallen recently. That could help to bolster profit margins.
In other words, the conundrum posed by Apple making money hand over fist isn't likely to go away anytime soon. And if that remains Mr. Cook's biggest issue, shareholders will stay a happy bunch.
COMMENTARY: Apple's humongous $76 billion cash hoard at the end of the 3rd quarter ending June 30, 2011, was the subject of much debate.
Many stock analysts, including yours truly, been wondering about that cash balance when the balance hit $51 billion in late 2010. In a blog post dated October 20, 2010, I made a pretty bold prediction what I thought Apple should do with that cash hoard.
In a blog post dated July 22, 2011, I commented on Apple's huge cash hoard of $76 billion at the end of its third quarter ending June 30, 2011, and again stuck with my original prediction of October 20, 2010. Hint: My prediction is consistent with Steve Job's "Digital Hub Strategy," a subject I have been writing about as the key reason for Apple's humongous success.
However, in a blog post dated October 1, 2011, I commented on some rumors that Steve Jobs and Apple benefited substantially from alien technology it worked on with NASA back in 1978. It is my belief, that that alien technology eventually resulted in the development of the iPhone and iPad. I know, this will probably piss off a bunch of Apple evangelists, but think about this: How often does a company have a string of product successes like Apple? Name at least two other companies, and I will buy you a cup of coffee and dozen donuts at Dunking Donuts.
Having said this, I look forward to Apple's 4th quarter earnings call scheduled for later today. Let's see just how much cash new Apple CEO Tim Cook has to play with. I hope that the stock analysts ask him what his plans are for that huge cash hoard.
Courtesy of an article dated October 18, 2011 appearing in The Wall Street Journal
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