Bits Blog: Apple Chief Hints at Shareholder Rewards to Come

Peter DaSilva for The New York Times Timothy D. Cook in September.

Investors want more cash from Apple.

Timothy D. Cook, Apple’s chief executive, wasn’t ready to give it to them on Tuesday. But recent history and Mr. Cook’s tendency to foreshadow events before they occur strongly suggest he will reward them soon.

Speaking for the second consecutive year in at a Goldman Sachs technology investor conference, Mr. Cook said Apple’s management team and board were discussing how to return more of the company’s enormous stockpile of cash to shareholders.

If those words sound familiar, it’s because Mr. Cook said almost the same thing a year ago at the Goldman Sachs conference. A month later, the company announced a plan to return more than $45 billion to shareholders over three years in the form of dividends and share repurchases.

That plan only served to slow the swelling of Apple’s cash hoard, not to reduce it. Last year around this time, Apple had nearly $100 billion in cash. Now it has around $137 billion.

“We do have some cash,” Mr. Cook said at the Goldman conference on Tuesday, in a moment of deliberate understatement that set off chuckles from his audience.

Some investors — like the hedge-fund manager David Einhorn — are cranky that Apple’s cash is sitting around earning so little interest.

Mr. Cook said Apple had looked at making some big acquisitions but never seriously enough to follow through on the deals. With its cash, Apple could afford one Amazon or two Facebooks and still have billions in spare change.

Instead, Apple buys smaller companies, mostly for their talent or intellectual property, Mr. Cook said. He said Apple has averaged about one acquisition every other month for the last three years.

How to send more cash to shareholders is the tricky part. Much of Apple’s cash is generated overseas and can’t be paid out to shareholders without being subject to repatriation taxes. In a recent research note, Toni Sacconaghi, an analyst at Bernstein Research, said  Apple could not meaningfully increase its return of cash to shareholders without paying the taxes or issuing debt.

While the latter option sounds nonsensical for a company with as much cash in the bank as Apple, a number of cash-rich technology companies, including Microsoft and Cisco, have issued debt, taking advantage of low interest rates. Mr. Sacconaghi suggested that the most attractive option for Apple shareholders would be for the company to borrow money, perhaps in the range of $50 billion to $100 billion, and use it to buy back stock or increase the dividend. He said increasing the return of cash was critical for Apple to attract a new class of dividend-hungry value investors as the company’s growth slows. Apple’s shares have declined about 33 percent since their high in September.

Mr. Cook called a lawsuit filed against the company by Mr. Einhorn, president of Greenlight Capital, a “silly sideshow.”

Mr. Einhorn has claimed that a change Apple is proposing to make to its corporate charter would limit the option of returning more cash to shareholders through the issuing of preferred stock. Apple has said that even with the charter change, it could issue preferred stock with shareholder approval.

Mr. Cook danced around the rumors that Apple would create an inexpensive iPhone for emerging markets, where income levels and a lack of subsidies by wireless carriers have put the company’s smartphone out of reach for many consumers. But he noted Apple’s history of coming up with creative new products, like the iPod shuffle and the iPad Mini, that appeal to budget-minded shoppers.

“The only thing we’ll never do is make a crappy product,” he said. “That’s the only religion we have.”

Article source: http://bits.blogs.nytimes.com/2013/02/12/apple-chief-hints-at-shareholder-rewards-to-come/?partner=rss&emc=rss