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Apple's Cash Problem

The Discussion Issue

Having too much cash is a good problem to have, or at least it is a better problem than having too little. In this puzzle, we look at a company that has accumulated the largest cash balance in history (about $150 billion) and how it got there. We also look at how that cash balance, initially viewed as a plus for the company, became a minus. Finally, we examine the company's attempts to deal with that problem.


Since so much has happened at Apple over the last three years, the best place to start is with this blog post of mine from March 2012, just after Tim Cook admitted to markets that Apple had too much cash.


A few months later, Apple starting paying dividends and started attracting investors who like dividends. Added this group on to the growth investors and momentum investors who were already on the bandwagon created a heady effect, where each group saw what it wanted to see in Apple and the price kept pushing ever higher. In April 2012, as the stock hit $600, I sold my long held position in the stock, not because the stock overvalued but because I felt that it had accumulated an investor base that was at war with itself. Here was the post from then:


The stock continued to go up, after my stock sale, to $700 in September 2012, when the company announced the iPhone 5. Almost on cue, the momentum shifted and the company that could do nothing wrong just a few weeks prior could do nothing right. As the stock collapsed to $400 in February 2013, David Einhorn suggested that the company issue preferred shares to monetize its under valuation and I disagreed in this post:


A few weeks later, in April 2013, the company announced that it was buying back more stock and borrowing money for the first time in its history. My post that followed is below:


That action did stop the bleeding and while the stock price recovered to about $500, it remain mired at that level until last week when the company reported its earnings, and announced a slew of actions: it increased dividends, stepped up buybacks and split its stock. The market reacted euphorically, pushing the price up to almost $600. My blog post from this morning is below:


Key Questions

  1. How did Apple get to accumulate a cash balance of the magnitude that it has?
  2. Does Apple have too much cash?
  3. Was it being punished for having too much cash in early 2011? How about in September 2012? And in April 2013? If your answer varies, why is it?
  4. Apple currently has $150 billion in cash, has increased its dividends and buybacks and is planning on borrowing more money. If you were the CEO of Apple, what is your next step?