AAPL - Apple Inc.

[given2invest]

My main point wasn't about dividends vs. buybacks but about optimal capitalization and that all companies should strive to achieve an ideal capital structure.  I think most boards fail miserably here and it's a shame because it's so fucking easy (compared to developing and marketing an Ipad) yet they ignore it. 

[Dazel]

sorry guys.

I will make money shorting Apple over the next few years...it is impossible to keep a deflationary product
cycle going.......It has the 3rd biggest market cap on the planet...your top is near.(in the next year)...purely speculating of course.
I do not have a short postion.

Dazel.

[ERICOPOLY]

Would you have argued that it would have been wise for MSFT and DELL to buy back stock in 2000 at $50 and $40, respectively?

The math lays it out pretty damn clear:   a buyback at any price is equal to a dividend at any price -- as long as the shareholders sell an offsetting amount of their holdings.  In other words, it's a tax efficient pass-through of the cash.  The shareholders are the seller, the corporation is the buyer.  No value is destroyed, only returned to shareholders.  Run the math.

Absolutely true.  Not debatable.  It's math.  

We can debate whether a stock is cheap or not, whether a stock is overcapitalized or undercapitalized, etc.  But you can't argue with math.  

Simply put, if you own a stock (I don't own Apple by the way) and you can sell it (not subject to liquidity issues), then you think the stock is undervalued.  You then need to ask yourself if the balance sheet is overcapitalized.   Many balance sheets are not!  But if it is, what is the best way to return/invest that overcapitalized balance sheet?

Suppose Apple won a $500 Billion lawsuit from the U.S. Government.  Let us also assume that the market cap went up $500 Billion as a result.  They now had $580 Billion on their balance sheet vs. a market cap of $800 Billion.  Do you think it makes sense for them to sit on $580 Billion or return some of that to shareholders?  Further, how should they do it?  Again, of you are long the stock - and could sell it at anytime - you would clearly prefer a buyback to a dividend, for tax purposes.  But regardless, you would just be happy with getting some of the cash returned to you.  

Well, the preference would actually depend on how a person holds the shares. If they were in a ROTH, that would have different implications than if it was in a personal taxable account. Additionally, tax rates would have some influence on the preference of shareholders.

I realize that this is getting pretty particular, but, they are real issues.

Yes they are real issues.  I don't deny it.  And another big issue for the small shareholder would be the transaction cost.

My point is just that buybacks are a return to the shareholder... if he chooses to reinvest in the stock then he does nothing.  If he chooses to use the cash elsewhere, he sells. 

For the best example I can think of, Microsoft returned a big chunk in a well advertised tender offer -- that's one way a company can return cash at a price you can sell it at, where you're not left to guess at whether or not they are buying back, and what was the price paid.  My father was actually holding some MSFT at the time that he had purchased at a higher price -- so better than a dividend where he would owe tax, he was able to sell at a loss and reduce his tax bill.

[Myth465]

I agree capital should be returned generally after a certain point for a none holding company. Alot of companies build capital simple to help push up the price on their options. If they pay out the capital then share prices generally fall.

Cash shouldnt be built up indefinitely and I am not sure why every tech company in the world likes to have $2 to $5 billion on hand "just in case"

[given2invest]

I agree capital should be returned generally after a certain point for a none holding company. Alot of companies build capital simple to help push up the price on their options. If they pay out the capital then share prices generally fall.

Cash shouldnt be built up indefinitely and I am not sure why every tech company in the world likes to have $2 to $5 billion on hand "just in case"

Or in the case of Apple, $60 Billion.

[ERICOPOLY]

I am not sure why every tech company in the world likes to have $2 to $5 billion on hand "just in case"

The point of having it is to piss it away at some point in the future while defending against disruptive technological shifts.  They know that if they pay it out today and later ask for it back (when their cash cows no longer bring the milk) as a capital raise you won't give it to them... because you'll consider it speculative at that point, which it would be!

[Myth465]

I guess I should have put things better. We all know why companies what the cash, but I dont understand why owners are comfortable with it.

[ragnarisapirate]

Dazel: shorting aapl seems to me to be shorting netflix, but even ballsier. With netflix, you are betting that they can't grow like the market says (which, they very well could do). With Apple, you are betting that people won't want to streamline the products they already have with more apple products... I am about as anti apple as they come, but, they do make a good product, and my next computer might be a macbook, just because I want something that works all the time.

Either way, I won't be shocked if apple almost gets cut down (can anyone ever really replace Steve Jobs?) or, if they get a trillion dollar market cap.

Myth: going back to WDC, I am even more surprised that a tech company with an empire building CEO (which isn't uncommon) and a glut of cash doesn't take them out.

[ERICOPOLY]

I guess I should have put things better. We all know why companies what the cash, but I dont understand why owners are comfortable with it.

They are fed the idea that it's prudent to keep a massive rainy day fund.  It is prudent from the standpoint of management, because it ensures they can keep their jobs no matter what happens to the cash cows of today.  Not prudent from the standpoint of the owner though.  I think this is yet one more reason why Buffett likes wholly owned companies for Berkshire -- it's just one more way in which he gets more value over time.

[Bronco]

I can't answer as to what they will do with the $60B.  Hire a good looking tall CPA would be option #1.

Like I said, they could buy EMC tomorrow for cash and this becomes moot.

For the record, I would be happy with a one time dividend - I have been holding apple in a tax-deferred account.

If you guys are not in favor of buyback at any price, then there is a issue of when to buy back.

Maybe not true for Apple, but for many companies the "cash" is trapped and will NEVER be brought back, thanks to the JFK administration.  The NEVER may change if they change the tax laws and the accounting rules. 

Other than Microsoft (and I'm sure there may be more), I can't think of too many tech companies with a long lifespan that are in existance based on their original product.  Something like an IBM I would say is reinvented.  Perhaps that is why Apple wants to keep the cash - history is against them and they want as much dry powder to reinvent themselves if need be.  But that is 100% speculation.