Apple's Mountain of Cash Is Set to Top $250 Billion -- WSJ

Apple Inc. is expected to report Tuesday that its stockpile of cash has topped a quarter of a trillion dollars, an unrivaled corporate hoard that is greater than the market value of both Wal-Mart Stores Inc. and Procter & Gamble Co. and exceeds the combined foreign-currency reserves held by the U.K. and Canada combined.

The money, more than 90% of which is stockpiled outside of the U.S., has drawn fresh attention as President Donald Trump has proposed slashing business taxes and a one-time tax holiday on corporate cash brought home. That could ratchet up pressure on the tech giant to make splashy acquisitions or dole out more money to shareholders.

Apple's quarterly results will show the company has doubled its cash pile in just over 4 1/2 years. In the last three months of 2016, it racked up new cash at a rate of about $3.6 million an hour.

As of December, the company had $246.09 billion total cash, cash equivalents, and securities. Apple, like many big American companies, parks most of that cash offshore rather than paying U.S. taxes on its overseas profits.

Apple Chief Executive Tim Cook early this year said he was eager to bring cash home if tax changes enabled it. Chief Financial Officer Luca Maestri said such a move would give Apple flexibility to do more capital returns. Neither has given detailed plans.

One possible approach would be a special dividend. Apple could deliver such a windfall, benefiting investors including Warren Buffett's Berkshire Hathaway Inc., which more than doubled its Apple position in January.

Wall Street analysts tend to focus more on companies' net cash position than the headline number. Since 2012, Apple has gathered some $88 billion in debt to fund payouts to shareholders. But even subtracting that, Apple would be left with more cash than the total stockpile of Microsoft Corp., the next richest tech company, which has $126 billion in cash, not accounting for debt.

With the exception of financial companies, Apple's stash exceeds that of any other U.S. company in recent history, said Jennifer Blouin, an accounting professor at University of Pennsylvania's Wharton School. "I have never seen a company in this kind of extreme position, barring a winding-down," she said. "Apple's a cash box right now."

Apple cash and cash equivalents are spread across short- and long-term securities, including corporate securities, U.S. Treasury securities and money-market funds.

When Apple had its 1990s bankruptcy scare, then CEO Steve Jobs arranged a cash infusion from Microsoft, setting his resolve to keep reserves for future emergencies. Mr. Jobs also believed Apple could better boost its stock price by using its money to develop new products than through buybacks or dividends.

His biggest product, the iPhone, has only supercharged the cash machine. Apple has sold more than 1 billion of the devices in the decade since it was introduced, and today claims 91% of all the profits in the smartphone sector.

Mr. Cook has been somewhat more accommodating of shareholder desires than his predecessor. He started a program of dividends and stock buybacks in 2012 that has since sent more than $200 billion to shareholders. And he has invested more in some areas, such as research and development.

But the CEO also stared down Carl Icahn in 2013 and 2014 when the activist investor bought a stake in Apple and demanded it increase buybacks. And Apple remains frugal in other realms, such as marketing. It spent less than $1.8 billion on advertising last year -- not even half the amounts laid out by smaller rivals Alphabet Inc. and Amazon.com Inc., according to company filings.

Apple also avoids large acquisitions. It bought at a rate of 15 to 20 companies a year over the past four years, generally spending several hundred million dollars on companies it can easily assimilate. Its biggest deal was the $3 billion it spent to buy Beats Electronics LLC in 2014.

The swelling war chest, however, has fueled hopes for bigger deals to vault Apple in new directions such as self-driving cars and entertainment. At Apple's 2015 shareholder meeting, one investor asked Mr. Cook about buying Tesla Inc., which today is valued around $51 billion. The CEO didn't directly respond.

Robert Nichols of Windward Capital Management Co., an Apple shareholder, says it should buy Netflix Inc., valued around $65 billion, to jump-start its video-streaming business and bolster its position against Amazon. "You can either build [content and distribution] or you can buy it," and buying would help Apple gain ground where it is behind, he said.

With $250 billion, Apple could buy both Tesla and Netflix and still have plenty left over. It also might want to use some cash to pay down some of its debt or look to boost U.S. manufacturing after facing calls last year from then-President-elect Trump to build a plant in the U.S.

Either way, a sense is growing that Apple's cash hoard has far outstripped its needs. "If this a rainy-day fund, they're saving for a millennial flood," said Lee Pinkowitz, a Georgetown University professor of finance.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

May 01, 2017 02:47 ET (06:47 GMT)