The tech giant should give cash back to shareholders
NOT long after Steve Jobs died last year, wags eulogised the Apple co-founder with a joke: “Ten years ago we had Steve Jobs, Bob Hope and Johnny Cash. Now we have no jobs, no hope and no cash.” Apple may no longer have Jobs, but it fills investors with hope and is brimming with cash. Its market capitalisation recently passed $500 billion, and it has a whopping $100 billion or so of cash on its balance-sheet.
That mountain of money is about to get higher. Apple aficionados are poised to snap up the new gadgets that the company unveiled on March 7th. These include a new iPad, the latest in the firm’s wildly popular range of tablet computers, and a revamped Apple TV device.
If the new iPad, which boasts a super-sharp screen and lightning-fast connectivity, wins friendly reviews, it will give a big boost to Tim Cook, Jobs’s handpicked successor. But the extra cash it delivers will also increase pressure on Apple’s boss and board to explain what they plan to do with the company’s embarrassment of riches. Last month Mr Cook admitted that the firm has more cash than it needs for its operations. It’s a nice problem to have.
The obvious solution would be to give cash back to shareholders, either via dividends or share buybacks. This is a surprisingly sensitive subject. Mr Jobs was obsessed with hoarding cash, not least because of Apple’s near-bankruptcy in the mid-1990s.
Returning money to shareholders would mark a big departure from the revered founder’s philosophy. Another reason Mr Cook will want to tread carefully is that some pundits see a tech firm’s decision to start paying dividends as a signal that its glory days are behind it. One oft-cited example is Microsoft, whose growth slowed after it began returning cash to shareholders in 2003.
Read on here: http://www.economist.com/node/21549978