Friday 24 November 2017

Jobs's legacy of keeping cash stockpiles remains at the core of Apple philosophy

Ari Levy and Adam Satariano

AT a meeting with Apple finance chief Peter Oppenheimer this year, investor Kishore Rao asked the company to tap its billions in cash to pay a dividend.

Oppenheimer had heard the request before and explained that Apple was keeping its powder dry for "strategic opportunities," without elaborating on what those could be, Rao said.

The stock had almost doubled in the year before that meeting, and Oppenheimer argued that Apple had been a good steward of its cash and investments, currently worth $76.2bn (€55.7bn).

The drumbeat to open that treasure chest may now grow louder following last week's death of Steve Jobs.

The former Apple chief executive who rescued it from near-bankruptcy and turned it into the most valuable technology company, engendered faith in his insistence on hoarding cash. In his absence, as the stockpile grows, Oppenheimer faces renewed calls to fund a dividend or stock buyback.

"They don't need all that cash," said Keith Goddard, CEO of Tulsa, Oklahoma-based Capital Advisors, whose largest holding is Apple. "It won't change their growth rate to pay a dividend."

Apple, which almost couldn't make payroll when Jobs returned as CEO in 1997, has more than doubled its cash and investments in the past two years -- fuelled by sales of the iPhone and iPad. Jobs resisted returning money to shareholders as he pushed Apple into new markets. The company has used the money to buy long-term supplies of certain critical components, such as memory chips and touch-screen panels.

Oppenheimer (48) said in January that Apple would spend about $3.9bn over the next two years on unspecified component prepayment and capital expenditures.

Steve Dowling, a spokesman for Apple, reiterated the company's long-standing position that it has a good track record of managing cash and is keeping it available for potential strategic opportunities.

Cisco started paying a dividend earlier this year when its cash and investments reached about $40bn.

And Apple's competitors, including Microsoft and Google, have devoted their cash to making big acquisitions -- something Apple has avoided.

As sales keep growing, the company will have to find ways to spend its capital, said Ryan Jacob, chairman of Jacob Asset Management in New York.

"They have a high-class problem," said Jacob, whose firm owns Apple shares. "They're generating so much quarter after quarter, and it's just growing."

Profit more than doubled to $7.31bn in the third quarter, adding to Apple's coffers. The stock has climbed 15 pc this year, defying a stock-market slump and concerns about Apple's CEO succession.

With a valuation of $342.8bn, Apple is almost 60pc bigger than the second most valuable technology company, Microsoft.

Rao, the investor who met with Oppenheimer, complimented the company for its overall business performance.

He said dipping into its cash wouldn't affect Apple's long-term plans.

"We have a slight difference of opinion on whether they have sufficient cash to meet all their strategic objectives," Rao, a research principal at Sustainable Growth Advisers in Stamford, Connecticut, said in an interview. "We think they do and say they can be paying a dividend."

Prior to joining Apple, Oppenheimer served in the finance department of Automatic Data Processing, the provider of payroll services, and as a consultant at Coopers & Lybrand.

He arrived at Apple in 1996 as controller of the Americas and was promoted the following year to vice president and later to corporate controller. As chief financial officer, he oversees investor relations, tax information and internal audits.

"Peter is pretty conservative and cautious, and he's managing the company's financial resources in the same way," Rao said.

Oppenheimer took the chief financial officer job in 2004 when Fred Anderson retired. At the time, the company had about $5bn in cash and investments.

That number almost tripled over the next three years to $13.8bn and then soared again in the following three years to more than $40bn by mid-2010.

"It's been ridiculous for a long time, whether it's $75bn or $35bn or $25bn," said Andy Hargreaves, an analyst at Pacific Crest Securities in Portland, Oregon, who recommends Apple stock and doesn't own it himself. "Apparently the board feels nothing has been necessary to this point."

The day before Jobs's death, chief executive Tim Cook unveiled the iPhone 4S, which has an upgraded processor, camera and software. He also introduced a voice-recognition system called Siri that turns the device into a hands-free personal assistant.

That technology came from the acquisition of Siri last year for an undisclosed sum. While Apple will continue buying companies to gain technologies, it's unlikely to spend much of its cash on big deals, Hargreaves said.

"That just hasn't been their style historically," he said. "It's questionable what they could buy to add a lot of value." (Bloomberg)

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