Apple to release a staggering second quarter earnings
This Tuesday, Apple is expected to make public its fiscal earnings report. If rumors are to be believed, Apple – in this report – is widely expected to announce a cash holding in the proximity of $250 billion. For those who aren’t sure why this is big news, let us provide a bit of scale.
Apple in the past few years had already stocked up a bigger pile of cash than the US Government. With this earnings report, it’ll officially be the holder of more free cash than the UK & Canada combined. If that still doesn’t convince you of how big this news is, Apple could now buy every available share of Walmart – the world’s biggest retail chain and Proctor & Gamble – one of the world’s biggest FMCG company – only using its cash pile and still have some left over.
It was common knowledge that Apple is one of the world’s most successful corporations. The mind boggling part however, is the fact that the company has so much money readily available. Its not uncommon for multi-billion dollar companies to have massive amounts of capital but they are usually in the form of investments, holdings, stocks, etc. Apple’s stock pile is higher than even most countries Gross Domestic Products (GDP) – 150 countries to be more precise. Apple fanboys might miss Steve Jobs, but Apple’s finances aren’t apparently.
It has taken Apple less than half a decade to double its cash holdings. If reports coming in are true, Apple added about $3.6 million every hour to its cash holdings. It reportedly ended the December quarter with $246.09 billion in cash holdings. Also, reports suggest that 90% of these holdings are based outside of US borders, which might explain why Apple has not used this cash fund to make any high profile investments/acquisitions besides Beats by Dr. Dre. That deal too was reported to be in the single billions which looks like pocket change in comparison.
Currently, US based companies need to pay a tax of 35% to bring cash holdings from other countries into the US. However, President Trump has promised a one time tax break on repatriated funds which could see this percentage drop to 10%. With 90% of the funds being held offshore, that makes the total amount taxable to $225 billion. With the one time tax break, companies will have to pay 25% less tax on bringing such funds into the US. That 25% difference translates to $55 billion in tax savings for Apple if implemented. Makes it understandable why Apple has chosen to leave the cash holding offshore instead of investing it. Apple CEO Tim Cook and CFO Luca Maestri have previosuly expressed an interest to bring this amount into the US with the tax break is implemented by the current administration.
With the amount of cash at its disposal, Apple’s stockholders could raise a demand for disbursing some of it by increasing its quarterly dividends which stands at 57 cents per share at the moment.Based on the stock price, this is a yield of 1.6% on an annualized basis. Alternatively, Apple might also pay its stockholders a one time only dividend. Both these ideas have been floating around since the news that Apple had generated over $100 billion in cash had become public. Therefore, we would advise people to not have too high hopes of immediate high returns by purchasing Apple stocks just yet.
Another possibility however, is that Apple might use this cash fund to acquire businesses. One rumor going around is Apple teaming up with its iPhone maker Foxconn to purchase the memory chip business of Toshiba. If the deal goes through, Apple might end up investing several of these billion to own 20% of the company formed with Foxconn. Robert Nichols of Windward Capital Management Company – a fund manager with holdings in Apple has stated that Apple might just purchase Netflix for $65 billion. Although that might be a big purchase, the benefits are evident for anyone following the growing streaming business. This acquisition would give Apple the biggest media streaming business in a world where it does not have an equal. Whatever Apple does, this is a major development for the tech and financial industries.