Apple juggernaut regains warp speed with new pilot

January 24, 2012
Apple | M&A | tech

By Robert Cyran

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The Apple juggernaut has regained warp speed with its new pilot, Tim Cook. The tech giant’s quarter ending in December blew away the previous rare let-down: around $30 billion of market cap added after hours on Tuesday proves that. The latest iPhone fueled a 73 percent surge in sales from the year before. With cash rolling in, the destiny of nearly $100 billion in Apple’s piggybank is looming large.

The numbers are breathtaking. Apple sold 37 million iPhones in the quarter, more than double the number a year earlier, and also more than doubled sales of iPads to 15 million. Moreover, the company showed that it continues to have pricing power. Its gross margin rose to 45 percent and the average price paid for an iPhone increased. Even with a new model, that’s a rarity in the deflation-prone world of consumer gadgets. As a result of all this, Apple’s quarterly profit increased 118 percent to $13 billion, and another $16 billion of cash flowed into the kitty.

The impact of pent-up demand for the iPhone 4S, released in October, bodes well for Apple later this year. The handset offers real improvements on its predecessor, but they’re modest enough to merit only a suffix. The smartphone’s successor, which history suggests should be rolled out in late summer or early fall, will probably offer bigger changes. If so, sales of the next handset could be even more spectacular.

That would only add even more weight to the question of what Cook, Steve Jobs’ hand-picked successor as chief executive, should do with Apple’s mountain of cash. The sum is now almost a quarter of its $420 billion-odd market capitalization. The company says it is “actively” weighing its options. Blowing huge quantities on acquisitions would be risky, but such outlays fortunately don’t seem part of the company’s DNA.

There’s a better option. Apple’s shares were trading at 12 times estimated earnings before it released its results. Even with the after-hours pop, that’s shockingly low for a company growing so fast. Handing a big slug back to shareholders just might light another fire under the stock. That would be a good way to put the cash to work.

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