Comments on: Apple should be like Bloomberg A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Moopheus Thu, 31 Oct 2013 14:16:40 +0000 In a slight defense of the new Mac Pro, while its price does represent some level of Apple premium, nobody is selling Xeon-class workstations with dual GPUs for real cheap, either.

But as a long-time Apple customer (going back to an Apple II+ in 1979), I’ve been pretty disappointed in the iOSsification of the Mac that’s been happening over the past few years, and having been moving a lot of my work to Linux.

By: MaysonLancaster Thu, 31 Oct 2013 05:03:29 +0000 Note that Apple is growing at an almost insane pace for a company so large: R&D expenditures quadrupled in the past 5 years, employment did the same (non-retail employment rose over 26% last fiscal year). R&D + CapEx, which the WSJ article says averaged 3.9 billion since 2002 will be over $15 billion next year. There are a lot of products in the pipeline and labs, bet on it. Maybe Cook will buy Intel, especially now that they’ve decided to start making ARM chips. (Note that they also have a history of somewhat paranoid CEOs: see Andy Grove’s book ive-Exploit-Challenge/dp/0385483821 )

By: DanielEran Thu, 31 Oct 2013 00:36:28 +0000 “Debt makes sense when you need money to invest today”… well the idea is that Apple can leverage debt to buy its own shares at crazy low prices. It’s already done that. That’s not a bad idea at all, but taking it to the extreme Icahn wants involves lots of risk with uncertain rewards.

Also, Apple’s capital is not in a bank collecting dust. It’s invested in government bonds and other low risk investments. There’s an argument for saying Apple should do something that could provide a greater return, such as dramatically expanding retail or building new capacity. Those are not easy things to manage, and Apple has had very slim executive coverage lately (effectively no retail SVP for a couple years! Cook has his hands busy managing the world’s fastest growing tech products in a very competitive market, making about 75% of all the profits in both PCs and mobile).

Investors are valuing Google, Amazon and Apple by very bizarre standards that are not equal. That might work out today, but as soon as the economy tanks, I think I’d rather be the one with tons of capital & the ability to switch gears in building lower end, high quality tech hardware with great software, rather than sitting on an ad bubble and a vastly expensive, money losing hardware subsidiary or commanding a vast, razor-thin retail expansion charity inflated by dreamers who now own virtually worthless paper.

Seems that investors on the verge of a bubble never imagine that they could be on the verge of a bubble. But yeah, keep investing in ad companies that plan to force-feed web users with nonstop commercials, because I’m sure that’s going to work out really well!

I’d rather be in the affordable luxury hardware business, backed with the world’s most adaptable software platform, the one that developers actually write software for.

By: thispaceforsale Wed, 30 Oct 2013 21:17:10 +0000 Can a corporation use pretax profits to fund a stock buyback?
Otherwise Apple’s chest of cash is beyond the reach of Icahn, et al.

By: realist50 Wed, 30 Oct 2013 19:43:13 +0000 I’ll agree that the $150 billion buyback proposed by Icahn is an excessive amount, but the right amount – whether a special dividend or buyback – is well beyond anything Apple is doing today. Apple has $147 billion in cash and equivalents. That amount grew by $26 billion in the past year. (BTW, that increase is after Apple spent $8 billion on capital expenditures and $16 billion on financing activities – dividends and share buybacks, net of money raised from debt issuance.)

Of Manjoo’s ideas, the only one on which Apple could plausibly spend anything like $147 billion is buying a cellular carrier (or multiple carriers). I don’t see how that could work for Apple because of 2 severe channel conflicts. As a carrier, it would have to be in the business of selling and providing service to its competitors’ phones – buying say, AT&T, and making it “Apple only” would make no financial sense. Apple would also become a direct competitor of every other carrier, who are important partners for it. Those other carriers probably wouldn’t stop selling and supporting iPhones and iPads, at least in the short-run, but they will certainly be motivated to favor other phone and tablet providers.

The “cushion” and “investment” arguments are plausible arguments for Apple perhaps maintaining a net cash position of something like $30 to $40 billion. (Remember, the company’s cash increased by $26 billion last year, so each quarter it is generating additional cash that it is not currently investing or using for dividends).

The real issue that Icahn is trying to solve with the idea of selling debt is that so much of Apple’s cash is offshore and therefore subject to incremental U.S. corporate income tax if it comes back.

By: realist50 Wed, 30 Oct 2013 19:15:34 +0000 I’ve never seen Bloomberg, L.P.’s financials, but I think it proves the opposite of Felix’s point. Based on everything that I can gather from publicly available information, it appears that Bloomberg L.P. has distributed a healthy percentage of its profits to its owners over the years.

– Merrill Lynch once owned 30% of Bloomberg, L.P. It sold 10% for $200 million in 1996 and 20% in 2008 for $4.4 billion. In each case “Bloomberg” purchased the interest. I am unclear from press reports if the purchaser was the operating company or a Michael Bloomberg entity separate from the company, but that’s a distinction without much difference. In either case, the ultimate source of the cash was cash flow generated by Bloomberg, L.P., because that would be the source for Mayor Bloomberg to have that amount of cash.

– In 2010, Dealbook reported that Mayor Bloomberg moved $5 billion in assets that had been managed by Quadrangle Group to a different manager. These are financial assets other than his ownership stake in Bloomberg, L.P. This amount is good evidence – along with his homes, lifestyle, and philanthropic activity – that he’s received billions in distributions from the company over the years.

– In 2007, Fortune estimated Bloomberg, L.P.’s pretax operating profits to be $1.5 billion. It had grown rapidly over time and at that time Michael Bloomberg owned 68% of it.

Putting all of these facts together, I don’t see any evidence that Bloomberg L.P. is building billions upon billions of cash inside the company. Instead, the best evidence is that the company is paying out a high percentage of free cash flow to its owners. The company has invested to grow the business, which appears to still leave substantial free cash flow, much of which the company then distributes to its owners. Unless someone who has seen Bloomberg L.P. financials tells me otherwise, that’s what the evidence supports.

In the case of Apple, the company is piling up cash that is not reinvested in the business. Short of an enormous acquisition, there is no plausible path for Apple to use that cash, as Harpstein says.

By: Harpstein1 Wed, 30 Oct 2013 18:44:15 +0000 Agreed dsquared. My only nit-pick with your assessment Felix is that (as someone else mentioned) by hoarding cash Apple management is acting in it’s best interests rather than that of it’s actual owners. A company should only live as long as it provides a benefit to society. By hoarding cash, future Apple management will be able to survive no matter their level of competence. No new product ideas? Poor execution on a product line/market? No matter, we have these billions in the bank that we can use to paper over those failures in some sense. Some level of cushion is understandable, but Apple has gone way past that.

By: 1Brayden Wed, 30 Oct 2013 18:07:32 +0000 Apple is progressing as it should. It operates like a Main Street business. It ensures growth by satisfying customers, expanding services and making a profit.

Wall Street has another agenda. It seems to expect a revolutionary product consistently to fuel the share price. What they fail to see is that the next revolution is not about hardware but what one can do with that hardware. The leap to 64 bit processing in mobile, security capabilities via biometrics, proximity interchange through iBeacon and integration with external applications suggests Apple’s ecosystem is focused on just that. Enhanced and expanded capabilities.

The 150B war chest will ensure that they have the resources and advantage to do so. It’s the way Main Street grows.

By: dsquared Wed, 30 Oct 2013 11:10:59 +0000 “In part because the IRS is holding on to the fantasy that if AAPL builds an Iphone in Taiwan and sells it in Korea that somehow Washington has a right to 35% of the profit AAPL made on that foreign transaction”

If Apple wanted to incorporate in Taiwan or Korea, then it could do so. Instead, as a company which is heavily based on intellectual property, it presumably reasons that it might be better off taking advantage of the USA and its strong, stable legal code. There are costs associated with doing so. One of which is that the US tax system takes the view (what you call a “fantasy”, although the more conventional term is “liability”) that your contribution to the overall American system which protects and facilitates your profits is measured as a proportion of those profits, calculated on a global basis.

By: KenG_CA Wed, 30 Oct 2013 06:56:32 +0000 y2k, Cook is a diplomat. So he’ll have dinner with Icahn. And then he’ll do what he wants. Jobs would just tell him to drop dead.Icahn doesn’t have enough shares to make a difference, and I don’t think Apple mgmt cares that much about the share price anyway.

I don’t have a problem with billionaires in general, just the ones who make their billions by just shuffling papers, especially when they suck the life out of companies, often by loading them up with debt and then walking away with a giant profit. And I’m not convinced they all pay high tax rates.

Icahn, like other parasites, adds no value to his host organism, while extracting all kinds of wealth.