Apple and its $203billion

David Falzani (new)

Guest Blog
David Falzani

A chartered engineer, David Falzani is president of Sainsbury Management Fellows which was founded over 25 years ago by Lord Sainsbury to encourage better management skills in UK engineering. David is also chief executive of Polaris Associates which helps entrepreneurial companies develop and grow as well as visiting professor at Nottingham Business School where he teaches how to bring technology, innovation, entrepreneurialism together to create successful businesses.  

Apple has recently made history again for becoming the first company to have over $200bn in cash. That’s more than three times what the Federal Reserve holds. That’s all very well for Apple’s shareholders and senior staff, but there are a couple of interesting points around this.

Firstly it highlights how lucrative it can be to find ways of making technology deliver value to peoples’ lives. If you get it right, it can foster relationships with consumers that create value for all and, in the case of Apple at least, allow companies to charge a price premium that generates profits far in excess of what would be accepted in a text book efficient, or competitive if you prefer, market. It’s an absolute testament to Apple’s mastery of both technology and marketing. (When I say marketing, I mean the crafting of a value proposition, not advertising.)

Secondly, it begs the question why on earth does Apple have so much cash??? Isn’t it supposed to be good at developing new technology products? Why hasn’t it reinvested it? Does the fact that it’s not yet gone back into R&D mean that there are no new projects in the future, no new frontiers left for Apple to conquer? Recent statements around possible entries into wholly new areas such as automotive development, and the lukewarm reception of the iWatch suggests there’s much work left to do, so the answer to this must surely be a clear ‘No’.

Why is Apple rolling in it?

Normally companies with excess cash are constrained to return it to shareholders – and Apple has indeed succumbed to pressure and been increasing its returns to shareholders through dividends and share buy backs. However, again the quantities are not in scale with the cash pile.

There is some evidence that 80% of the funds are held overseas and that Apple is waiting for the US to revise some tax laws before repatriating the funds. However, this doesn’t explain the phenomenon – Apple could simply issue debt for anything up to $203bn if it has a good home for the money.

So, that must be the answer. Apple must genuinely not have a good use for the funds. Either that or it intends to embark on projects that are so risky it believes it needs to keep hold of the cash as some kind of insurance. That seems unlikely though. Who else has been so rich and failed? Worldcom failed with $104bn in assets, albeit due to fraud, and Lehman Brothers went under with $691bn, albeit a bank is unlike a normal business. Apple has $290bn in assets.

More likely is that its success is totally out of scale with its ideas. We can also assume that, as Apple’s relentless growth continues, so the cash pile will continue to get higher and higher!

So what could they do with it? I’m (regrettably) not familiar with the position of having billions of spare cash lying around, but it’s an interesting question to ask nonetheless.

They can’t give it away, since they are responsible to owners that require a financial return. They could invest in space exploration, or some other equally high minded endeavour (Apple Trek anyone?), but that sounds spurious. They could buy something, but they’ve bought over 70 companies in the last 30 years, and I’m not sure there’s much added value to be had at these price levels.

What they could genuinely do, is combine something with social value and a commercial return. Perhaps create a fund to invest into things that could really make a difference in peoples’ lives and also make a financial return. There must be tremendous potential.

For example, surely there’s much to be done in improving the way that education is delivered. It’s always seemed strange to me that despite the geometric explosion of human knowledge we expect each generation to learn everything the previous generation did plus the additional 20 years of knowledge. Of course, they don’t, and as we’ve seen recently with many reports of qualifications being dumbed down, much is left behind.

People who could solve this would be those who understand how people think, how they interact with enabling technology, and also have deep pockets. People with a track record of getting it right could also amass a fortune. Sound familiar? Perhaps the iEducation or iDegree could be around the corner?