While everybody else seems to be scrambling to find credit, Apple had $24.5 billion in cash at the end of its fourth quarter - up nearly 60 percent from last year - with no debt. That's led to wild proposals on what Apple could - or should - do with the money.
The cash trove news came as Apple delivered a whale of a quarter. Adjusted income - fully accounting for iPhone sales in both periods - vaulted 115 percent to $2.44 billion as sales jumped 48 percent to $7.9 billion. While iPods and Macs are still selling well, the iPhone - accounting for 39 percent of revenue in the period - has become the company's third leg of growth.
"If this isn't stunning, I don't know what is," said CEO Steve Jobs of the results on Apple's conference call.
Regarding its $24.5 billion cash hoard, Mr. Jobs said it "provides us tremendous stability and the ability to invest our way through this downturn." During the last downturn, the company "increased R&D investments and created some of our best new products and businesses," including launching Apple retail stores in 2001.
But Mr. Jobs added another comment that fueled speculation that Apple may pursue acquisitions of companies that have become vulnerable and cheap in the downturn. Said Apple's founder, "This downturn may also present some extraordinary opportunities for companies that have the cash to take advantage of them."
Tech bloggers at wired.com and zdnet.com immediately came up with a wide list of easily-affordable candidates for Apple, including Sony, Yahoo, Sun Microsystems, Netflix, Blockbuster, and TiVo, as well as manufacturers of graphic chips and flash memory and some hot websites. But Apple also appears to have three other options: launching a major share repurchase program, paying a substantial dividend, or letting its cash hoard grow. Throughout its history, Apple has primarily only reinvested.
According to Bernstein Research, the money is earning about 1.55 percent in interest after taxes. Moreover, Apple's cash haul is growing at the rate of eight to $10 billion a year. In a research note provided to Forbes magazine, analyst Toni Sacconaghi, who is hoping for a major share repurchase, noted the company could simply let its cash load pile up, but then the questions of what to do with it would "likely only get louder."
Mr. Sacconaghi also believes there aren't any large companies that are complementary to Apple.
Mr. Jobs, however, seemed to brush off any stock buyback plan.
"I think cash is already king and it may get more so that way, so we are very comfortable with our cash position in the bank and it's not burning a hole in our pocket," said Mr. Jobs.
Asked about potential acquisitions and his earlier comments, Mr. Jobs replied, "I just meant exactly what I said, which is I think there's going to be some significant opportunities."
Discussion Question: What should Apple do with its ample cash load? What factors determine whether a company should make an acquisition? Is there a downside to having so much cash on a balance sheet?