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Apple Has Too Much Money

Hugh Pickens writes (1984118) writes | more than 2 years ago

The Almighty Buck 0

Hugh Pickens writes writes "AP reports that last week during a question-and-answer session at the company's annual shareholders' meeting CEO Tim Cook said he believes Apple has more money than it needs and his next challenge is to figure out whether Apple should break from the cash-hoarding ways of his predecessor, the late Steve Jobs, and dip into its $98 billion bank account to pay shareholders a dividend this year. "Frankly speaking, it's more than we need to run the company." The question of how to handle Apple's cash stockpile is a touchy one, partly because company co-founder Jobs had steadfastly brushed aside suggestions that the company restore its quarterly dividend which Jobs suspended in 1995 when it was in such deep trouble that it needed to hold on to every cent to keep from going bankrupt. Marketwatch analyst Mark Hulbert writes that a compelling case can be made that a huge cash hoard actually represents grave danger for Apple. That’s because too much cash often burns a hole in managers’ pockets, and they end up doing a poor job of investing that cash—engaging instead in foolish pursuits like empire building. According to a famous 1986 article by Michael Jensen in the American Economic Review shareholders should concentrate on how to “motivate managers to disgorge the cash (PDF) rather than investing it at below the cost of capital or wasting it on organization inefficiencies.” Hulbert adds that a good strategy for insuring that Apple remains a hungry, growth-oriented entrepreneurial company might be for it to distribute much of its cash to shareholders."

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