Calling in and cashing in

March 18, 2012

Apple issued a curious media alert late Sunday night, saying that Apple’s CEO and CFO would be waking up early to hold a conference call at 9:00 a.m. Eastern / 6:00 a.m. Pacific (!) on Monday morning to address what they planned to do with their enormous cash reserves. I’ve been looking around the web to see what people expect they might announce, but a lot of the options don’t make a lot of sense. Let’s take a look at each of them and why they might not make much sense for Apple.

  • Announce a stock dividend. This seems to be the most popular guess. But Apple, above all else, is stubborn, and their stock has been doing remarkably well. I don’t think they’d see a dividend as beneficial, and I think some people may take it as a sign of weakness. (For the record, I own a single share of Apple stock. I bought at $367.24.)
  • Buy back stock. I’ll be honest: I don’t know much about stock repurchases. From what I’ve read, it seems like it’d make a lot of sense for Apple, and the fact that only serious investor-types know what the heck it is would explain the late notice and the early schedule. There’s a part of me that thinks Apple really doesn’t care that much, though, and would want to keep the reserve for investment down the line.
  • Buy Twitter (or such-and-such tech company). Some have said that it’d be a good idea to buy Twitter, noting how integrated it’s become into iOS. It certainly makes sense; Apple has a notorious reputation for controlling everything within their ecosystem. I’m not sure the Twitter guys want to be bought – and I think they might ask more than Apple’s willing to spend. Then again, Apple’s never been strong in the social space (see: Ping), so if they want some heavy-hitters in that area, Twitter might be their ticket. (See also: A Brief History of Apple Not Buying Things by Harry McCracken)
  • Buy a phone company. There have long been a few calls for Apple to buy Sprint, AT&T’s wireless division, or the American portion of T-Mobile. This, too, speaks to Apple’s desire to control everything. In this case, though, I think they may run into regulatory problems – and I don’t know if Apple wants to deal with the hassle of wireless infrastructure.
  • Buy a component supplier. Buying suppliers is right in line with Apple’s way of thinking, but I can’t remember a time in the past where they’ve announced such an acquisition on a conference call. They might if it were big enough, but the likely player in that scenario (Samsung) could trigger some antitrust issues.
  • Invest in Chinese factories. With all the press about their suppliers, Apple could decide to put a few billion to improve conditions in their Chinese supply chain. Frankly, though, I don’t think they’d want to attract additional attention to the issue so close to the This American Life controversy, and if they did, I think they’d do a bigger announcement than an early morning conference call. (But if they disregarded public opinion, as they have in the past, it would definitely be a good investment.)
  • Invest in non-Chinese factories. Many people want Apple to invest in American (or non-Chinese) factories. Tim Cook is a ruthless operations guy, though, and the logistics don’t pan out at scale (for details, start listening to this week’s This American Life at 42:40). If they did anything, it’d probably be mostly symbolic… but Apple hasn’t done much like that in the past. But again, I think they’d want a bigger event than a conference call for this kind of announcement.
  • Announce a component purchase. Apple likes to pre-buy components to save money, so a huge memory/display/battery reservation would seem in line. Not sure they’d announce this publicly either, though.
  • Announce a research and development program, or an incubation program for startup companies. It’s a noble thought, but I don’t think they’re at that place right now. It’s not completely out of character (remember the iFund?), but I think they’d want to use a bigger venue than a conference call for that kind of announcement (especially one at 6:00 a.m. Pacific).
  • Do nothing. If I were a betting man, I’d put my money on the option to do nothing. My guess? Tim Cook says something along the lines of, “We want to keep a reserve available so that we can continue to lead the industry and protect the products we’ve invested billions to develop.” but it’s a bit suspect that they’d announce this right as trading opens on a Monday.

My top guesses, in order: do nothing, buy back stock, and invest in Chinese factories.

Whatever the case, this proves that there’s no such thing as a minor announcement when Apple is involved.