VentureBeat

I like totally have something for them to buy.

This is amazing. Roughly 10 years ago Apple just about went out of business. It was Microsoft that gave them $200 (?) to just keep them in business. WOW!!!

To answer Alex, it was 16 years ago. Apple was never close to going out of business and Microsoft did not give Apple $200,000,000 but bought that much worth of stock from Apple and believe me they made a lot of money out of it. It was not a gift but a good investment.

> believe me they made a lot of money out of it. It was not a gift but a good investment.

It was neither a gift nor a good investment. Those two factors were far away from being Microsoft's motivators.

At the time Apple was in serious trouble. Meanwhile Microsoft was looked as the really bad (read: illegal) guy, with many people -the judge included- asking for the giant to be split in pieces.

Microsoft then decided to take steps, chief among them were:
- Bill Gates resigned, went into development
- The Gates Foundation was started
- Apple got some money to keep it alive
- Donations were given to the GPO

The example I give friends is this. Let's say that I am boxing against a child and the doctor comes and says that the kid is almost dead, that I nearly killed him, and I should be expelled from the boxing association. What should I do?

-Ramon

Where I wrote "GPO", I meant the Republican Party, which 24 hours after winning, dropped the case against Microsoft.

Now, *that* was a good investment!

-Ramon

JL is right. Even still, it is hard to believe Apple has more cash on hand, given their quarterly net profit relative to Microsoft. It indicates that Apple is far more 'conservative' with its money. For example, Microsoft would be in debt right now, not 20bil in the black, if it had bought Yahoo.

Given this economy, 'conservative' spending habits might not be such a bad thing.

Is keeping $35B in the bank a sound strategy in these times of unprecedented bank failures. The government isn't going to underwrite the entire economy. Why aren't they returning that cash to shareholders?

Erm, I meant to type $25B of course

Ian,

Cash and Cash equivalents also includes fixed income securities with a short duration to maturity, I imagine most if not all of the cash and cash equivalent for apple is in this bucket.

The concerning thing about this is that Apple cannot justify holding that amount of cash to support their day to day cash flow needs; I would find it hard to believe that Apple needs more than Microsoft to operate, just based on revenues for the quarter.

So most likely they have a very poor cash management program, and Apple is sitting on cash (that is much, much larger when you compare revenues) earning 2-3%, as opposed to Microsoft earning 6-7% (based on MSFT 10K).

As a shareholder, one should be questioning the huge cash reserves. I imagine the cost of equity to MS (the rate of the return on the stock expected by shareholders) is greater than 2-3%. If this is the case, management should either consider reinvesting in new projects where the expected rate of return exceeds cost of equity or 2) distibute a portion of cash to shareholders in the form of dividends or 3) repurchase stock.

Microsoft was at much to heavy with cash when the brought in Liddell, and he has implemented a combination of all three options (attempting to grow organically and through acquisitions). You can argue to death about the success and failures of projects and acquisitions, but a sound cash management plan would not simply hoard cash, but would take such risks to increase long term shareholder value.

Edit: when i referred to the cost of equity to MS, I meant the cost of equity to AAPL. Furthermore, the 6-7% i was referring to for MS was investment income for the year.

And Dean,

Market cap for Yahoo is 16.8B, less than Microsoft's holdings in cash and equivalents alone (which does not include their equity portfolio). They might not be able to purchase Yahoo at Yang's price, but once you subtract the 13.2B Yang ego from the equation they can afford Yahoo for cash. They want to issue debt because it lowers their weighted average cost of capital.

I'm afraid this isn't all that it appears to be.

Microsoft repurchased $6.493B worth of stock and paid $998M in cash dividends during the 3rd Quarter (https://investor.shareholder.com/msft/EdgarDeta...).

What's more, Microsoft has spent tens of billions over the past three years alone repurchasing stock / paying cash dividends:
(https://investor.shareholder.com/msft/EdgarDeta...)
FY2008: $12.5B repurchased, $4B paid in cash
FY2007: $27.6B repurchased, $3.8B paid in cash
FY2006: $19.2B repurchased, $3.5B paid in cash

Apple's turnaround is truly remarkable, no question. But its practice of hoarding cash:
1. Is not that special relative to Microsoft, as Microsoft could have $100B on its balance sheet if it so desired. Microsoft was eventually forced to buy back stock and pay dividends, as its similar practice of retaining cash eventually came to be seen as counterproductive.

2. Is not all that shareholder-friendly, as the commenter above notes. If they don't have anything to spend it on that will earn a rate of return that exceeds their cost of capital, they should return it to shareholders.

3. A huge cash hoard can tempt managers to make all kinds of bad investment decisions, from ill-advised acquisitions to poorly conceived internal projects to needlessly fancy food in the company cafeteria.

Overall, because the balance sheet is a snapshot at a moment in time, it doesn't necessarily mean all that much. While it certainly reminds us how significant the reversal in Apple's fortunes has been, it doesn't mean much in absolute terms.

uh, microsoft had to buy back their stock as it was the only way to keep the price of the stock at the mediocre level it has been sitting for over 10 years. It is really hard to keep investors interested in an anemic stock if you don't throw them a bone once in a while.

Carlos,

Microsoft doesn't need to keep investors interested in their stock. That might be true if they needed to raise cash or debt, which they don't. Investors remain interested because Microsoft is one of the most amazingly profitable companies in the world, especially given its size.

Microsoft bought back their stock because they didn't have anything better to do with the money. The main result of the buyback and the dividends is to reward the major shareholders (aka: Microsoft Executives). So far the shares are worth about 20% less than they paid for them, so the return to any shareholders has yet to be seen,

Apple is still in cash, not equities.

actually this means quite a lot. while apple is still raking in money even with the current economic climate, microsoft is being forced to make cutbacks in numerous areas, as seen by the recent job layoffs.

Microsoft's two biggest cash cows (OS and Office) are starting to crumble as well. Vista hasn't had nearly the adoptions rates they'd hoped and most people hate it along with the latest upgrade of Office, which completely ruined a function layout. Now microsoft is going to have to deal with people and companies choosing google's free office apps and free cell phone OS. One could only imagine what would happen if google came out with an open source OS for computers.

On the other hand, apple has kept their premium branding and is still profitable. Ironically, the subsidized iphone is cheaper than subsidized andriod (google) phones.