For Apple, a $76 Billion Dilemma

Apple Inc. has built up a $76.2 billion cash hoard. Now the question is what the company intends to do with the money pile. On Tuesday, the Cupertino, Calif., company disclosed cash, including short-term and long-term marketable securities, for the quarter ended June 25 increased 15.8% since March to $76.2 billion. That's more than the gross domestic product of 126 countries, including nations such as Ecuador, Bulgaria, Sri Lanka and Costa Rica, according to data from the World Bank.
The gigantic sum on Wednesday prompted some investors to call for it to use some of the cash for dividend payouts. "If they can't find ways to use it to grow, they should be returning it to shareholders," said Tim Ghriskey, chief investment officer of Solaris Asset Management, which owns Apple stock. Asked to comment, an Apple spokesman referred to a long-standing policy as outlined by Chief Executive Steve Jobs last October. "We strongly believe that one or more very strategic opportunities may come along that we can take that we're in a unique position to take advantage of because of our strong cash position," he said at the time.
The cash puts Apple at the head of a pack of large technology companies that have been stockpiling cash in recent years. Microsoft Corp., for example, has built up its cash levels to $60.9 billion, including equity and others investments as of March. Google Inc. has $39.1 billion and Cisco Systems Inc. $43.4 billion by a similar measure as of their latest reporting periods.
Many corporations have accumulated cash because of economic uncertainty over the last several years. According to ratings agency Standard & Poor's, total cash and cash equivalents for the 500 largest U.S. companies by market capitalization was $963 billion at the end of the first quarter, up from $837 billion a year ago. The sums accrued by tech companies, which operate in sectors where industry trends can shift quickly, necessitating a bigger safety net. Apple has amassed "just an enormous war chest of money," said Howard Silverblatt, a senior index analyst for S&P. Tech companies that build cash often walk a fine line with shareholders. They often shun dividends, which typically are associated with mature, slower-growing companies, preferring to view themselves as young and faster growing. Fast-growing companies often need cash to finance that growth.
Only recently, for instance, have tech titans Microsoft and Cisco finally made the switch and begun issuing cash dividends to shareholders. Apple, however, continues to grow at astonishing rates, fueled by sales of its iPad tablet computer and iPhone smartphone. On Tuesday, the company said its fiscal third quarter revenue rose 82% from a year earlier. Its market capitalization was nearly $358 billion on Wednesday. Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co., said a share repurchase or dividend could help Apple attract investors managing value and growth and income funds. "We're talking about a level of cash that's preposterous by any metric," said Mr. Sacconaghi. Apple, which has no debt, could easily borrow money at low interest rates to make a large acquisition if it wanted, he said.
Apple tends to be conservative about its cash because of its history, in which the company almost failed for lack of cash in the 1990s before Mr. Jobs returned to the company that decade and put it on a growth track. Aside from buying telecommunications-related patents from Nortel Networks for an undisclosed sum in late June, Apple has made no acquisitions this year. It has made small acquisitions in the past; its biggest was in April 2008 of semiconductor company P.A. Semi Inc. for an estimated $278 million.