How to Spend $170 Billion

Robbie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Apple (NASDAQ: AAPL) has a problem we would all like to have.  How does it spend $170 billion?  That is the amount in cash reserves the company is likely to have by the end of 2013.  Well, I've got some ideas.

The issue is bigger than you think; causing lawsuits and introducing uncertainty in the stock price. Of course, per Apple Insider, "about 70% of Apple's cash balance is held overseas, and repatriating that money would have it taxed at America's 35% corporate rate."  But would the government turn its head this one time to see that money flood the U.S. economy?

Some believe Apple will announce a share buyback program.  Others say they will increase their dividend. Bloomberg reported a story in which Howard Ward, Chief Investment Officer for Gamco Investors said “We’re going to get an announcement from the company as to how they intend to reallocate some of their cash [in April]."  That's THIS month.  

So, what will Apple announce?  Here are my best guesses along with a probability rating:

"Brewster's Millions" style (Not likely)
What if Steve Jobs transferred leadership of the company over to Tim Cook like Brewster's rich uncle?  If Cook finds a way to spend this $170 billion, then it unlocks $1 trillion in Steve Jobs' unknown ownership in Justin Bieber enterprises and snuggies.  No?  Ok.  Moving on.

Stock buyback (Likely)
This is the most boring of the options, but it makes a lot of sense.  The stock is trading at less than 10 times its forward earnings and still has a loyal fanboy following coupled with one of the strongest brands in the world.  A stock buyback is essentially betting on yourself.  Investors like it because it reduces the shares on the market, thereby making each outstanding share more valuable.  Nice for the pocketbook, but not near as exciting as the Brewster's Millions option if you ask me.

Special/Increased dividend (Very likely)
I think the most likely option is an increased dividend.  Some are projecting as much as a 56% dividend increase. This is an easy way to get money off the books and Apple shareholders will applaud this decision. A special dividend would mean a much larger, one-time payout to shareholders and would allow Apple to keep its normal dividend at the current levels - a good move if it thinks it may set the bar too high. No one wants that awkward moment of having to decrease your dividend.  

Apple Venture Capital Fund (Not likely)
Apart from the Brewster's Millions idea above, an Apple VC fund is my personal favorite.  I think it could be exciting to see what kind of companies Apple placed small bets on. This idea may sound familiar. Google (NASDAQ: GOOG) formed Google Ventures and signed on a big name to the program: Kevin Rose, co-founder of Digg (once valued at $164 million). The name of the game in VC is making many bets with full knowledge that most will flop.  The few true winners more than make up for the losers. Now that I've got you excited by the thoughts of what an Apple VC fund would look like, let me burst your bubble.  You may have noticed that Apple is a company that likes control.  Naturally, this goes against the VC model. An Apple VC fund would have too many irons in the fire to indoctrinate all the companies into The Apple Culture.

Buy out the competition (Not likely)
Apple likes control. Didn't we cover that in the last option? So why not take that control to the extreme?  They've got the cash to do it. Just buy the entire market! Worried about Pebble and the Nike Fuelband in the watch space? Apple could easily afford these businesses/segments and dominate the ... oh wait, Samsung is making a watch too. Scrap that.

Control the supply chain (Likely)
Controlling the supply chain seems like the perfect move for the iEmpire. It would allow them to cut component cost by eliminating the profit margin charged by their suppliers. Let's 80/20 Apple's product components to find out where they could get the most bang for their buck. 

The iPhone and iPad make up the 80 of Apple's sales. The display in both the iPad and the iPhone represents the single highest purchased component. The glass for these displays is made by Corning in a proprietary process Apple had a hand in. Corning has also figured out a way to produce bent glass that would be perfect for the rumored iWatch. The processor costs over $10/iPhone. That comes from Samsung so nothing doing there, but ... Broadcom makes a wireless chip that handles Wi-Fi and Bluetooth connections on the device" as well as a GPS chip used in the iPhone. Their current market cap is a meager $20 billion; peanuts for a behemoth like Apple.

Which of the options above are your favorites?  


Robbie Laney has positions in Apple, Corning, and Google. The Motley Fool recommends Apple, Corning, and Google. The Motley Fool owns shares of Apple, Corning, and Google.  See a coincidence there? Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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