Earlier this year we covered Apple’s quarterly earnings report for the last quarter of 2011 (the first quarter of Apple’s fiscal year 2012). There were some very interesting details of that report, including the fact that the company had earned $46.33 billion in profits (more than double that of Microsoft). Apple also revealed that they are currently sitting on a cash surplus of over $100 billion dollars.
That naturally sparked questions of what Apple would do with all that money. Late last month Tim Cook fueled speculation at a shareholder meeting, when he said that Apple had been “thinking about cash very deeply,” and wanted to be careful to make the best decision for Apple’s shareholders.
Dividend and Share Repurchase
Today, Apple announced their plans for some of that cash. In a conference call today, Apple CEO Tim Cook announced that Apple will initiated dividend payments and share repurchase program. Cook again stressed that Apple had arrived at this decision with careful thought, and said that the goal of the two initiatives is to maintain Apple’s focus on technological innovation. In the fourth quarter of Apple’s 2012 fiscal year (which begins on July 1st 2012), Apple will begin paying a dividend of $2.65 per share to all its shareholders. The exact date the payments will begin will be announced during the earnings call for the third quarter, which will take place sometime in early July.
The share repurchase program will begin in the first quarter of fiscal year 2013, which begins September 1st 2012. The program calls for Apple to buy back $10 billion worth of its own shares over the next three fiscal years (i.e., until the end of fiscal year 2015).
Peter Oppenheimer, Apple’s chief financial officer, listed four main goals for the two programs. The dividend program is intended to provide current income to long-time shareholders, as well as attract new shareholders to Apple. The share repurchase is intended to prevent dilution of Apple’s brand due to employee grants and equity programs. The two programs will also, Oppenheimer said, make good use of Apple’s cash stockpile while leaving Apple free to take advantage of investment opportunities that may present themselves in the future.
Oppenheimer estimated that Apple would pay over $10 billion in dividend payments in the first quarter. The money will all come from Apple’s U.S. cash reserves. Much of the $100 billion is held overseas. When asked about using non-U.S. money for the programs, Oppenheimer said that Apple would rely exclusively on its U.S. funds, as repatriating the foreign-held money would be difficult. He said that Apple had expressed its feelings to both Congress and the White House, saying that the current tax and legal system “disincentivizes” returning foreign-held money to U.S. shores for reinvestment.
What’s Next From Apple?
Since this is Apple we’re talking about, everybody wants to know what’s coming next. During his opening remarks Tim Cook hinted at some of what to expect from the company. He spoke about the smartphone and tablet markets, saying that he expected both to grow dramatically in the next few years. As regards the iPhone, he said “it is our belief that eventually all handsets will be smartphones,” which provided the iPhone with enormous growth potential. He also said that Apple believes following on references to the “post-PC world” he made during the announcement of the new iPad, he said that Apple expects “that the tablet market will eventually pass the PC market in size.”
He was reluctant to talk more about either the launch of the new iPad, which hit stores on Friday, or about specific products in Apple’s pipeline. When asked about sales of the iPad in its first weekend, Cook responded, “we had a record weekend and we’re thrilled with that, but this conference call isn’t to discuss” new product releases. While acknowledging that “you don’t like to announce new products,” one analyst asked about Apple’s confidence in the products it would be releasing in the near future. Cook responded that “we actually do love to announce new products, we just don’t do it during conference calls.” He went on to say, though, that “the pipeline is full of stuff” that Apple’s customers will be excited to see.