Apple has less cash than you may think, but plenty to fund a large acquisition

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Apple Inc. appears ready to spend a big chunk of the cash it has left overseas for years after new tax laws included a reduced repatriation rate, but how much will still remain and what will the company do with it?

It appears Apple












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could theoretically have more than $40 billion in net cash and equivalents after detailing its plans Wednesday to spend heavily in the U.S. As of the end of September, Apple had $252.3 billion outside the U.S., 94% of its total cash and equivalents, and said Wednesday it would spend $38 billion on repatriation taxes as the result of new U.S. tax laws.

Along with cash held in the U.S., Apple could free up more than $230 billion total after paying repatriation taxes. There are large caveats, however. Nearly $200 billion of Apple’s overseas cash is tied up in investments, including U.S. Treasurys, that Apple is unlikely to cash out of immediately. And much of Apple’s cash has already been promised to investors, banks and others.

Don’t miss: Apple didn’t say it was hiring 20,000 new workers, nor bringing back its overseas cash

Apple announced plans last March to spend $300 billion over two years on dividends and share repurchases as part of its investor-return program. Apple still had about $66 billion promised through the program as of the end of its last quarter, and will likely increase that total this spring, as it does every year.

Then there is the matter of Apple’s debt. Apple has gone to the debt markets to finance its capital return program in recent years, instead of bringing back its big cash pile at hefty tax rates. The company, which was debt-free when the iPhone was introduced, had nearly $104 billion in long-term debt at the end of its last quarter.

If Apple cashed out all of its overseas investments and managed to avoid penalties, paid taxes of $38 billion, reserved the $66 billion it has promised to investors and the $104 billion it owes in debt, that would still give it about $44 billion left over. Of course, Apple doesn’t have to pay any of its debt down, and could in fact continue adding debt at the low rates it fetches to continue financing its spending.

The company will also continue to pile up cash as it sells the new $1,000 iPhone X, with record profits expected in the holiday quarter, which Apple will reveal on Feb. 1. Expectations for those results have sent Apple’s stock up 11.6% in the past three months, while the S&P 500 index












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 has added 9.5%.

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Apple’s announcement Wednesday contains few actual promises of new spending with the cash to which it will have access. It will add $4 billion to a fund that it uses to spur American manufacturing at partners like Finisar Corp.












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 , and $30 billion in capital-expenditure spending over the next five years. RBC Capital Markets analyst Amit Daryanani said Wednesday in a note that the $6 billion in annual Capex spending is already built into Apple’s $18 billion guidance for that expenditure in fiscal 2018. Bloomberg reported that Apple planned to issue a bonus in stock grants to most employees of restricted stock valued at $2,500, and it would contribute twice the amount of employee donations to nonprofits, up to $10,000 per worker.

That spending is minor in Apple’s world, so Apple will still have billions available if it wants to spend it. Would Apple consider a mega-acquisition with the cash it could conceivably conjure, as CEO Tim Cook has hinted at in the past?

“It is more than feasible that they could use some of that cash for acquisitions,” said Tim Bajarin, president of Creative Strategies Inc., in an email. “But don’t expect them to buy any major company unless it is strategically aligned with advancing their core products and services. It is more likely that they will continue to buy smaller companies or acquire key patents that will help them innovate around their products and services.”

Bajarin, who has been following the company for more than three decades, also pointed out that after Apple co-founder Steve Jobs returned to Apple in 1997, when the company was near bankruptcy, he always wanted Apple to have a strong cash position in case of a downturn or other business needs.

“So I believe that even once they use some of that money on new buildings, additional staffing, etc., they will still keep a large reserve in the bank for that reason,” Bajarin added.

Piper Jaffray analyst Michael Olson echoed those thoughts, writing in a note, “It would be out of character for Apple to do a large acquisition with the repatriated cash (as has been widely discussed in the media), but we would not be surprised to see an increase in the company’s appetite for gobbling up smaller strategic technology businesses.”

Investors hoping that Apple will make a big megadeal in the vein of a media company or a smaller car company to advance its work in self-driving cars are likely to be disappointed. Despite Wednesday’s celebrated announcement, Apple’s cash is more likely to continue piling up in its bank accounts.



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