Tuesday, July 22, 2008 11:47:20 AM
Even the rather "large" acquisition of PA Semi last quarter couldn't use up half of the positive cash flow from that quarter alone!
You are dead-right. When the core business is growing 25+% and the cash portion is growing at less than 5%, this is poor management of assets, and that's putting it mildly. Having said that, the cash will have its greatest value when this recessionary cycle hits bottom. So one could reasonably argue at this point, it would be best for Apple to simply hang on for another few quarters and then make a series of acquisitions. Had Apple ploughed back even half its positive cash flow in sensible share buybacks over the past 3 years, the stock would be north of $250, trading on the exact same multiple it trades now. That is hardly chump change to shareholders, and its beyond me why there are not more shareholders who aren't a little peeved that they don't have that $100/shr in their pockets.
Ironically, the higher the valuation the market puts on AAPL, the easier it is for Apple to make acquisitions that are immediately accretive to earnings.
Beyond that, though, once we work through the end of the economic cycle and valuations on potential acquisition targets begin to expand, we reach the point where there is no longer a defensible basis for holding that much cash.
The most sensible approach would be for Apple's Board to authorize a very large repurchase of shares, but with no mandate to use up that authorization within a particular time frame, or even to use it up at all.
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