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Apple has not only bested analyst expectations in recent quarters-most recently setting new records for iPhone and Mac sales-but has additionally been growing quite a cash pile, ranging from $25 billion in some reports to as much as $40 billion in others.
At the company’s annual investors meeting Feb. 25, Apple CEO Steve Jobs told shareholders that rather than buy back shares or give them dividends, he preferred to “leave the powder dry” for possible acquisitions, though none were presently planned, the Wall Street Journal reported.
“We’re a large enough business now, that in order to really move the needle, we’ve got to be thinking pretty bold, pretty large. And who knows what’s around the next corner,” Jobs told the shareholders, according to Reuters. “When we think about big, bold things, we know that if we needed to acquire something, a piece of the puzzle, to make something big and bold a reality, we could write a check for it.”
More frequently, however, Apple’s acquisitions have been smaller companies, such as PA Semi, the processor-design company it purchased in April 2008. The fruits of that acquisition are said to have been a boon to the iPad.
“When a company’s sitting on that much cash, the biggest benefit may be the level of uncertainty that it promotes among its competitors, because they never know what they’re going to do with it,” Charles King, principal analyst with Pund-IT, told eWEEK.
In addition to not being big on acquiring, King said, Apple is insular and promotes its own mythology, which it very much fosters among its employees. In this way, buying another company could prove difficult. “The technology might be a good fit for Apple,” King explained, “but the cultural ramifications would be profound.”
Industry observers expect the good times to continue for Apple. Morgan Stanley on Feb. 25 reported that it expects Apple shares to outperform in the near term. It also expects Apple to release new iPhones in June that “offer both a lower total cost of ownership and new functionality, potentially including gesture-based technology.”
At the Apple shareholder meeting, the company made no announcement about a share split, and neither did it plan to pay dividends to shareholders.
Analyst Ezra Gottheil, with Technology Business Research, told eWEEK, “My best speculation is that they’re saving for something in the online world, likely some very substantial enhancement to MobileMe.” Gottheil said Apple recently bought a data center in South Carolina that’s much larger than its existing facilities, which points to cloud computing.
“MobileMe is about storage and synchronization, and that’s not the future and Apple knows it.” Likely, Gottheil said, Apple will look to offer new value to its users in online services, for which it can charge ongoing fees. Such a service, Gottheil added, might make the basic iPad, which comes with only 16GB of flash memory, more attractive.
Pund-IT’s King said that Netflix, as an investor mentioned in the Reuters article, could be an intriguing purchase, or a news provider that could enable Apple to offer exclusive content on the iPhone, iPod Touch and iPad.
King laughed, offering the image of Scrooge McDuck swimming through the depths of silver and gold coins in his money vault.
“If Apple doesn’t do something with the cash soon, and if the shares begin to stagnate,” King said, “people are going to begin to wonder what Mr. Jobs is doing in that money vault.”