Apple’s Expansion: Some Smoke and Mirrors
January 17th, 2018Since the GOP’s tax cut was passed last year, some companies have come out and, more or less, announced higher wages and special bonuses. It all seems to be developing nicely, regardless of your political leanings. But some of those announcements have fine print you might not appreciate.
So AT&T announced last year that it was handling out $1,000 bonuses to some 200,000 employees. All well and good, until it turned it that this had already been arranged with its union. Then the ax fell, as some 2,000 employees received their pink slips. Not the Christmas present they expected.
Walmart didn’t do much better. So their U.S. employees will receive a minimum wage of $11 per hour. But a third of the states have already increased minimum wage to $10 per hour or more; in Arizona it rose to $10.50 as of the first of the year. So Walmart didn’t really have much of a choice in those places, and getting 50 cents or a dollar above the lowest wage hardly comes across as much of a raise.
At the same time, Walmart closed 63 Sams Club warehouse stores on very short notice. To some employees, it was akin to driving to work only to see the sign on the door. Four of those stores are in Arizona. So does Walmart use its savings to help fund those small wage increases?
But not all the news was so mixed.
So there’s also news that Apple is planning on contributing some $350 billion into the U.S. economy over the next five years. Depending on which cable TV talking heads you listen to, this may be a momentous announcement, or just a modest improvement, much of which was in the works already.
When you look at the fine print, it is good news, just not quite as good as it seems at first blush.
So Apple plans on hiring 20,000 people over those five years. Again, how many would have been added anyway? A key reason is the decision to take advantage of the new tax rate to repatriate an estimated $245 billion in overseas funds, a hefty portion of its cash hoard, which would be subjected to taxes of $38 billion, or 15.5% of the total.
The plans include opening a new campus at a location not yet announced. Actual additional investments and capital expenditures will total $75 billion. It’s still quite a bit of money, but rather less than the headlines demonstrate. It also includes a restricted stock bonus of $2,500 to employees below the director level, and a special program for charitable donations in which the company will match employee donations of up to $10,000 per year on a two-to-one basis.
Are you with me so far?
Now Apple is a hugely profitable company. It’s certainly promising to see at least some of the money repatriated to the U.S. go to company expansion. The rest, I fear, will largely apply to the usual stock buybacks and shareholder dividends. Not said is whether employee salaries, aside from the stock grants, will also increase beyond what you might expect from the tax cut.
Regardless, this is certainly good news, and it demonstrates that Apple is making, at the very least, a reasonable effort to invest in this country. But will any of those investments mean new factories in which to assemble some of Apple’s products? I suppose it’s possible, and, even after taxes and the announced investments, the remainder of the $245 billion can go a long way. Maybe it’ll allow Apple to absorb a hefty portion of building out an American supply chain.
Will it also allow Apple to perhaps lower prices on some products? Probably not, since Apple is still judged by Wall Street on the basis profit and loss, not on whether more of its bankroll is used to finance lower prices?
Regardless, Apple’s stock price has continued its upward path, closing in on $180 per share in after hours trading.
Beyond the money manipulation, Apple appears poised to report a stellar quarter on February 1st. There are already reports of higher Mac sales from Gartner and IDC, firms that tend to undercount sales from Apple’s personal computers. Although there have been claims that iPhone X sales weren’t so terrific, yesterday’s column reported higher sales of iPhones compared to Android gear for the December 2017 quarter in the U.S. Better sales are also reported in China and elsewhere.
Obviously, these are all surveys, and surveys can be wrong. So some of the key information you might look for from Apple covers more than total iPhone sales. They won’t be broken down by specific models, though it’s possible Apple executives will extoll the unexpected or huge success of the iPhone X. If average sale prices are noticeably higher, that will indicate that sales tended to lean towards the more expensive models.
It’s also true that the iPhone 8 Plus appears to be another star from Apple’s current lineup. And here I thought that more people would prefer the smaller iPhone, although I have to admit I do see quite a few of the Apple phablets in my ride hailing travels around Phoenix. And those critics were complaining that Apple was charging too much for its gear.
Print This Post
“The rest, I fear, will largely apply to the usual stock buybacks and shareholder dividends.” What’s there to fear? As I tried to explain last week, any way at all in which Apple puts the money it has been uselessly hoarding back in the economy is a Good Thing. Think of Apple’s hoarding of all that money as beingt like a guy who hoards al lot of kilowatts in batteries. It does him no appreciable good and it only has the effect of withholding that number of kilowatts from the national power grid. In the long run it makes no crucial difference whether Apple puts this money in circulation by paying taxes, corporate acquisitions, moving manufacturing back to the USA, building new plants and and creating new jobs, paying larger dividends on AAPL (which traditionally have amounted to little more than a token pittance), or a mix of these strategies. The ultimate effect of any or all of these means of putting Apple’s money back in circulation here in the US is going to be very positive for the national economy.
dfs –
Just because Apple is repatriating their money, doesn’t mean they need to spend it all or even move to eliminate that war chest. Remember, Apple had to take out loans domestically because the majority of their money was tied up over seas.
Apple would be wise to retain a fairly large amount of cash. This can be used for large acquisitions and it could also be used to carry the company through any future hard times it may encounter. Those who remember Apple in the late 90’s understand the importance of a reasonably large cash reserve.
Steve, I don’t doubt that for a moment. Apple needs a war chest to a.) defend against hostile takeover attempts, b.) fund research and development, c.) facilitate strategic corporate acquisitions, and d.) provide insulation against the lawsuits that inevitably crop up from time to time. A few billion dollars should suffice to cover these needs. But almost a trillion would have been an insanely high figure. So I’m going to stand by my analogy of the electricity hoarder. I’m as much of a sociopath as everybody else: I can understand and accept a certain amount of antisocial behavior as long as such activity is sufficiently rewarding. But this particular kind of hoarding is socially harmful without providing any counterbalancing payoff to the guy doing the hoarding.
Just because Apple returned their money, does not mean they need to spend everything or even move to eliminate the war.