Apple’s Cash-Flow Problem

As Apple’s profits have grown, it has amassed $137 billion in cash, according to a recent count – more than it can profitably use in its operations. Odd as it might seem, getting the cash out of Apple could be a good long-term strategy.

CAMBRIDGE – I recently examined the problem of corporate short-termism from two nonstandard angles. One was that some short-termism is sensible. Large firms face an increasingly fluid economic, technological, and political environment – owing to more global and competitive markets, to the greater potential of technological change to alter firms’ business environment, and to governments’ growing influence over what makes business sense. In this fluid environment, large companies must be cautious before making large, long-term commitments.

Second, I described how emerging data could suggest measurement problems with the conventional wisdom that more rapid trading in financial markets is making them more oriented to the short term than ever before. Proponents of this view point to furious trading in New York and London, with average holding periods for major stocks diminishing in recent decades. In fact, the change may be driven by a rapidly trading minority, and not by major stockholders shortening their holding periods. Indeed, the average holding period for America’s core shareholders, like Fidelity and Vanguard, has increased in recent decades. (I examine these issues in greater depth in a longer forthcoming article.)

The shareholder activism around Apple highlights the importance and controversy of the short-term problem. Apple has been spectacularly successful in the past decade. Its products, from iPhones to iPads to MacBooks, have captured consumers’ imaginations, remade markets, and earned the company and its shareholders huge sums of money. Apple’s stock capitalization has soared, and it became the first trillion-dollar company.

To continue reading, please log in or enter your email address.

To read this article from our archive, please log in or register now. After entering your email, you'll have access to two free articles every month. For unlimited access to Project Syndicate, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/wYdoDE2;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.