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When cash is king, all eyes turn to Apple and Google Print E-mail
Friday, 13 November 2009

By Matthew Quinn

You can pretty much set your watch to it: Whenever Apple releases any sort of financials, some analyst or journalist will inevitably write a story trying to wrap their minds around how much freaking cash the company is sitting on.

On Thursday it was the good people over at Silicon Alley Insider who put together a lovely chart showing how big that pile has gotten since Steve Jobs returned to the helm at Apple.

I don’t blame anyone who writes the story. The sums are jaw-dropping. For the year ended Sept. 26, 2009, Apple had $34 billion in cash, cash equivalents and marketable securities. That’s up 39 percent from a year earlier and 121 percent since 2007.

Having a seemingly excessive amount of cash is commonplace among tech companies. Google and its $22 billion cash stash -- up 39 percent in the first nine months of 2009 alone -- is another poster child.

Both Apple and Google do little by way of M&A, at least for their sizes. Google has never paid a dividend and Apple hasn’t paid one out in nearly 14 years. Forget about share buybacks, too.

One typical reason/excuse for all the cash is high R&D costs at tech companies. But the numbers don’t really bear that out.

For Apple, research and development expenditures totaled $1.3 billion, $1.1 billion and $782 million in 2009, 2008 and 2007, respectively. Those outlays hover around 3.5 percent of sales.

Google spent $2.8 billion in 2008 on R&D and $2.1 billion in 2007. That’s 12.8 percent of revenue in each year. Considerable, yes. But justification for that many greenbacks?

Another reason historically given for high cash balances among tech companies has been that the business is highly cyclical, making debt a dangerous option. But as the industry has matured, most of the big boys have fairly predictable cash flows. And where they’re not, it tends to be on the upside.

Apple and Google, of course, have been high growth stocks, so investors’ complaints are few, if any. And all that cash is baked into the price.

But as Google and Apple become bellwethers of the U.S. economy -- many observers have been calling for both to be included in the Dow Jones Industrial Average -- you have to wonder when they’ll have to start playing by the same rules as their old industry counterparts when it comes to their balance sheets.

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