Apple Goes on a $45 Billion Spending Spree

The company plans to spend nearly half of the cash it currently has on hand. Is this what investors have been waiting for? It was the announcement that many thought would be the biggest story of the week: after weeks of speculation, Apple AAPL was ready to tell the world what it plans to do with its near-$100 billion in cash. As expected, the tech giant is finally initiating a quarterly dividend ($2.65 per share, which is due sometime in the fourth quarter of Apple's fiscal 2012, which will start on July 1, 2012). Apple will also repurchase $10 billion worth of company shares to neutralize the “impact of dilution from future employee equity grants and employee stock purchase programs.” “We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure. You'll see more of all of these in the future,” Apple CEO Tim Cook said in a company release. “Even with these investments, we can maintain a war chest for strategic opportunities and have plenty of cash to run our business. So we are going to initiate a dividend and share repurchase program.” Peter Oppenheimer, Apple's CFO, added, “Combining dividends, share repurchases, and cash used to net-share-settle vesting RSUs, we anticipate utilizing approximately $45 billion of domestic cash in the first three years of our programs. We are extremely confident in our future and see tremendous opportunities ahead.” Apple is spending this money with the assumption that it will make more money going forward, and thus be able to replenish its cash reserves. But the company knows that if it fails, it will still have another $50+ billion in the bank. Early this morning, Sterne Agee issued a report in support of a possible dividend. “While we find the timing somewhat curious sending out a notice on a Sunday afternoon PT, we nonetheless believe that the topic will likely be around dividends,” Sterne Agee wrote. “As we have said before, we believe paying a dividend makes a lot of sense for both shareholders and employees given the company's high profitability and strong ability to generate free cash flow. The company's net cash position currently stands at $97.6 billion and is growing rapidly quarterly. In fact, we estimate that AAPL will likely generate $75-80 billion in free cash in the next four quarters vs. the $45.3 billion we estimate the company generated in the previous four quarters.” Wedbush Securities was equally giddy with anticipation, raising its price target on Apple from $585 to $750. “We are raising our FQ2 iPad estimate to 12.7 million from 11.6 million units and our FY12 estimate to 56.9 million from 55.6 million units,” Wedbush wrote in its report. “While our checks in rainy San Francisco saw only slightly larger crowds at Apple stores, strong preorders and increased distribution (e.g. Wal-Mart WMT) should also help. Given the iPad is primarily a device for consuming multimedia; we believe the improved speeds and clarity will be key selling points. In addition, the launch was initially in 10 countries followed a week later by 26 more countries. In comparison, the iPad 2 was initially launched in the U.S. with 25 more countries two weeks later.” Leading up to Apple's official announcement, some wondered if the company would announce an acquisition or two. That's not something the Mac maker has done in the past. But with so much cash on hand, at least a handful of bloggers believed that it was at least possible. I personally wondered if Apple would consider the idea of owning a cable company – maybe not a giant like Comcast CMCSA, but a corporation that was large enough to help Apple realize its so-called dream of changing television. While Comcast has a market cap of $79.83, Time Warner Cable's TWC market cap is just $24.91 billion, a number Apple could easily afford. But does Apple need to spend that kind of money? Does the iPhone maker need to spend any of its money on things other than research and development? Probably not. But R&D isn't easily quantified. Investors aren't going to look at the new iPad or the next iPhone and say, “Alright, we're satisfied with the way Apple spends its money. We don't need a dividend.” Instead, they shouted, “Dividend! Dividend!” And now Apple has listened. Investors should enjoy this moment while it lasts, however. While Apple might have fulfilled this particular investor request, the company may not give in to the next one. Follow me @LouisBedigian