Cash and cash equivalents

How Apple became a monopsonist

July 5, 2011: 7:58 AM ET

Using its pile of cash to become the single buyer that controls key high-tech supply chains

Source: Asymco

In two different forums, discussions about what to do about Apple's (AAPL) growing cash problem have come around to seeing things the way Steve Jobs and Tim Cook do.

Apple's problem, as Wall Street sees it, is not that the company has too little cash but too much -- $65.8 billion in liquid assets at the end of March that have probably swelled to more than $70 billion by now.

As Asymco's Horace Dediu explained Sunday in It's Good to Be King, his third "Critical Path" podcast on Dan Benjamin's 5by5 network, that money is perceived by institutional investors as a wasted asset that's earning almost nothing in the bank and ought to be spent in strategic acquisitions or given back to shareholders in the form of dividends and stock buybacks.

After systematically dismissing each of those options, Dediu zeroes in on what he believes Apple's real problem to be: building product fast enough to meet demand. What Apple should be doing with that cash, he suggests, is using it to address its manufacturing bottlenecks.

Meanwhile, a Quora discussion that started out as a silly debate about what companies Apple should buy took a detour in Dediu's direction when an anonymous user posted what reads like a strategic business plan written by Apple's leadership team.

In January, you may recall, COO Tim Cook pointed to the $3.9 billion Apple prepaid last summer to three unnamed suppliers for new process equipment and tooling, as "an absolutely fantastic use of Apple's cash."

In a Quora post that by Tuesday morning had received 323 votes -- and been picked up by Business Insider's Pascal-Emmanuel Gobry -- Anon User spells out how that works in Apple's favor and puts its competitors at a long-term disadvantage:


Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by VIP.