There are two sides to the Apple cash hoard debate. On one side is Apple Inc. headed by CEO Tim Cook, and on the other are activist investors such as David Einhorn of Greenlight Capital. At issue is the $137 billion in cash that Apple holds, seemingly at odds with investor interests. What are Apple's reasons for hoarding cash, and why does Einhorn disagree?
Apple
The simple answer is that Apple hoards cash because it needs it to be a healthy and nimble competitor in today's market. Before passing away, former CEO Steve Jobs commented that the cash "will come in handy," presumably for acquisitions and other strategic moves. However, another more simple reason is that tech companies are increasingly moving towards a model that emphasizes fast ramp-ups to product launches that require quick investment for components and production. Sitting on a pile of cash is ostensibly more convenient than holding a $100 billion line of credit with a bank, and the strings that would surely be attached.
A darker reason that has been floated for the cash hoard is the possibility of tax avoidance, especially as much of the money is earned and held overseas in countries where tax laws are more business-friendly. Jobs famously told President Obama, erroneously, that he would be a one-term president unless the administration was more "business-friendly." Apple's founder cited the relative ease with which factories could be built in China rather than America, where "regulations and unnecessary costs" hinder businesses from building the apparatus needed to function.
All of this just demonstrates that the current business environment in America has led the Apple board to the decision that keeping the cash would make Apple a better and stronger competitor than if it paid out its cash to investors.
Einhorn
Activist investors' exploits have been hogging the headlines for several months now, including Bill Ackman's shorting of Herbalife and Carl Icahn's opposition to Dell's private buyout. Einhorn, not to be outdone, presented himself as a protector of investor interests in coming out against Apple's decision to bundle several items into one for investors to vote on. That fight ultimately played out in Einhorn's favor, with the investor dropping his lawsuit after Apple dropped its requirement for shareholder approval of a preferred stock proposal.
Einhorn's campaign to return some of Apple's cash via dividends to investors has somewhat of a selfish bent. It shows that he is thinking about the short side of the investment in Apple, rather than thinking together with Apple's board on the long-term competitiveness of the brand. Einhorn's position also reveals a lack of trust in Apple's management. All of this led billionaire investor and guru Warren Buffett to recently advise Cook to "ignore" Einhorn and focus on running the business well - a dictum that Buffett applies in all of his investing.
Ultimately, the back-and-forth between Apple and Einhorn shows that business laws and the investing culture of America needs reform. And that is a challenge that Republicans and Democrats need to sort out on Capitol Hill.
