Apple holds the largest cash reserve of any company, amounting to $137 billion, with expectations to exceed $170 billion by year-end. Shareholders are concerned about the underutilization of this cash, as significant portions yield little return, while calls for innovative product development have intensified. The company’s history of disruptive innovation and strong talent pool positions it to potentially leverage this cash for future product success.

1. APPLE
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Apple is sitting on the largest cash hoard of any publicly-traded
company, or any company for that matter. It has $137B in its
coffers and, based upon its current trajectory, Apple could have
over $170B in cash, short-term and long-term investments by
then end of the year. Analysts, investors and reporters were in
‘awe’ of the cash flow as the company’s stock appreciated from
$7 to $700. Now, with Apple trading in the mid-$400s, the
‘awe’ has turned into ‘ire’ and for good reason.
(When “cash balance” is referred to in this article, it means
cash, short-term and long-term investments.)
David Einhorn pushed the large cash issue as far as he could.
David is a successful investor, with a strong track record. He
is renown for his thoroughness. From David’s point of view
and as representative of shareholders generally, he could put the
cash balance to better use (read: better return) if he invested it
rather than Apple just sitting on it. If the cash were returned to
investors, they could decided how they wanted to invest that
cash, ie conservatively or aggressively, as they wish rather than
putting their faith into Apple to run this very large portfolio.
The overall size of the portfolio is enormous. To put Apple’s
investment portfolio in perspective, consider this. Bridgewater
Associates is the largest hedge fund in the world and is
estimated to manage between $120 and $145 Billion in assets.
This suggests that Apple is either the largest or second largest
hedge fund in the world, with tremendous investment return
potential. Yet, approximately $40B of the $137B is in ‘Cash
and Short-Term investments’ which investors know painfully
well yields barely any return at all. And shareholders are not

2. even privy to the investment strategy of the remaining almost
$100B. Shareholders of Apple are, in effect, investors in the
largest hedge fund in the world with absolutely no idea what
they are invested in.
The real question is how to make money from that cash
balance. In theory, investors want companies to invest their
cash back into building their businesses. Hence, no one cared
about the cash in the stock-price march from $7 to $700 because
Apple was apparently making it “work” for shareholders. As
Apple’s stock faltered (or, more appropriately put, took a
skydive), shareholders began to want to put the cash to work
themselves, because investors could certainly return better than
-35%, if they invested it themselves, or so the theory goes.
There’s another answer, however.
Innovate. Keep the cash and use the cash and innovate. And
innovate now.
Apple is the innovator for consumer technology. Apple is the
company that made consumers have to have iPods, iPhones, and
iPads. Apple was not the very first to introduce a music player,
smartphone or tablet, but it has been the first to mass-
popularize each. Apple wasn’t first because it didn’t introduce
products until the technology could realize Apple’s vision of
how the product should work and what the consumer experience
should be. And in doing so, Apple paved the way for
competitors to have success in Apple’s wake. Disruptive
innovation is Apple’s hallmark. It is time for another disruptive
product and it is certain that Steve Jobs left that playbook for
Apple.
Apple has a large talent pool from which to drive innovation
and a roadmap or culture on how to bring innovation to market.
And Apple has this enormous cash balance to fund this talented
pool of designers, engineers and marketers to introduce new
products to market. So, in a way, owning Apple could be like
owning part of an incubator, if it innovates, and that could be
very exciting for shareholders. Then Apple can leverage its
brand promise to create shine on any new product. Apple’s

3. brand promise to consumers is a delightful user experience, and
nothing during the period of the stock demise has changed the
brand promise