While sales of Apple's signature iPhone remain strong, investors just aren't as excited about Apple's future as they used to be. The smartphone market is saturated and Apple increasingly depends on selling new models to existing iPhone users rather than bringing in new users.
Investors say they'd like to see Apple invest its enormous amount of cash on new ventures but, with no immediate plan to do so, Apple has a backup plan for pleasing investors.
Apple CEO Tim Cook announced yesterday that the company will buy back another $100 billion in shares on top of the shares they've already purchased. Investors have also been informed that the company intends to raise dividends.
(Reuters) - Apple Inc on Tuesday reported resilient iPhone sales in the face of waning global demand and promised $100 billion in additional stock buybacks, reassuring investors that its decade-old smartphone invention had life in it yet. [...]
Apple bought $23.5 billion of stock in the March quarter, and said it planned to hike its dividend 16 percent, compared with a 10.5 percent increase last year. Analysts believe the heavy emphasis on buybacks will bolster share prices, but some investors wished Apple had found different uses for the cash.
“I’d hoped for more on the dividend side or maybe a strategic investment,” said Hal Eddins, chief economist for Apple shareholder Capital Investment Counsel. “I assume Apple can’t find a strategic investment at the current prices that will move the needle for them. The $100 billion buyback is good for right now but it’s not exactly looking to the future.”
Now, where is Apple getting the money for this?
Yes, Apple is one of the wealthiest corporations in the world, but more specifically the company will use money repatriated from overseas under the GOP's tax cuts to buy shares.
A provision in the package temporarily lowered the taxes that companies pay when they bring cash stashed overseas back to the U.S. That rate was cut to 15.5%, far below the 35% that would have been imposed before.
No company benefited more from the tax break on overseas cash than Apple, which had accumulated more than $250 billion outside the U.S. during the past decade, thanks to the immense popularity of the iPhone and other products.
You could be generous and say it's a good thing Apple (and other companies) are bringing their money home, but if that money is simply distributed to people who are already rich then they may as well leave it parked overseas.
This will buoy Apple's stock and the Dow Jones for a time, but it will mean nothing for the greater economy or even Apple's long term future.
The point of this post is not necessarily to single out Apple, but to say the GOP's tax cuts are being used exactly how we expected they would be used. Republicans have long claimed corporations would use the money to invest in new products and services that would grow the economy but, in this specific case, Apple is literally using buybacks as an alternative to new investments.