Sunday, 5 August 2012

Sunday 2 - Apple dilemma, a cash crisis !

Not the usual cash crisis that the little people face when they are unable to feed their families, not the cash crisis of a company competing on an uneven playing field, this is the cash crisis of a company that has not paid its tax due to the US treasury ...

... currently a potential (estimated) $25 billion in back taxes.

For those not able to read the Sunday Times report by Simon Duke .......

The tech giant must find a way to spend its $117bn pile and deal with threats to its dominance.
With his dark jeans, open-neck navy blue shirt and matching sports jacket, Tim Cook had assumed the mantle of Silicon Valley kingpin with ease.

At a meeting of technology executives in late May, the chief executive of Apple made it plain he expects other West Coast traditions to be upheld.
Under Cook’s command, the culture of mystery that helped transform Apple from a basket case into the world’s richest company was to be strengthened. The iPhone maker would “double down” the air of secrecy created by his predecessor, the late Steve Jobs. And all the more so where takeovers were involved.
“We buy companies. We don’t like to make it public,” Cook told his high- powered audience. “If I don’t have to, I won’t.”   The 51-year-old has lived up to his word. Just two months after this bold declaration, Cook didn’t bother to release a press release when he splashed out $356m (£228m) on a company that produces fingerprint recognition technology.
For the typical chief executive, a deal of this size would be a serious gamble, garlanded with corporate spin to win over investors. Not for Cook. With Apple banking almost $1 billion a week, the takeover of Authentic ate up less than two working days’ profit.
Like a latter-day Croesus, he has almost limitless resources at his disposal; he could buy almost any company on the planet before hitting the bottom of Apple’s war chest. With $ 117 billion ( and counting) in the bank, the cash hoard is larger than the market value of Glaxo Smith Kline, one of Britain’s largest businesses and the 33rd most valuable company in the world.
Cook, it would seem, is sitting pretty a year after succeeding Jobs. However, he is facing a critical test next month with the launch of a new iPhone.
For the first time, Apple will be leaping ahead without the creative imprimatur of Jobs, who lost his battle with pancreatic cancer in October.
Cook cannot afford any slip-ups if Apple is to maintain its supremacy. Rivals are already making inroads — Samsung, the South Korean electronics giant, sold twice as many high- end phones as Apple in the second quarter. The two companies are now slugging it out in a Californian courtroom over a multi-billion dollar patent infringement case.
Cook has not been afraid to show an independent streak. Breaking ranks with Jobs, who was set against returning money to shareholders, he has launched a $10 billion share buy-back plan and sanctioned Apple’s first dividend since 1995. He is also showing a thirst for takeovers. Apart from the Authentic deal, Apple has held talks with Twitter about a significant investment in the short-messaging service.
Although Cook’s $117 billion piggy bank is the envy of the industry, a cash crisis has begun to afflict Apple. The bulk of its money is trapped overseas — out of reach of the tax-man but also the company’s shareholders. The shining star of America’s tech industry isn’t prepared to hand over some £ 25 billion in back taxes to bring its riches home. In a courtroom in down-town San Jose, the self-styled capital of Silicon Valley, a middle-aged man with long hair and an untidy, grey- flecked beard launched a tirade against a perceived enemy.
“We’ve been ripped off, it’s plain to see. It’s offensive,” he protested.
It may sound like a domestic dispute or a street robbery, but the furious attack in fact came from one of the most respected figures in the tech industry.
Christopher Stringer, a long-time Apple designer who worked on the original iPhone, gave his explosive testimony during the opening skirmishes of the lawsuit that Apple has brought against Samsung.
It has accused the Korean rival of copying iPhone and iPad designs and is seeking damages of $2.5 billion.
Apple’s design team is a group of 16 “maniacal individuals” whose job is to “imagine products that don’t exist and guide them to life”, Stringer said. When Samsung started to “rip off” his pioneering ideas soon after the 2007 launch of the iPhone, it was hard not to quell the anger, he told the court.
Samsung rejects the charges. “This is not some copyist, some Johnny- come- lately doing knock-offs,” its lawyer said.
The case is just one flank in a worldwide legal battle between Apple and handset makers that use Google’s Android operating system to win control of the booming smartphone market. In addition to damages, Apple is seeking to have copycat products removed from the shelves around the world.
The stakes are enormously high. According to documents filed with the court, Apple earns a profit of as much as 58% on each and every iPhone shipped. At an average wholesale price of $650, that means the company has generated earnings of nearly $100 billion from the ground- breaking smart-phone since 2007.
In the current year alone, the iPhone is forecast to bring in earnings of $ 30 billion — equivalent to two- thirds of Apple’s expected profits. By contrast, the iPad contributes a modest 15% to the bottom line.
With Apple’s fortunes so tightly tethered to the iPhone, investors were unnerved by the second-quarter results.
Operating profits may have jumped 23% to $ 11.6 billion between April and June, but that fell short of the vertiginous growth rates Wall Street has come to expect.
Worrying soft patches have emerged. Sales in China, for instance, tumbled 28% compared with the previous quarter. Though an estimated 270m people in China can now afford to own an iPhone or iPad, sales of cheaper Android handsets are becoming the staple in the world’s second largest economy.
Europe’s economic woes also took a toll. Sales in France, Greece and Italy were “particularly poor”, Cook admitted, while the historically resilient German market registered growth of mere “single-digits”.
Much of the disappointment can be attributed to Apple’s savvy customers. The company may officially keep its own counsel on the timing of its next big launch, but it ticks like a metronome. The iPhone is reinvented every autumn, so Apple fans hold back in the spring and summer before upgrading.
There are reasons to fear that this pattern may be disrupted. For one thing, rivals are finally catching up. By fair means or foul, the third version of Samsung’s latest Galaxy handset has become a formidable competitor to the iPhone. Although badly wounded by Apple’s domination, Nokia and BlackBerry are fighting back.
Whether the Californian behemoth can continue spewing out profits will become clearer on September 12, when Cook is set to unveil the company’s latest iPhone.
As well as a better camera, a higher-resolution screen and a more powerful processor, it is expected to work on new super-fast mobile phone networks that offer lightning- quick downloads on the move. Although these fourth-generation services won’t be launched in Britain until next year, they are being rolled out rapidly in American, Scandinavia, Germany and developed Asian economies such as South Korea and Japan.
Other factors are likely to work in Apple’s favour. The new iPhone will be widely available for the Christmas gift-buying season in the West and for the Chinese new year. More importantly, the combination of the iTunes and Apps stores is locking customers into Apple’s devices.
“The great majority of iPhone users intend their next phone to be another iPhone. No other brand has the same loyalty,” said Benedict Evans of Enders Analysis, the research service. STEVE JOBS offers an object lesson in how fast and fickle the technology industry can be. Apple, founded by him and Steve Wozniak in 1976, was floundering by the mid-1990s. Close to bankruptcy, the once pioneering firm re-hired Jobs as chief executive in 1997, 12 years after he had quit.
Within 12 months, he had overseen the launch of the iMac personal computer. The sleek desktop was a hit with consumers but greater successes were soon to come. The iPod and then the iPhone not only turned the music and mobile phone markets upside down but transformed Apple into the most powerful and richest company in the world.
Cook and Stringer, the design guru who has spent nearly two decades at Apple, know all too well that the tech industry is brutal and the lifespan of world-beating companies can be pitifully short. As the decline of Yahoo and AOL has shown, the apparently impregnable are in reality never more than one false step from falling into irrelevance or worse.
Apple at least has the comfort of a thick cash blanket to keep ahead of its rivals. After Facebook’s calamitous float, Cook’s interest in investing in Twitter has waned. His company has the means to buy a Hollywood studio, such as Disney, to bolster the television set it is rumoured to be launching next year.
Great riches, though, are rarely the panacea they seem.
About $80 billion of Apple’s wealth is held in a gnarly web of foreign subsidiaries, where it is shielded from the US tax-man. To bring it home, the company would have to pay an estimated $25 billion in back taxes.
Because of this enormous potential bill, the treasure is effectively trapped abroad, with Apple unable to return the cash to investors or use it to fund American takeover deals.
Unless Cook solves this conundrum, he could be crushed by the burden of inherited wealth.
That $25 billion represents the stake that the US taxpayers have in Apple, this money rightfully belongs to the people, the little people who are the unregistered stakeholders ............

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