Thursday, July 07, 2011

All that Cash!

Late last night I took the time to listen to Horace Dediu discuss Apple's growing cash position and their "What should we do with it?" dilemma.

The Critical Path #3: It’s Good to Be King – 5by5

This is a fascinating discussion for the times. I say this because it touched on how important it was for Apple to control their supply chains in the Post-PC era.

Sure, there are other options. They could buy someone but the history of M&A (A often standing for Attrition) is not that good.

They could implement a share buyback and an extraordinary and/or ordinary dividend. These seem viable but during the call Horace discussed studies showing how stock buybacks are typically not that rewarding for shareholders. He specifically mentioned Microsoft and their 2004 actions. If you will recall, Microsoft grew a monster pile of cash and in the summer of '04 they announced a $3 per share dividend (costing $32 billion), doubled their annual dividend to $0.32/share and a 4 year, $30 billion stock buyback program. After Microsoft announced these activities the stock traded at $28.32. Aside from a rally in to the mid-$30's in late 2007 Microsoft's share price has been range bound.

Here's a story from the day: Microsoft to Pay Special Cash Dividend

Looking at the results you can hardly question why Apple has not pursued any of these measures.

So what do they do?

I would not be surprised to see Apple get more aggressive in managing their supply chain. There are some major changes coming to chip-making land over the next few years. One of the major transitions is going to be the move to 450mm wafers. The R&D needed to make 450mm wafer fabs is going to be enormous but based on some conversations I've had with folks in the trenches and stories you can find on the web the migration to even bigger silicon wafers is starting to happen.

There's a fascinating discussion taking place on LinkedIn's Semiconductor Manufacturing Group and it appears that even the EU, yes, the EU, is going to try and push 450mm forward:

KET (Key Enabling Technologies) Report brings European 450mm Nearer

Next week, during Semicon West, several 450mm wafer sessions are scheduled. This one should be interesting:

450mm Wafer Transition Forum

"The latest version of the industry roadmap calls for the transition to 450mm to occur in 2012. While that timeframe will likely be adjusted, there has been more concrete indication of chip-maker commitment to advancing the transition. Intel announced that its D1X facility slated to open in 2013 will be 450mm compatible and TSMC has indicated that a 450 mm pilot line could be seen by 2013 or 2014. IMEC and ISMI have well established programs focused on the challenges posed by manufacturing with 450mm wafers. With increasing customer interest in a near-term 450 pilot line development, many critical elements have to be coordinated if the vision of a ramp to affordable high volume manufacturing is to be realized. In this session, industry experts will review the R&D initiatives that may lead to fuller implementation of 450mm wafer processing and provide a status of the prevailing challenges for device makers and their suppliers."

Well, this is going to be a tough transition no matter how you slice it. Progress is being made but not nearly enough. 450mm will happen…. It's only a matter of when.

So let's conclude this by getting back to Apple. It’s pretty clear they have and will continue to have a supply chain issue. Semiconductors are certainly not the only component in short supply. Screens are a huge issue.

With all that cash, and if they really want to paper the world with their gadgets, wouldn't it behoove them to make a few investments with the folks in the 450mm supply chain? Based on the other options I've noted, M&A, stock buybacks and dividends, this might be something to give serious consideration.

You have to wonder if discussions are taking place right now.

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