Profits gloom, no new gizmos. What is eating Apple?

The cash-rich company has diverted attention from its lack of new products with blockbuster payouts. But is it just buying time?

Among the late Steve Jobs' many distinguishing talents was what observers called his "reality distortion field": his fabled ability to convince anyone of practically anything. The way he told Apple's story, the way he introduced each Apple product, it seemed as if the company could only keeping growing.

Even when he admitted in 2010 that the iPhone 4 lost some reception because of what the rest of us saw as a glaring design flaw, he defended the gadget as possibly the best product ever made by Apple. Despite near-universal criticism, he guided the company through what everyone else saw as an unmitigated fiasco by handing out some plastic cases.

Two years on, the iPhone franchise is facing increased competition – but it remains strong, with the company selling more than 37 million in the first three months of this year against just over 35 million in the same period last year.

His successor, Tim Cook, hasn't had as much luck in convincing everyone that Apple remains as full of promise as it once was. He has been particularly unsuccessful with investors. The share price, which stood just north of $400 yesterday afternoon, is well below the high of more than $700 seen last September.

But this week, he did manage to divert attention from the growth concerns that have held back the stock by using the ultimate reality distortion device when it comes to Wall Street: cash. Lots and lots of cash.

Announcing quarterly results that showed a dip in profits for the first time in a decade (even though sales climbed, highlighting an erosion in margins), Mr Cook said the company would return a massive $100bn (£65bn) to shareholders by 2015. It is doing this by raising its dividend by 15 per cent, and by expanding the scope of its share buyback programme to $60bn. All told, the move marks a $55bn increase to the programme announced last year. There are few companies that can do this. Apple, despite its quarterly net profit easing to $9.5bn from $11.6bn last year, has a cash pile of around $145bn.

That has often riled investors, most notably the hedge fund manager David Einhorn, who have argued for the money to be released to shareholders. Although Apple is going to borrow to fund the move, it can only do this because of the massive balance.

Like Mr Jobs and his product launches, which were never complete without eye-catching superlatives, Apple said the move represented the "largest single share repurchase authorisation in history".

The move was welcomed by Wall Street. Mr Einhorn, whose Greenlight Capital recently took Apple to court over the cash hoard, applauded the step. "This positive development … demonstrates the conviction of Apple's management and board in the company's future," the fund said.

But those who have been following Apple over the past 10 record-breaking years would have noticed that the policy marked a break from Mr Jobs' strategy of conserving the company's cash reserves while driving growth by launching high-profile products.

Although Mr Cook was careful to add that "this is the same culture and company that brought the world the iPhone and the iPad, and we have a lot more surprises in the works", the focus very quickly turned to the payout, obscuring concerns that only days ago dominated the headlines. But the fact remains that while there have rumours about an Apple TV, or even an Apple wristwatch, it is companies such as Samsung with its Galaxy phones and tablets that have been attracting the attention of consumers.

Even Facebook managed to attract the spotlight with its Facebook Home software suite, which transforms gadgets running on Google's Android operating system into always-on social media devices.

Apple, however, has only managed to tweak its iPad, launching a mini version to compete in the increasingly competitive tablet market.

While it remains a robust business, the company seems to be changing into a more mature one where, as the Forrester analyst Sarah Rotman Epps said after the results were released, "the highs are not as high and lows are not so low". The blockbuster payout certainly appears to have bought Mr Cook some time.

However, when the shareholder euphoria fades, attention is prone to turn back to the pipeline. "They need something that breaks into new verticals, whether it's TV or something that's wearable, that opens up a new revenue stream," Ms Epps said, underscoring the sense that Mr Cook's task is only half done.

But despite its billions, firm will borrow to fund the big payout

There was a curious wrinkle in Apple's announcement that it would step up its payout to shareholders. Even though it is sitting on enough cash, which will total $100bn (£65bn) by 2015, to fund the move, the tech giant plans to borrow money.

The explanation is simple: taxes. In the conference call following the results, the company's chief financial officer, Peter Oppenheimer, said: "Over $102bn of our total cash was offshore at the end of the March quarter."

Bringing that money back into the US would have tax consequences – something that Apple can avoid by borrowing. Given its cash balance, and the fact that it generates many billions every quarter, it can do this without putting its business at any risk.

"We will access the US debt markets over time and have recently secured credit ratings from S&P and Moody's," Mr Oppenheimer explained. "We are continuing to generate significant cash offshore and repatriating this cash would result in significant tax consequences under current US tax law."

Estimates of just how much Apple would have to pay to bring its cash back into the US vary, given the many ways that companies can structure their tax arrangements, but are well into the tens of billions.

According to one estimate, based on the statutory corporate tax rate of 35 per cent, it would cost the company $35bn to bring the money back. Borrowing would be far cheaper, particularly in light of the buoyant state of the corporate debt markets.

Nikhil Kumar

Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
art
News
Kenny Ireland, pictured in 2010.
peopleActor, from House of Cards and Benidorm, was 68
News
A scene from the video shows students mock rioting
newsEnd-of-year leaver's YouTube film features staging of a playground gun massacre
Travel
travel
PROMOTED VIDEO
Voices
A family sit and enjoy a quiet train journey
voicesForcing us to overhear dull phone conversations is an offensive act, says Simon Kelner
News
i100This Instagram photo does not prove Russian army is in Ukraine
News
Morrissey pictured in 2013
people
Sport
sportVan Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
Life and Style
Martha Stewart wrote an opinion column for Time magazine this week titled “Why I Love My Drone”
lifeLifestyle guru Martha Stewart reveals she has flying robot... to take photos of her farm
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
filmReview: Sometimes the immersive experience was so good it blurred the line between fiction and reality
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
i100
Life and Style
The director of Wall-E Andrew Stanton with Angus MacLane's Lego model
gadgetsDesign made in Pixar animator’s spare time could get retail release
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Environment
Tyred out: should fair weather cyclists have a separate slow lane?
environmentFormer Labour minister demands 'pootling lanes' for women cyclists
News
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices