What Are These 3 Tech Giants Doing With Their Cash?

Apple, Google, and Microsoft seem to be spending their cash differently.

Feb 12, 2014 at 2:30AM

High-technology companies traditionally generate lots of cash and often accumulate a huge stockpile after paying for operations and other needs. How are three of the best-known tech firms spending their money?

It appears that Apple (NASDAQ:AAPL) is buying up its own stock and paying dividends; Google (NASDAQ:GOOGL) has mostly bought up other companies; and Microsoft (NASDAQ:MSFT) has done a bit of both.

Will this trend continue and will investors benefit?

Buying back
Apple just announced it bought $14 billion of its own shares in the two weeks following its latest earnings announcement, part of a $60 billion authorization approved by the board of directors last year. Over the last 12 months Apple has retired $40 billion worth of stock, a record for any company according to CEO Tim Cook. So Apple has room to run and it is always possible even more cash will be allocated for buybacks. 

The argument for buybacks is that the remaining shares will be more valuable and Apple will realize a better return on the investment than leaving it in cash. In addition, if share count is reduced EPS will go up, ceteris paribus. 

The argument against buybacks is that Apple will overpay for the shares and that the money could have been used for research and development or acquisitions in order to fund future growth.

Tim Cook stated that the share repurchases indicated Apple has confidence in the company going forward. 

For investors to share that confidence Apple needs to release a new product. There hasn't been a new product category coming out of Cupertino since the iPad was introduced in 2010. Indications are that growth from its primary cash cow, the iPhone, will slow down, at least in the short to medium term. The company has provided reduced revenue guidance going forward. If there is any leftover cash and shares can be had at a reasonable price then buybacks are probably justified. 

Search this
Google prefers to use its cash to buy up other companies to help it grow in targeted industries. The company will spend $3.2 billion to acquire Nest, the maker of networked home gadgets, in a bid to take advantage of the long term growth trend in the Internet of Things. The strategy may be part of a bigger plan to diversify as cash flow from its signature Internet search business, although it is dominant now, may plateau at some point. 

The company might use the excess funds from the proposed sale of much of its Motorola Mobility smartphone operations to Lenovo in order to scoop up Nest. Google will clear about $2.9 billion from the move after which it will also take a small stake in the Chinese firm. Google had bought Motorola in 2012 for $13 billion. It will still retain the intellectual property from that deal.  

The Google experiment with smartphones didn't work out. It needs better performance with smart thermostats.

Changing of the guard
Microsoft has used a combination of acquisitions and share buybacks over the years. The company is in the process of buying the devices and services division of Nokia in a bid to grow its Windows Phone business, which has been making some inroads into the market. The move was probably designed to help provide a cushion against a softening in its Windows PC operating system business. Shipments of PCs have been on the decline over the recent past.

However, the company has a new leader now. Electrical engineer and company insider Satya Nadella was just elected as CEO of the venerable tech giant. Will Mr. Nadella stay the course or embark on an entirely new strategy? His background at Microsoft has been in cloud computing which is another potential high growth area in tech. Microsoft could employ some of its cash there. 

Foolish conclusion
Tech giants Apple, Google, and Microsoft have used different strategies when dealing with extra cash up until now.  

Apple has been buying back stock and paying dividends to return value to investors, which is probably not a complete solution. The company really needs to release a new product, on par with the iPhone or iPad, in order to provide a longer term payback to shareholders.

Google has been buying other companies as part of its plan for growth. In the case of Motorola it didn't turn out well. Google is betting that the Nest deal works out and provides some diversity to its revenue stream. 

Microsoft has done both buybacks and acquisitions. Unless the new CEO changes tactics Microsoft will muddle along as it has been. If he shakes things up Mr. Softie could go down a different path, such as to the cloud, to higher growth. 

More compelling ideas from The Motley Fool
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.





Mark Morelli owns shares of Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers