It's tougher than you might think to be a $2.8 trillion company. Apple (AAPL 0.01%) faces a more challenging task to continue the success of its past the bigger it gets.
The tech giant announced its fiscal 2024 second-quarter results on Thursday. One thing was evident from this update: Apple has a problem-- and investors should love it.
NASDAQ: AAPL
Key Data Points
Apple's $162 billion problem
Why would anyone be pleased that a company they've invested in is facing problems? Some problems are good ones to have.
That's the story with Apple. The iPhone maker has too much cash on its hands. As of March 30, 2024, Apple's cash, cash equivalents, and marketable securities totaled $162.3 billion. To put that number into perspective, it's greater than the market cap of 450 members of the S&P 500.
This problem is great for investors because of the actions Apple is taking because of its massive cash stockpile. The company plans to transition to a net cash-neutral position over time, where its cash and debt are equal. With Apple's total debt at close to $105 billion and quarterly operating cash flow of nearly $23 billion, it has a lot of cash to spend.
Apple announced last week that it's increasing its stock buyback program by a whopping $110 billion. This is the largest share repurchase authorization in the company's history. The more stock Apple buys back, the more its remaining outstanding shares will be worth.
That's not all. Apple is also raising its dividend payout by 4%, its 12 consecutive annual dividend increase. In the six months ending March 30, 2024, the company returned over $7.5 billion to shareholders through dividends.
A few not-so-lovable problems
Apple has a few other problems that aren't so lovable. The biggest is that the company's revenue fell 4% year over year in its fiscal Q2 to $90.8 billion. This decline is the result of contributing problems with several product lines.
iPhone sales sank nearly 10.5% year over year in the latest quarter to $45.9 billion. Around $5 billion of this negative trend was due to replenishment of channel inventory after COVID-related supply disruptions in the prior-year period.
iPad sales fell 16.7% year over year to $5.56 billion. The main culprit behind this decline was that Apple launched its M2 iPad Pro and the iPad 10th generation model last year.
It was a similar story for wearables, home, and accessories. Sales for this category slid 9.6% year over year to $7.91 billion primarily because of the tough comparisons with 2023 Q2 when Apple launched new version of its AirPods and Apple Watch.
Solutions to some of these problems could be coming
Apple could have solutions on the way to some of these revenue problems. CEO Tim Cook said in the Q2 call Thursday evening the company will have "an exciting product announcement next week that we think our customers will love." He added that Apple's team "can't wait to reveal what we have in store" at the Worldwide Developers Conference next month.
It's a pretty safe bet that artificial intelligence (AI) will be at the heart of some of the upcoming announcements. Cook said, "We believe in the transformative power and promise of AI, and we believe we have advantages that will differentiate us in this new era."
I predict that Apple's AI innovations could kick off a new major upgrade cycle for iPhones (and maybe iPads, too). If I'm right, the company's sales should rebound in a big way. And I think these prospects, combined with the big stock buybacks and higher dividends, make Apple a stock investors can love again.
