| SAN FRANCISCO
SAN FRANCISCO Apple Chief Financial Officer Peter Oppenheimer faces a dilemma that perhaps every finance chief wishes to have: obscene amounts of cash and nowhere to put it.
The iPhone, iPad, iPod and Mac computer maker has accumulated a cash pile that totals nearly $46 billion (29 billion pounds), the biggest cash hoard among U.S. tech companies and equivalent to one-fifth of Apple's (AAPL.O) market capitalization.
And yet, due to an ultra-conservative investment strategy and low interest rates, that cash is earning next to nothing for Apple, which rarely makes acquisitions and does not pay a regular dividend or buy back stock.
"Oppenheimer probably has the most enviable CFO job on the planet," joked Creative Strategies analyst Tim Bajarin, who has been following Apple since the early 1980s.
Analysts say Apple's near-death experience in the 1990s helps explain why it likes to remain liquid by investing in safe but low-yielding U.S. Treasury and agency debt.
The company earned a mere 0.76 percent on its cash and investments in its most recent quarter, down from 1.43 percent in fiscal 2009, 3.44 percent in 2008 and 5.27 percent in 2007.
Despite these low returns, Apple does not face much pressure these days to put its cash to better use. Any dissenting investors are probably appeased by the meteoric rise in the company's share price, which has tripled since 2007.
"When a company is growing as fast as Apple, cash management is pretty far back in people's thoughts," said Pacific Crest Securities analyst Andy Hargreaves.
"But that'll change at some point," he added, estimating that Apple's cash could hit a cool $65 billion by the end of fiscal 2011 if the company continued to generate free cash flow at the current pace.
For now, Oppenheimer has a mantra that he repeats on every quarterly earnings conference call: He tells Wall Street that Apple's investment priority is the "preservation of capital" with a focus on "short-dated, high-quality investments."
Bajarin said Oppenheimer's cautious approach dates from his time at Automatic Data Processing Inc (ADP.O), but Apple's conservatism is also driven by Chief Executive Steve Jobs.
Both Jobs, 55, and Oppenheimer, 47, subscribe to the Silicon Valley maxim that "only the paranoid survive," he said.
They remember the dark days when Apple was struggling to stay alive and had to lay off thousands to cut costs. When Oppenheimer joined the company in 1996 as its controller for the Americas, a series of bad management decisions had eroded profits and sent its share price diving to less than $5.
Things got so bad that one of the first things Jobs did when he returned to Apple was take a lifeline in the form of a $150 million investment from Microsoft Corp (MSFT.O) in 1997.
A TIGHT SHIP
While those days may be long gone, fiscal prudence could be here to stay. Apple's financial estimates are almost comically conservative, delivered every quarter by Oppenheimer, who has rarely strayed from the script since he became CFO in 2004.
The Cupertino, California-based company runs a tight ship: total revenue rose 75 percent from fiscal 2007 through 2009, while operating expense rose just 45 percent.
Although Apple is famous for innovation, research and development costs only account for 3 percent of revenue -- far lower than at Microsoft and Cisco Systems Inc (CSCO.O), due in part to Apple's narrow product portfolio. (See graphic comparing Apple to some peers link.reuters.com/rug23n)
Apple does not appear to pay especially high salaries, either. According to career website glassdoor.com, which relies on anonymous users sharing their salary data, an Apple software engineer earns around $100,000 per year, roughly the same as engineers at Google Inc (GOOG.O).
Production costs are also kept low, due to contract manufacturers like Foxconn International Holdings Ltd (2038.HK).
"They've entered a lot of new markets without a significant capital investment ... without really betting the farm," said Hudson Square analyst Daniel Ernst. "They haven't really needed to," he said, pointing to the iPhone as an example.
The only big-ticket spend that Apple has disclosed is a $1 billion data center that it is building in North Carolina, which is expected to be completed by the end of the year.
KEEPING POWDER DRY
While many top tech companies are awash in cash, unlike Apple, they tend to put excess cash to use. For example, Intel Corp (INTC.O) and Microsoft pay dividends; Cisco and International Business Machines Corp (IBM.N) buy back big chunks of stock; and Hewlett-Packard Co (HPQ.N) and Oracle CorpORCL.O are serial acquirers.
Apple makes few acquisitions because it develops products internally, and pays little for what it does buy. Analysts say they do not expect Oppenheimer -- who told CFO Magazine in 2000 that he learned finance from his father and grandfather -- to make significant bets with Apple's cash in the next few years.
Jobs has said that Apple could do something "big and bold" if needed, but he has also expressed no interest in a share buyback or a dividend. The company last repurchased shares in 2001 and scrapped its last dividend after 1995.
"I'm not as concerned as some shareholders might be about their immediate plans for cash, I prefer that they not rush," said Erick Maronak, chief investment officer for the Victory Large Cap Growth Fund, which has Apple as its largest holding.
"If you look at the history of companies deploying excess cash, it's not a very good track record," he said.
One case in point is Microsoft, whose share price is still below the level it reached in 2004, when the software maker declared a $32 billion one-time dividend that sapped up more than half of its cash balance.