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Apple's real message in $350bn investment

Name: Apple's real message in $350bn investment
Uploaded: 2018-01-19T03:08:24.006Z
Duration: 2 min 22 s
Channel: Financial Times
Description: Big pay-day for shareholders may be part of plan, says Richard Waters

The tech group's investment plans do not seem to have changed much as a result of new US tax legislation. Instead, the real message might be about a big pay-day for shareholders, reports the FT's Richard Waters

January 19, 2018

Filmed and edited by Donell Newkirk. Addiditonal footage courtesy of Reuters and Getty Images.

Transcript

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Apple has said it expects to spend $350 billion in the US over the next five years. That's what it calls its direct contribution to the US economy. It's a huge amount and a real reminder of Apple's economic muscle and what it means to the country. And it's also a political gift to Donald Trump, who has immediately welcomed it as a sign that his tax law is having its desired effect. It's getting these very rich companies to bring money home and invest.

But actually I think there are two really important things to notice. One is, as far as we can tell, there is no new news from Apple here about investment in the US. They already were going to spend most of this money. It's in the form of payments to suppliers and capital spending, along with a $38 billion tax hit on foreign profits because of the tax laws.

So if there's nothing new here about what Apple is intending to do, why is it making this statement? And I think this is where it gets interesting. Obviously all these big tech companies right now need friends. They're being seen as you know very powerful. We're getting a lot of questions about the influence they're having. And so to remind people of the economic significance and benefit of the jobs it's creating makes a lot of sense.

But I think there's a more immediate reason as well. Following the tax bill, Apple's $250 billion of offshore cash is now free. They can use that money without paying extra taxes to bring it home. So I think right now, Apple faces this quandary. President Trump would love to see Apple invest more at home. Apple doesn't need to, it's already fully invested if you like.

It's not going to go and build an iPhone assembly plant because Donald Trump wants it to. And so it wants to send a signal that it's a great corporate citizen, but behind the scenes Wall Street is expecting all that money to go back in the form of buybacks and dividends. So I think this is really what's going on here. Apple just wants to remind us of how important a contributor it really is.