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Will Apple spend its $200 billion windfall wisely?

“We see capacity for several cash usage scenarios, including an increased buyback, … a higher dividend payout, and larger, more meaningful [mergers and acquisitions], all of which could be positive events for the stock.”

Rod Hall, a Goldman Sachs analyst, was reflecting on what Apple might do with the $200 billion cash it is likely to repatriate to the US as a result of the Republican tax cuts. It is unsurprising that the investment bank is concerned with stock prices. But while those possible scenarios may please Wall Street, they’re hardly about long-term value.

Share buybacks are when a company purchases its own shares, thereby driving up the magical quarterly ‘earnings per share’. It’s a form of financial engineering. Higher dividend pay outs are not necessarily a bad thing – after all, the owners of a company expect a return on their investment – but, as with buybacks, that depends on what is being sacrificed in order to up those payments. If they come at the expense of sensible investment in staff or research and development, then a company is undermining its long-term future. That doesn’t benefit anyone.

A big acquisition could provide a big boost – Netflix, for example, has been floated as a potential Apple target – but it also risks further reducing competition in a market that already resembles an oligopoly. Which, again, has significant implications for the long-term health of the economy… not to mention the free-market model.

Apple, of course, may do something entirely different. Whatever they choose, let’s hope it’s with a long-term perspective in mind.

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