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Apple Inc. (Nasdaq: AAPL) CEO Tim Cook was summoned to Congress last week to face outraged legislators over his company's failure to pay corporate income taxes to any national government on more than $74 billion in overseas earnings.
This is a perfect example of a situation that is simply the tip of the "offshoring" iceberg. Below, I'll address what it means for your money and why the outcome may not end up at the "obvious" solution.
According to a Congressional investigation, the Cupertino giant paid no taxes whatsoever to any national government on more than $74 billion in revenues - a fact that Apple doesn't dispute.
As galling as this is, what Apple did was perfectly legal. Using well-documented and well-known loopholes in the U.S. and Irish tax codes, Apple set up Irish shell corporations that allowed them to funnel dividends and earnings from offshore investments in such a way as to not incur tax liabilities...in any country.
Interestingly, Senate aides associated with the investigation said they've never seen companies use subsidiaries that didn't owe taxes. Evidently, they haven't looked very hard.
What Apple's doing is nothing new or unique. Almost every multinational corporation operates in the same shady territory. Most have thousands of accountants and lawyers on staff whose sole job is to make sure everything those companies do is tax "efficient."
Foreign subsidiaries are just the beginning. There's transfer costing, loans between subsidiaries, options-based compensation, tax deductions for malfeasance, and intellectual property offshoring -- just to name a few of the favorite tax dodges in widespread use today around the world, quite literally.
For example, Microsoft Corp. (Nasdaq: MSFT) sends an estimated $0.46 cents on every dollar through Puerto Rico to pay for patent costs associated with discoveries that are "mostly" made inside the United States, according to the Institute for Policy Studies or "IPS" for short.
Microsoft CEO Steve Ballmer's crew stashed $60.8 billion offshore last year alone and didn't pay a dime in U.S. taxes. That's an estimated $19.4 billion it'd owe Uncle Sam if brought home.
Pfizer Inc. (NYSE: PFE) sells 35%-45% of its drugs inside the United States but has reported no U.S. profits in five years. The IPS estimates the pharma giant booked $73 billion in profits offshore last year.
How to Really Make a Fortune on the "Mobile Wave"
If you've been riding along with me for any length of time, you know I get really revved up whenever I talk about the "Mobile Wave" in technology.
The truth is, I can't help it: I look at the forecasts, calculate all the money that can be made, and end up feeling as jazzed as can be about the windfall profits we can reap from this transformational trend.
And I'm not the only one who's feeling this technology-fueled ebullience: The folks over at Amazon.com are clearly experiencing the same adrenalin-driven affliction.
Amazon, you see, is coming out with its own smartphone.
And not just any smartphone. Amazon's entry into smartphone derby is going to be one cool mobile device - highlighted by a 3D screen that will display photos so realistically that you'll want to just reach out and touch them.
Why in the world, you might ask, is an "e-tailer" entering the wireless-phone business?
Just look at the numbers.
Apple Bond Offering is Proof It'll Do Anything to Avoid Taxes
The record $17 billion Apple bond offering this week will do more than just placate shareholders eager to get some benefit from the company's $144.7 billion in cash.
It will help Apple Inc. (Nasdaq: AAPL) avoid paying taxes, a feat that the Cupertino, CA tech giant has elevated to a high art.
The company has kept the bulk of its cash - some $102 billion - in overseas accounts to avoid paying the 35% corporate tax rate here in the United States.
Borrowing money to fund its plans for dividend increases and stock buybacks allows Apple to reward its shareholders without repatriating those foreign profits and paying U.S. taxes.
Better yet, the interest Apple will pay out in its bonds is tax deductible, which will reduce the company's tax bill even more.
It's all so elegantly devious - and perfectly legal.
Apple Stock May Not Climb, But Will Still Reward Investors
There was really only one good thing for Apple stock investors in yesterday's (Tuesday's) earnings report.
Apple Inc. (Nasdaq: AAPL) announced an unprecedented share buyback program and boosted its dividend in attempts to pacify edgy investors who have watched the company's stock tumble about 34% over the past six months.
The iPhone maker will return $100 billion of cash to shareholders by 2015, through an increased dividend and $60 billion share buyback program. Apple's quarterly dividend was sweetened 15% to $3.05 a share. The stock now carries a juicy 3% yield. The new dividend is payable on May 16 to shareholders of record May 13.
With an annual payment of some $11 billion, Apple becomes the biggest dividend payer in corporate America, taking the crown from Exxon Mobil Corp (NYSE: XOM).
Apple Stock is Up After Earnings – But Are Gains Here to Stay?
Apple stock was up 5% in after-hours trading Tuesday when its earnings report turned out to be better than expected - but, not great.
Everyone was bracing for the worst when Apple Inc. (Nasdaq: AAPL) released second-quarter earnings Tuesday after the close. The big question was just how bad things were going to be.
The answer turned out to be... not so awful. The iPhone maker surprised Wall Street with better than expected numbers, mostly because expectations were so low.
However, as expected, forward guidance was glum.
Apple Stock Rises Before Earnings, but No One's Expecting Good Numbers
Apple stock was up nearly 2% by noon today (Tuesday) - but this could be the end of gains for a while depending on what happens this afternoon.
Undeniably the most anticipated earnings report of the season is the Apple earnings report, due out after the close Tuesday. Expectations are for a downright dismal quarter.
Among the issues Apple Inc. (Nasdaq: AAPL) is expected to address include:
- iPhones: Apple generated some $22.7 billion from the sale of 35 million iPhones in the same quarter a year ago. Investors will want to hear how much competition from other smartphone markers, like Samsung, has chipped away at those numbers.
- iPads: Apple sold 11.8 million iPads that generated $6.6 billion in sales over the same period a year earlier. With the bevy of new and cheaper tablets now on the market, it is unlikely Apple has been able to maintain those robust sales.
- Gross Margins: Gross margins peaked at an astounding 47.4% during this quarter last year. Apple's warning last October that margins could drop as low as 38% was the catalyst behind the stock's steep plunge. In January, Apple said profits should come in around 37.5% to 38.5%. These numbers are crucial.
- Revenue and Profit: Last year, Apple earned $12.30 a share on revenue of $39.2 billion. Estimates are for $10.12 a share on revenue of $42.6 billion. Even the slightest miss could wallop shares.
- Guidance: Most importantly will be what the company says about future quarters. Analysts expect Apple to guide lower, at least for the next couple of quarters.
Of particular interest will be what Apple plans to do with its hefty $157 billion cash stash. A special or increased dividend and a bigger share buyback could provide a temporary boost to the stock. But any gains are likely to be short lived.
"People have to be patient. The next quarter will be disastrous and the quarter after that stock will only go in one direction and that is down," Trip Chowdhry, co-founder of Global Equities Research told CNBC.
Apple: Cash or Trash?
With Apple Inc. (Nasdaq: AAPL) off nearly 50% from its $705.07 a share high set last September, many investors want to know if it's a buy.
Not in my book. Here's why:
1. The company has held on to its premium pricing strategy for too long. Going out on price as it has recently with iPhones, for example, is the death knell of competitive differentiation. Businesses that engage in price wars have a very difficult time climbing back up the proverbial ladder.
2. The present management team is having trouble fulfilling the late Steve Jobs' vision, and execution appears to be stumbling. The Maps thing, for instance, was an unmitigated disaster and shattered Apple's image of invincibility. The public noticed.
Dumping Apple Stock for Google: How Investors Could Get Burned
The trend has some wondering if investors are consciously moving their money from one tech giant to the other.
"There's a lot of money that likes the tech sector, and I think Google has kind of taken over from Apple," Eric Kuby, chief investment officer at North Star Investment Management, told Reuters.
Looking at the charts, it's clear that Google stock is now enjoying the kind of momentum that Apple had for years, while sentiment toward AAPL almost couldn't get any more bearish.
Since Apple stock hit its all-time high of $705.07 in September, it has plunged 40% and lost more than $260 billion in market capitalization. AAPL is down more than 20% year to date.
Google hit several new highs recently, and poked briefly above $840 in early trading Wednesday. Google stock is up 48% from its mid-June low last year, and up 17.5% so far this year.
And at least two analysts recently put a $1,000 price target on GOOG, reminiscent of last year when analysts were rushing to put a $1,000 price target on Apple.
"The bulls are in Google's camp, and the bears are in Apple's camp at the moment," Neil Mawston, the executive director of Strategy Analytics, told CNBC.com, which speculated that Google could be replacing Apple as the dominant tech giant, as Apple supplanted Microsoft Corp. (Nasdaq: MSFT) in the past decade.
But any Apple investors who haven't already dumped shares in favor of jumping on the Google stock bandwagon might want to think twice before doing so now.
Apple iWatch, Google Glass First Shots in New Clash of Tech Giants
Coming less than a year after Google unveiled its Google Glass Web-connected eyeglasses, reports that an Apple "iWatch" is in the works emphatically confirm that the battle is now joined for dominance over the next wave of tech - wearable computing.
According to the reports, Apple Inc. (Nasdaq: AAPL) has 100 people working on an iWatch users would wear on their wrists, but that would have many of the same capabilities as an iPhone.
But wearable computers could enable new uses, particularly in the area of healthcare, while perhaps providing the spark to encourage some promising technologies that have yet to catch on, like contactless payments.
Four of the biggest names in tech - Apple, Google Inc. (Nasdaq: GOOG), Sony Corp. (NYSE ADR: SNE) and Microsoft Corp. (Nasdaq: MSFT) - either are selling, have announced, or are known to be working on wearable computing ideas.
Why David Einhorn Needed to Sue Apple (Nasdaq: AAPL)
Outspoken fund manager David Einhorn feels so strongly about the need for Apple Inc. (Nasdaq: AAPL) to share more of its cash with its stockholders that he has sued the company.
Shareholders like Einhorn - whose Greenlight Capital fund owns between 1.3 million and 1.5 million shares of AAPL - think the Cupertino, CA-based company should use its monstrous cash pile of more than $137 billion to boost its return.
Einhorn's lawsuit came after his request last year that the tech giant create shares of preferred Apple stock that would exist solely to pay a dividend about twice what the common stock currently pays.
But Apple has included a proposal on its Feb. 27 shareholder ballot that would amend the company's corporate charter to eliminate its ability to create preferred stock. It also has combined that issue with two other unrelated issues in the same proposal.
Einhorn is suing Apple because he says Securities and Exchange Commission (SEC) rules prohibit such bundling, and because he wants to ensure the company will be able to create the type of preferred shares he has proposed.
To further hammer home his point, Einhorn wrote a letter to all Apple shareholders, which was released today, in which he explained his position and urged them to vote against Proposal 2 in the shareholder ballot.
"Proposal 2 is value destructive, impedes the Board's flexibility, and does not merit shareholder support," Einhorn wrote.