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US tech giants boost cash to record levels

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Apple, Amazon and Google increased cash balances amid concern over China and slowing investment opportunities.

by Nicholas Dunbar

Published: February 12th 2019

The Google offices in London. REUTERS/Hannah McKay

Treasurers at Apple, Amazon and Google have collectively got an additional $33 billion of cash to manage after the companies boosted their holdings of cash in the last three months of 2018. Even when adjusted for Christmas seasonal inventory, the amounts are a record high for the three companies.

Apple’s holdings of cash and cash equivalents increased the most by $19 billion, bringing the total to almost $45 billion. Amazon increased cash by $11 billion to a total of $31.7 billion during the same quarter, whilst Google’s parent Alphabet reported a cash increase of $3 billion, according to SEC filings.

The increases are a surprise reversal of a reduction in cash and securities holdings at the three companies, in the wake of US tax reforms and growing pressure from shareholders to be paid more cash in the form of dividends or share buybacks.

Apple’s holdings of bonds and cash reached a peak of $282 billion at the end of 2017, but since then the company has sold off $57 billion of corporate bonds, government bonds and asset-backed securities. Even allowing for the cash increase, Apple’s holdings of bonds and cash are 14 per cent below their peak.

REUTERS/Jason Lee

While the overall reduction chimes with Apple’s message that it wants to become ‘cash neutral’ over time, concerns over China trade tensions might have prompted the cash reversal. Some observers believe that an increased cash balance might reflect plans for Apple to diversify its supply chain, which at present is heavily dependent on facilities in China.

For Amazon, the jump in cash levels may indicate a slowdown in the company’s rate of investment and a reduction in acquisition appetite. The company also boosted its holdings of corporate and government bonds to record levels, with total cash and securities of $50 billion at the end of December, according to filings.

REUTERS/Mike Segar

Although Amazon states in its 10-K filing that “As a result of holiday sales, as of December 31 of each year, our cash, cash equivalents, and marketable securities balances typically reach their highest level”, the ratio of cash to accounts payable also reached a record level, indicating that the cash balance was unusually large for Amazon.

At Alphabet, bond and cash holdings have continued to breach record levels, prompting questions why the cash isn’t being used for acquisitions. On a 4 February earnings call, Brent Thill, an analyst at Jefferies, criticised Alphabet for its slow pace of M&A activity.

“We’re trying to get it right”, CFO Ruth Porat responded. “Over investing, under investing -neither of those works for long-term value creation, but we are very mindful of the pace here and trying to lay out work with more specificity, how we are looking at the opportunity set and making trade-offs where we can”.

A spokeswoman for Alphabet declined to comment further. Spokespeople for Apple and Amazon declined to respond to requests for comment.