One of the most striking things to emerge from Apple’s quarterly results on Tuesday was the fact that the iPod and iPhone maker is sitting on an $18bn cash hoard. Even more interesting is what Apple suggested it might do with it. Fortune picked up these comments by Peter Oppenheimer, Apple’s CFO, during the company’s earnings call:

Our preference continues to be to maintain a strong balance sheet in order to preserve our flexibility to make strategic investments [and/or] acquisitions.

Apple hasn’t made a big acquisition since 1997, when it paid $400m for NeXT, the computer company founded by Steve Jobs during his years in exile. Since his return as CEO, Mr Jobs has preferred to keep most of Apple’s innovation in house.

Could this year be different? Mr Oppenheimer’s comments would seem to suggest so. But there are other reasons to believe that Apple could soon be on the prowl for potential deals. With the market now off nearly 13 per cent from its 2007 highs, there are deals to be had for a company with cash to throw around. Apple may also be facing a product gap this year, as the law of large numbers causes iPod sales growth to slow. Mac sales remain strong, but while the iPhone is of to a decent start with 4m units shipped so far, some analysts believe it may take until at least 2009 for the handset to emerge as a revenue driver for Apple. A savvy acquisition could help make up for any revenue growth gap in the near term.

There is another, perhaps more compelling use of all that cash, however: buybacks. With Apple’s stock price now off more than a third from its 2007 high, Apple may find the most compelling use of its cash is to invest in its own shares.

January 25th, 2008 in Consumer Electronics | Permalink