Last week, Apple reported very strong earnings — but what it is choosing to do with all those profits is the big news for Main Street.
The tech giant saw its sales grow by 27 percent, to $58 billion, for the quarter and its earnings jump 33 percent, to $13.6 billion
Apple delivered an unspoken but powerful message about the US economy: It upped its already massive stock buyback from $90 billion to $140 billion.
“We are in the very fortunate position of generating more cash than we need to run our business,” CEO Tim Cook said on the conference call.
Yes America, sit up and take note: The greatest company in corporate history, by market cap, sees so few growth opportunities to invest in here in the US it has resorted to merely buying back millions and millions of its own shares.
A fundamental truth in business is “money goes where money is treated best.”
Apparently, Apple doesn’t see much opportunity here at home. Frankly, neither do I. Just look at Wednesday’s 0.2 percent GDP growth.
While Apple did buy Beats last August, it doesn’t seem to be on the acquisition hunt either. And sure, it could buy whoever it likes — it has enough money to pass its own stimulus package — but Apple tends to prefer to build its own versions (think iTunes Radio vs. buying Pandora, Apple TV vs. buying the very expensive Netflix).
It’s not that Apple hates Main Street, it just hates the tax structure.
For one — the US has become investment unfriendly, essentially tied with Japan for the highest federal corporate tax rate in the developed world at 35 percent.
In addition, state taxes range from 0 percent to 12.5 percent.
That’s why Apple has turned to China, where the corporate tax rate is just 25 percent, to have its iPhone built by Foxconn, an outsource manufacturing company.
In Ireland, the home of iTunes, the tax rate is an extraordinarily compelling 12.5 percent.
Imagine if our economy had China’s or Ireland’s corporate tax rate. That would change the algebra in favor of Apple investing in American growth and bring lots of jobs back here — and create millions of new ones.
It may be an embarrassment of riches, but Apple’s statement is clear: It’s not buying into US growth.