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Apple is America’s richest company that isn’t a bank, with nearly $250 billion in cash

Apple Holds Event To Announce New Products
Apple CEO Tim Cook
Photo by Stephen Lam/Getty Images

Apple is due to report its quarterly results on Tuesday, and the Wall Street Journal expects Apple to report having more than $250 billion in cash — a mind-boggling sum that makes Apple by far the richest company in America.

Apple’s growing cash is driven by the astounding profitability of the iPhone. And it’s emblematic of a larger debate about corporate investment. American corporations have enjoyed healthy profits in recent years. But instead of plowing those profits back into new investments, a lot of companies have chosen to give cash to their shareholders via buybacks or dividends.

Some critics blame Wall Street, arguing that pressure for shareholder payouts is causing companies to systematically under-invest, harming the growth of the US economy. It’s one of the reasons Republicans are floating a cut in the corporate income tax rate — in hopes of companies like Apple bringing their profits back to the US for investment here.

But this might get cause and effect backward. Maybe the maturing American economy just doesn’t offer as many opportunities for profitable investments as it used to.

In Apple’s case, at least, the sums involved are so large that it would be almost impossible for Apple to invest it all productively. To spend all its cash, Apple would have to launch dozens — perhaps hundreds — of iPhone-sized research projects simultaneously. That would be hard for any company to do, and Apple has an unusual corporate structure makes it particularly difficult.

Apple invests a lot, but it could invest a lot more

North American International Auto Show Features Latest Car Models
Waymo is one of Google’s most successful “moonshot” projects.
Photo by Bill Pugliano/Getty Images

Apple is hardly a slouch when it comes to investment. The company spent more than $10 billion on research and development in 2016. We don’t know what Apple is spending all that money on, but we do know that Apple has an active research project into self-driving cars, among other things.

But while $10 billion a year is a lot of money for most companies, it’s not very much for Apple. In addition to its $250 billion in cash on hand, Apple is earning around $4 billion per month in profits.

To put that into perspective, one Apple insider told author Fred Vogelstein that Apple spent $150 million over several years to develop the original iPhone. Back then, of course, Apple was a much smaller company, so $150 million was a relatively big bet. But today’s Apple would have to launch about 25 iPhone-sized projects every month just to avoid having its cash pile continue to grow.

How much room is there for Apple to get more aggressive? It’s helpful here to compare Apple to Google and its parent company, Alphabet, which is widely seen as a leader in investing money in ambitious long-term “moonshot” projects. Indeed, Google co-founders Larry Page and Sergey Brin decided to give Google a new parent company, Alphabet, precisely so they’d have a framework to efficiently plow Google’s search engine profits into ambitious projects.

In the past few years, Alphabet has poured money into its self-driving car company, Waymo, the anti-aging project Calico, a life sciences division called Verily, an energy-kite company called Makani, balloon internet project called Project Loon, a drone delivery project called Project Wing, and more.

But Google’s total combined losses from all of these projects was just $3.6 billion in 2016. That’s a huge amount of money for any normal person, of course, but it’s a modest investment relative to Alphabet’s $19.5 billion profits for the year.

Apple is even more ludicrously profitable than Google, earning $45.7 billion for its 2016 fiscal year. So Apple would need to invest in moonshots at more than 10 times Alphabet’s rate just to stop its cash pile from growing.

And there are two big problems with that. One is that it’s not easy for a single company to identify dozens of business ideas that are each worth spending hundreds of millions of dollars on.

Sometimes big ideas don’t pan out

X, the division that tries to create new companies within Alphabet, considers a bunch of new project ideas every year. If an idea is promising, X will hire a few people to explore the idea further and build a working prototype. Then, if the idea still seems to have merit, it will get additional funds and eventually become a full-fledged company in the Alphabet portfolio.

But the vast majority of ideas X considers never graduate to become Waymo-style companies. For example, in 2014 X developed technology to create a gasoline substitute from sea water. But after building a working prototype, the company decided that it wasn’t going to be feasible to get the cost down enough to make it competitive with gasoline.

The thing to note about this kind of abortive experiment is that it’s not all that expensive. A company the size of Google or Apple can easily afford to explore hundreds of ideas like this in a year. The problem is that most of these ideas don’t pan out.

The other is that Apple has an unusual structure that makes it difficult for the company to do a bunch of different things simultaneously.

Most organizations are structured around divisions, with each division responsible for a particular product line. Apple, in contrast, has a functional organization. Instead of having vice presidents for the Mac, iPhone, iPad, and so forth, Apple has a vice president of software engineering, a vice president of hardware engineering, and so on.

What this means is that it’s difficult for Apple to do many things at the same time. As Apple has focused its efforts on the iPhone and iPad in recent years, Apple’s Mac line — especially the high-end Mac Pro — has been neglected. This structure is a big reason that Apple has a much narrower line of products than a conventional company like General Electric, which makes everything from light bulbs to MRI machines.

So if Apple wanted to spend its vast cash reserves, it would likely need to adopt a traditional division structure so it could pursue many different projects in parallel. The problem is that Apple’s functional structure played a key role in the success of the iPhone and other products by allowing the company to draw its best engineers from across the company to work on one project. So far, Apple seems to have decided that the potential to produce truly great products like the iPhone outweighs the potential benefits of a more decentralized structure.