Apple CEO faces first test with cash mountain

SAN FRANCISCO, USA: Apple CEO Tim Cook has a problem, a $98 billion problem.

Just 18 months ago, Apple's $46 billion mountain of cash - while huge by most standards - attracted only muted complaints from investors, who did call for a dividend or share buyback, but were mostly happy with the meteoric rise in the stock price.

But with the growing cash balance now a much bigger overhang on the stock, widely considered to be undervalued, investors are clamoring more vocally for Cook to put the money to work.

No one could have foreseen just how quickly that warchest would grow. Indeed, some analysts estimated Apple's cash holdings would increase to $65 billion at the end of 201l. That it has swelled nearly 50 percent above even those lofty projections is nothing short of awesome.

Apple now has about $104 in cash per share.

But to paraphrase rapper P. Diddy, with more money comes more problems. Apple's runaway success presents Cook with his first real public test as chief executive officer - figuring out what to do with the money.

Apple's cash balance is now a quarter of its $415 billion market capitalization and roughly equals California's 2012-2013 state budget. And even though $64 billion of Apple's cash is overseas - meaning it will have to pay a hefty tax to bring it into the United States - calls for a dividend on Wall Street grew louder after the company said on Tuesday it was in "active discussions" internally on what to do with the money.

Wall Street is strongly in favor of Apple returning the money to shareholders through buybacks or dividends, even if it is only a one-time deal. But the ultra-conservative company, which typically ignores Wall Street, gave no clues about that during its earnings call on Tuesday.

"They are clearly trying to signal that they are not ignoring the issue," said Michael Holt, an analyst with Morningstar. "It doesn't mean that a decision is imminent."

Others, however, are convinced a dividend will be paid this year.

"With Apple stating that it is 'actively' pursuing its options with regards to its cash balance, we believe the commentary may be setting itself up for a cash dividend in FY12," Ticonderoga Securities analyst Brian White said, raising his target on the stock to $666.

Katy Huberty, an analyst with Morgan Stanley, echoed White's view, saying: "Apple appears committed to making a decision on cash return in the near-term and we continue to believe a dividend makes the most sense."