What can Apple Do with $40 Billion?
Apple had its annual shareholder meeting yesterday, and, among the other information the company provided was the amount of Apple’s war chest: $40 billion. Apple has long held on to a lot of cash, rather than giving dividends, something that allows the company to maintain share value, but also to take risks.
So that made me think. What kind of risks could Apple take? Would it involve acquisitions, maybe buying out a major company to fuel a new era of growth? Or could it be major new products that might require large investments? Here are some ideas on what Apple might or might not do with this money.
Buy Nokia: With a market cap of around $49 billion, Apple could easily afford to buy a controlling interest in a company like Nokia. While the iPad shows that Apple wants to expand into more mobile devices, it would make little sense for Apple to acquire a mobile phone manufacturer. Apple, at least since the return of Steve Jobs to the company, has always had a pared-down product line. Mobile phone companies, on the other hand, have dozens of different phones, and it would make little sense for Apple to take on that type of complication. Apple has shown that simpler product lines are more effective, so a mobile phone company is probably not what they have in mind.
Buy Sony: Sony has a market cap of only about $34 billion, so Apple could buy them and still have enough change for the toga party that Steve Jobs joked about at the shareholder meeting. But a company like Sony raises issues similar to that of Nokia: a very broad product line, across many categories, which would be difficult to corral into the Apple ethos. So this, too, seems unlikely.
If Apple is to acquire companies, they are more likely to want to pick up companies that will help them make the products they sell now, or will sell in the future. For example, the 2008 acquisition of PA Semiconductor for a mere $278 million, now makes sense. At the time, it wasn’t clear why Apple wanted to purchase this company, but it’s now obvious, with the iPad, that Apple was planning ahead to have its own chips for mobile devices. Also, Apple purchased the Lala music company, which offers streaming and online music storage, for a pittance (less than $100 million). We probably won’t see the fruits of this acquisition for some time, but one can imagine that iTunes will eventually offer a streaming music subscription.
But what about new, bolder products? Apple has almost exhausted their core product category, that of computers, and has branched out into new mobile devices, such as the iPad, which will most likely not be the only such device.
An Apple TV: Not the one that Apple sells now, but an actual television set with onboard Apple hardware. Take a flat screen TV, add what’s inside today’s Apple TV, and you’d have an Internet-enabled HDTV, with a hard disk, that can sync with your iTunes library, and purchase and rent content from the iTunes Store. This type of product would probably require significant investment, and there is a high risk, given the amount of competition in the TV market. However, Apple has its own retail stores, which would guarantee visibility for the device, as well as keeping much more of its margin than if it were sold through regular stores. This could explain why Apple hasn’t killed the current Apple TV, in spite of what seem to be poor sales.
Apple-branded stereos: With Apple’s new data center in North Carolina, many people are speculating on what kind of data Apple is planning to serve. One such speculation is streaming audio, offering a subscription-based music service via the iTunes Store. (In part resulting from Apple’s acquisition of Lala.) An excellent way to integrate that service into the living room would be by selling Apple stereos: amps with built-in streaming Internet access to the iTunes Store, or an improved Apple TV that combines more audio features.
Finally, Apple could take a very big step toward becoming a mobile device behemoth by building its own mobile phone company. As we know, Apple makes little money from the iTunes Store; it’s mostly a type of Trojan horse to drive the sales of iPods, iPhones, and, soon, iPads. If Apple were able to offer mobile access for these devices and not need to make a profit, they could sell an iPhone with a subscription far cheaper than AT&T. They’d sell more devices, earning much more than than would they would make on subscriptions, and users would benefit from a one-stop deal with Apple for both hardware and mobile access. As it seems that Apple is planning more mobile devices based on the iPhone OS, this sort of service could be what the company needs to ensure solid growth for the coming decade.
No matter what Apple does with its $40 billion dollars, the company has the power to either make major acquisitions or take major risks, that could raise the stature of Apple to a level that is unimaginable today. It will be interesting to see how they wield that fortune, and in which direction it leads the company.
Here are 4 companies I think would help Apple.
First is buy SanDisk – Market cap of about 7.5 billion. Would give Apple control of its Flash Memory needs and they could market the SanDisk Clip as an iPod shuffle replacement. They could then sell off the rest of the SanDisk Hardware Division.
Second buy Logitech – Market cap little under 3 billion. While Apple makes some nice keyboards and mice buying Logitech would give them a strong line of add ons and greater choice for consumers.
Ok 3 and 4 are a little shaky.
3 is to buy Netflicks and/or Blockbuster. not sure on the value of Netflicks but Blockbuster’s market cap is only about 60 million. Either one or both could be used to expand the Apple TV as well as the iPod-iPhone-iPad triple threat.
4 is to buy Palm. Yep I said that. Palm’s Market Cap is now down nearly to just 1 billion dollars. Elevation Partners has about 450 million invested in the company. I can’t see them risking much more loss before Palm gets sold. Why would Apple want Palm? Simple – the IP and engineers. Take the Patents and other IP and choose the best of the Engineers and shut the company down. It is a win win Apple gets valuable tech and personnel and gets rid of some competition at the same time.
Litigate. Protect those patents.
As with today’s announcement that Apple is suing HTC…
Buy Ireland. Ireland currently has a debt of around €40 billion Euros, and is in desperate straits, one of the hardest hit countries in Europe by the recession. Steve Jobs could offer to clear that debt, and in return, he gets Rights to Ireland, Irish, St. Patrick, shamrock, leprachauns, the Claddagh, Blarney Stone, Blarney castle, Aer Lingus airline, all the heritage sites and national monuments of Ireland. Why think small? Buy a country!
I can’t imagine Apple spending more than about a quarter of its cash. The rest is a buffer to keep the company secure. As an investor I think this is a wise decision.
It is hard to imagine what Apple might buy. There are some emotional picks like Adobe or Dell, but none that make sense. Till now Apple has used purchases to acquire technologies, not businesses. So I don’t know who that would be but I can see Apple buying companies that have expertise or patents in chip design, software design, video and audio processing or manufacturing techniques.