Apple on a Shopping Tour?

April 29th, 2016

So, gentle reader, please consider this week’s statement from Tim Cook that, when it comes to future acquisitions, “We could definitely buy something larger than we bought thus far.” With the exception of Beats Electronics, which had a profitable line of premium-priced headphones, Apple has purchased technology to add to its portfolio. So there was Siri, the voice assistant, and chip designer PA Semi, which brought along a team of engineers that helped develop the A-series processor.

Clearly tech pundits are wondering just what company or companies Apple might purchase next, now that the stakes are higher. There’s still a perception implicit here that Apple has to buy something with which to enhance the product portfolio, because they can’t do it themselves. But that’s besides the point. Apple can do both — obviously.

I’ve read several articles listing companies ripe for an acquisition by Apple. Some are relatively affordable, some a little outlandish, even with Apple’s large cash reserves.

Of the latter, there’s Netflix, with a market cap that is presently close to $39 billion. At twice market cap, we’re talking about a $78 billion purchase price, and I’m just shooting from the hip here. It could cost more.

Even with $250 billion on hand, it would possibly require a combination of financing and a stock swap, a considerable deal. It’s doable, but why? Should Apple pay so much money to get into the TV streaming server business? It would seem more sensible for Apple to expand iTunes, using an existing infrastructure, rather than go through the drudgery of adapting someone else’s company and technology to its needs.

Even if Netflix was for sale, it wouldn’t appear to make sense for Apple. It would certainly be hard to justify to stockholders by the purchase price alone for a relatively old company, in the scheme of tech firms, rather than build out the existing iCloud infrastructure to attempt to do the same thing. Yes, I’m ignoring Netflix’s dying DVD rental business.

Indeed, Apple was once reportedly working on building a TV subscription service in a more traditional way, offering existing cable channels, possibly local channels, and perhaps original programming. That this project is said to be moribund over the inability to deal with the entertainment companies might spur the search for other options. But another problem occurs to me: Would the entertainment companies honor existing contracts with a new owner? What would be involved in integrating a company the size of Netflix with Apple? Such obvious pitfalls can doom such a deal before it’s even made.

One possibility I mentioned in yesterday’s column was Tesla Motors, still a huge jump. One reader suggested that Tesla is more interested in developing battery technology and might be willing to sell the car division. Another suggested the reverse. But I agree that Apple is always on the hunt for superior battery technology, but would this make sense? If Apple bought the car division, the software and the interface would still have to be redesigned to match Apple’s design criteria, and integrate with iCloud and other services.

But I do not see Apple wasting loads of money to acquire the expensive assets of any of these companies. Instead, Apple might consider a relatively new company that hasn’t realized its potential, but would benefit by being integrated into the “walled garden.” Remember it’s not just merging the personnel, which itself could be difficult, but going through all parts of the company and seeing how they mesh. If the technology is to integrate with Apple’s — and it must — just what would be required to make it so? These steps would involve expenses far beyond the initial purchase price.

Also, big mergers don’t always do terribly well. Look at companies bought by Alphabet and Microsoft as examples of failed deals that accomplished little more than wasting money. So there was Motorola Mobility, bought at a relatively high price and sold off by Google for a lot less. It never performed to expectations, and, in fact, wasn’t doing well when it was acquired. There’s also the Nokia handset division, and Microsoft’s misguided purchase that came at a time when sales were dropping. Again, a foolish move.

You can go back to HP’s $25 billion purchase of a rival PC maker, Compaq, in 2002. In the end it was a disaster for the venerable Silicon Valley company, resulting in the firing of 30,000 people, offshoring thousands of jobs and, in the end, the abrupt dismissal of CEO Carly Fiorina in 2005. All right, she left with a multimillion-dollar golden parachute, and is presently running for Vice President of the U.S. with Senator Ted Cruz. And she still claims that her stint at HP was successful.

Forget the political implications, however. Instead, consider that Apple has been extremely careful about acquisitions. So if a big deal is forthcoming, it probably won’t be a deal anyone would expect, nor would it be as large as the ones some are suggesting.

However, buying up companies is still no excuse to sidestep R&D and home-built products and services. It’s just an additional step in providing for Apple’s future as iPhone sales plateau (and maybe they already have). I would not even try to guess what company or companies might be acquired in the near future.

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2 Responses to “Apple on a Shopping Tour?”

  1. DaveD says:

    When I read that part about what CEO Tim Cook that Apple may look for a bigger acquisition it raised the “spider sense of warning.” It sounded to me that Apple is losing or moving to having lost of its vision and focus. My move to compensate a slowdown of revenue is to do the same on stock buybacks, slow it down. I would not want Apple to burn money on major acquisitions or stock buybacks. Don’t make the same mistakes that other companies have done or will do.

    Go back to basics, focusing on doing things right. Making the user interface better, enhancing user experience and think things through when implementing a design change or new feature. Look inward as to where Apple needs to improve on its products and services. Hint: Ask those who use your products or services. Can’t see how a major acquisition can stop an erosion of vision and focus, it can only make it worst. Is Apple still moving to where the puck going to be or looking for the puck?

  2. Dana Sutton says:

    See what I wrote in connection with a very recent posting by Gene comparing Apple to Woody Allen’s shark: it has to keep moving forward or it dies. Sure, Apple needs (maybe desperately) to clean up and modernize its OS. But that by itself is not going to bring a tidal wave of new customers or protect it from its greatest threat which, as I said before, is that some of its products are getting to be so refined and polished that further meaningful improvement becomes progressively more difficult, and users’ desire for improved versions progressively diminishes. For such products, traditional assumptions about the length of replacement cycles lose their validity.

    Apple has a huge cash reserve. It’s doing better than it used to at rewarding shareholders and it has far far more than it needs to ward off any conceivable takeover bid. Even so, it has billions more than it needs stashed away. It would be positively irresponsible for it to leave all that purchasing power sitting unused indefinitely .

    We could amuse ourselves with an extended discussion of how this cash reserve could best be invested. But surely, sooner or later, it has to be invested in something. To survive, Apple needs to move into some new area or areas, and acquisitions and/or a huge investment in r. & d. are the two ways in which this can best be accomplished.

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