Apple (NAS: AAPL) ended its recent quarter with more than $81 billion in cash. This amount is nearly unprecedented in corporate history, especially in the tumultuous technology space.
Naturally, pressure has been mounting on the company to do something with its riches, especially since interest rates can't be counted on to grow Apple's nest egg. Most of opinions on what Apple should do with its war chest are of the "buy an island," "bail out Europe" or "colonize the moon" ilk. But this issue is worth exploring more seriously, because I think we're entering a new phase of the market where Apple might be forced -- or have the opportunity to -- flex its financial muscle in new and meaningful ways.
Why the timing?
Apple's historic argument for holding onto its hoard has been its natural fiscal conservativeness, having the long, institutional memory of its mid-1990s flirtation with survival. But the size of the pile and the state of financial markets might require the company to "think differently." Plus, I'd still rate the likelihood of a dividend to be low, given how much of the stock is held by institutional investors and the company's view that these dollars would not be being put "to work."
This is also an unprecedented time for Apple. We are entering the post-Jobs era, which will result in a wider, more distributed thought process around Apple's corporate strategy. Most importantly is the fact that Apple is firing on so many cylinders, and participating in so many large, fast-moving, and increasingly competitive ecosystems, that a blockbuster move of some sort seems likelier. Think of Apple now vs. Apple of three years ago. The company is now a much bigger player in the content, gaming, cloud, social networking, TV and enterprise ecosystems, with designs on broader plays in commerce and the home. As this occurs, Apple runs into strong and significant competition: Google, Amazon, Netflix, Facebook, NokiaSoft, Comcast, Oracle, SAP.
What might Apple do?
Apple will certainly continue along the same trend lines it has been, making small- to medium- sized (up to $500m) acquisitions, to accelerate activities in key strategic directions. Siri is a textbook example. Also expect additional patent acquisitions, for both offensive and defensive purposes. Areas ripe for activity here: speech, network performance, power management, video compression/optimization, gesture recognition, and security.
There is also greater likelihood that Apple makes one or more blockbuster moves (in the $ billions) that would change the game in a key area. Among the strongest possibilities, in my view:
Content. Consumers, who want "buy once, play anywhere," have not embraced the iTunes walled garden for movies and TV shows with the same vigor they did for music. There's huge jockeying for position in the video space between Amazon, studios and cable companies (the UltraViolet initiative), Netflix, Hulu, and others. Apple might need to do something disruptive here to achieve a leadership position.
Local content and advertising. I'd consider AOL, Yahoo!, and Yelp, with their trove of content, "local" assets, and advertising capabilities (iAD has not been a tremendous success), to be in play.
Living room. Apple might have to buy, rather than build, its way into the living room if the company wants its TV initiative to become more of a principal vocation than a hobby. A key issue here is the extent to which Apple wants to take on the cable companies.
Navigation. I think Apple has a broader game plan in navigation/directions/local content. Siri is a piece of that puzzle. Also, Nokia, in its effort to take share from Android, is going to be leveraging its significant location assets. Candidates here: Tele-Atlas, Yahoo!, Yelp.
Enterprise. Adoption and IT support of iOS has crossed the chasm. Apple is now a legitimate player in the enterprise. Still, with so much of Apple's talent and development activities centered on the consumer space, the company might get beyond its comfort zone when enterprises ask Apple to go deeper. An acquisition in the security space is a good possibility. A bigger play would be acquiring all or part of RIM. The NOC, enterprise sales force, and key patents in areas Apple needs help are attractive assets. Other major enterprise software plays, some smaller (Good), others larger (SAP) should not be counted out.
Games. The iPhone impacted portable gaming devices. The iPad is starting to affect computer-based gaming, and even console gaming if one considers the possibilities of AirPlay. The next stage would be for Apple to go after Nintendo (Wii) and Microsoft (Xbox) in a meaningful way. Some have postulated that Apple could acquire Electronic Arts, but I do not believe the firm is that interested in content-centric players. Likelier spots are filling in gaps between the portable device experience and the living room experience.
Time to give back?
A final thought here. Apple and (all due respect) Steve Jobs have been notoriously stingy with respect to corporate giving and philanthropy. The company has enough cash to do something truly meaningful here. And I mean more than just iPads for schools (though that would be a start). Rupert Murdoch penned an excellent op-ed a week ago in the Wall Street Journal, on the stunning disconnect between what young people are experiencing outside the classroom -- state-of-the art devices, UI, apps, collaboration tools -- and what happens inside the classroom, describing our educational system as "a step back in time." We are, by far, the most innovative country, with the most innovative companies, on the planet. Yet this is not translating into making the investment needed to sustain our competitive advantage. How about Apple take $20 billion to seed a "21st Century Classroom Foundation," which would subsidize devices for classrooms ("One Tablet Per Child?"), fund the development of educationally-oriented applications, and train the teachers? Apple, and our country, would certainly realize a better long-term "return" on this investment than the 3 or 4 percent it's getting from the banks.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director ofMobile Ecosystem. Clickhereto subscribe to his free Lens on Wireless monthly newsletter, or follow him onTwitterat @marklowenstein.
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