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Editorial - Apple Poised to Surpass Microsoft's Cash - Now What?

by , 2:30 PM EDT, July 31st, 2008

According to Piper Jaffray's Gene Munster, at the rate Apple is accumulating cash, it could have US$40B in cash in two years. Investors continue to wonder what Apple will do with all that money, but no one seems overly concerned for now. If recent merger difficulties are an example of what can go wrong, Apple may be wise to just sit on the money.

Apple is currently sitting on $20.8B in cash and short term investments.They're adding $1B each quarter, and could soon surpass Microsoft's $23.7B.

Given Apple's penchant for acquiring small, focused, high-tech companies, there's no way Apple can utilize that much cash. If Apple were to acquire a company in the kind of routine way that companies do it today, seeking salvation or market dominance, it would tax and distract the executive team.

There have been proposals that Apple acquire or merge with Disney, and that makes some sense. Others have proposed that Apple acquire a record label and change the way its does business, setting an example for the rest. One key to Apple's thinking is that modern technical companies should have strategic partnerships, like Apple and Google, and not try to buy each other -- which can introduce technology and culture clashes - the kind Microsoft and Yahoo! would have faced.

Given Apple's growth since 2000, analysts aren't willing to raise a fuss right now. Apple shows signs of a new kind of thinking in this accumulation of cash.

For example, other companies have sought to merge in order to solidify their business or become more competitive. Microsoft was long distracted by Yahoo! and sent a bad message that they were letting their flagship OS, Vista, linger. Recently, Steve Ballmer sent an e-mail to MS employees that reaffirmed the company's commitment to basics.

XM and Sirius radio spent a lot of time seeking to merge. Meanwhile the new technologies of Wi-Fi, iPods, smartphones and HD radio may have passed them by. Blockbuster sought to expand their market presence and augment with hardware sales by looking into a Circuit City acquisition, then backed off after wasting a lot of time. Meanwhile Netflix, more focused, moved forward aggressively with the Roku box and a outlet on the Xbox 360.

These recent examples suggest that a company can become very distracted by a "grass is greener on the other side" kind of merger. Apple hasn't shown signs of needing another company's assets or technology to succeed right now, so candidate companies to buy are few and far between.

Disney, with the infusion of Pixar, CEO Robert Iger and Steve Jobs on the board of directors just reported a 9 percent jump in profits to US1.28B for the quarter. With that example, and the economy in the shape it is, a not inconsiderable amount of money in the bank looks a lot better than the time and grief associated with a merger or acquisition.


 

John Martellaro is the afternoon editor of The Mac Observer and a freelance writer. He is a former U.S. Air Force officer and has worked for NASA, White Sands Missile Range, Lockheed Martin Astronautics, the Oak Ridge National Laboratory and Apple Computer. During his nearly five years at Apple, he worked as a Senior Marketing Manager for Science and Technology, Federal Account Executive, and High Performance Computing Manager. His interests, in addition to all things Apple, include alpine skiing, science fiction, astronomy and Perl. John lives in Denver, Colorado.

Observer Comments

Show: Subjects Only | Full Comments
Close Name:Guest
Subject: What about...

Adobe?

Close Name:geoduck Posts: 1922 Joined: 30 Dec 2003
Subject: I've been a loyal customer since the mid '80's.

.1%. That's all I want. Heck, I'd settle for even .01%

Close Name:Guest
Subject: buy MS

maybe they should by Microsoft with that money

Close Name:Tiger Posts: 1018 Joined: 17 Jun 2003
Subject: hmm

Buy an island.

Apple Island.

Nearly $23B? Bail out the mortgage crisis. Somebody's got to.

Close Name:Guest
Subject: invest a couple bucks in....MobileMe

Seriously, dotMac was not particularly reliable, and MobileMe still is reported to be having problems even after Apple blogged that everything is great.

Close Name:Guest
Subject: In my experience...

Merger and Acquisition activity is nothing more that a way to distract investors.

Furthermore, M&A activity effectively masks accounting irregularities and or falsified gross income/profitability figures.

This has the effect of postponing bad news. Basically it's "Hide it while we scramble for cover".

Close Name:kirasaw Posts: 1 Joined: 31 Jul 2008
Subject: One That's A Good Fit

One company I have felt for a long time that Apple should buy is Sandisk. Apple uses a huge amount of flash memory and Sandisk is a leading producer. With Apples recent purchase of a chip maker I think a Sandisk purchase makes perfect sense.

Close Name:Sir Harry Flashman Posts: 792 Joined: 08 Feb 2007
Subject: Conflict of interest

Quote
Guest wrote:
maybe they should by Microsoft with that money


That would almost certainly be a conflict of interest.

Close Name:Tik Tok Posts: 21 Joined: 05 Oct 2005
Subject: Amassing Billions

My worry would be that, sitting on so much cash, and with its stock price not fully reflecting that book value, esp. given the weak dollar (although that cuts a couple of ways), some not-so-benevolent factor could attempt a buyout, a la Maxxam's takeover of now-bankrupt and defunct Pacific Lumber Co. Also, with inflation about to explode, hard assets are better than cash. I wonder what Jobs is thinking on this.

Close Name:Guest
Subject: Mergers vs. Vision

Mergers are no substitute for vision. Agreed. However...

Might want to rethink the claim that failed mergers or mergers that take time are damaging to a company. Intuitively suggesting that mergers cause a distraction or create inefficiencies simply because they take time or because they fail does not take into account other significant issues - financials, services, future plans etc. Additionally, a failed merger might prompt a company to rethink its strategy or focus its goals, which as the potential to be beneficial down the road.

I'm not suggesting that the idea is wrong, but just that it's a little half-baked in its current form. I'd like to see some more affirming evidence.

Close Name:parasram Posts: 1 Joined: 01 Aug 2008
Subject: Buy some Wine

Buy Crossover, accelerate the development of CrossoverMac. Integrate it into MacOS so that it supports the WinAPI natively. Run windows applications without the need for a windows license. Release MacOS for any hardware. Watch Microsoft panic

Close Name:jbruni Posts: 105 Joined: 14 Jul 2006
Subject: Dividend?

Why not give some of the money back to the shareholders.

Close Name:Guest
Subject: you are kidding

tik tok
there is no way you were suggesting that someone could buy apple were you?

when was the last time any company bought another company worth 141 billion in market cap, plus 23 billion in cash, that would never happen. Only exxon mobil would be able to do that, and that is not happening.

Apple doesn't need to spend the cash right now, when the deal is right they will know what to do. If they should buy anyone, its Nvidia. This would add a great line of graphics chips and other processors and make macs even more integrated. With a market cap of just 6.3 billion, Nvidia would be an easy takeover.

Close Name:wheeles Posts: 4703 Joined: 10 Feb 2006
Subject: Declare a dividend

If Apple have more money than they can use, then maybe they should give some back to the shareholders as a dividend.

That would cause all the shorts in the stock to rethink their positions and possibly cover them.

Close Name:Guest
Subject: Nintendo?

OK, fine, the idea makes almost no sense at all... but I'd really like to see what the most innovative game company + the most innovative computer company could do if they got together. I seem to recall the Nintendo president talking about the possibility of making games for the iPhone... not something I'd expected. I had expected Nintendo to suddenly say, "The iPhone is okay, but here's our replacement for the DS that we've had just waiting in the labs for the past 4 years now!"

Close Name:Guest
Subject: Apple should buy....

Adobe
Tivo
AMD
Sprint
Netflix

Close Name:Sir Harry Flashman Posts: 792 Joined: 08 Feb 2007
Subject: Sprint?

"Apple should by Sprint"

Well Sprint is in a bit of trouble and is selling off/leasing out a lot of their towers. However, they are a CDMA system and the iPhone is GSM. I don't know how much work it would take to make a change over for the iPhone to run on CDMA, or change the Sprint system over to GSM (probably a bigger job). But the thought of Apple owning the whole cell phone ~ cell service widget is interesting.

Open more retail stores?

Close Name:Guest
Subject: Get Baller a thank you gift

After buying something for themselves, Apple should seriously consider getting one of their biggest supporters a gift. If it wasn't for the incompetence of Ballmer, there is no way Apple would have made as much progress as it has. A mention at one of Apples product releases would be nice too.

Close Name:Guest
Subject: Buy General Motors & Ford for $17.5 billion

And sell GM Mini's & Ford Nano's.

Seriously though, they aren't going to buy Sprint, they could do a buyout of Tmobile ($74 billion, & GSM network with international presence), but the problem with any cell provider is they're regional. They won't buy Sandisk, they bought P.A. Semi for the design team, not the hardware.

The real question is what will they build next? They'll flush out the Apple TV & media delivery, but they'll also work on supplying end-to-end small business systems, which is where they'll make the first significant inroads to the commercial market. The next development with the iPhone is to integrate in-store purchasing with it via iTunes accounts, which will require POS integration at some level in the store.

This points to some sort of accounting and/or POS system as the next most important arena for Apple. They could buy Intuit for $8.7 billion and still have good cash reserves. Integrate the Server version into the Xserve, which would immediately push Xserves into a lot of office spaces.

Close Name:Guest
Subject: Lower prices

I do not think Apple's computers are overpriced.
I know they are competitive on price/performance.
But, if they are really making this much money, then lower the prices, attract more users, and make it up in volume.
The increased marketshare would be well worth it.
Just think of it as an investment.

Close Name:Guest
Subject: Nintendo

I think they should buy Nintendo. The Wii is currently waxing the floor against the Xbox 360 and the PS3. I think that the iphone technologies mixed with the Nintendo DS would make a remarkable machine and the overall culture (aside from national differences) of the two companies are very similar. Add to that, both companies are infatuated with white plastic...

Close Name:Guest
Subject: Buy Sun Microsystems and Novell

Apple should buy these two companies just for their intellectual property and cross licensing agreements. Now watch the techworld squirm.

Close Name:Guest
Subject:

Apple should buy:

A nice cup of coffee and a danish. That's what I'd do.

Close Name:Guest
Subject: I will take the excess

It is not healthy to have more than Microsoft. I will take the diff !!

I am an Apple user !! I deserve it !!

Close Name:Guest
Subject: What About Adobe

Adobe is a solid company that totally dominates its niches: PostScript, Acrobat, PhotoShop are all the best. That part fits Apple's profile. But Apple is driven primarily by innovation, and Adobe is no longer an innovator -- they are a mature software house. What would Apple gain by acquiring them? Not new technology or new ideas. Not a useful corner of the market.

Apple doesn't buy successful mature companies. It buys ideas and technologies.

Close Name:Guest
Subject: Buy Sony - or a controlling interest

The subject says it all. There is a lot of synergy there, CE, high end instruments, movie and record distribution, mobile phones, TV's. It just needs $45B

Close Name:Guest
Subject: Apple should buy HP's Computer Division

Then with the HP's Computer Division, they'll finally have a decent Computer to put on the market.

Close Name:Intruder -   TMO Mac Specialist Posts: 3149 Joined: 07 Jul 2004
Subject: Re: Apple should buy HP's Computer Division

Quote
Anonymous wrote:
Then with the HP's Computer Division, they'll finally have a decent Computer to put on the market.


Yep, doing this would finally give the HP computer devision a decent computer to put on the market.

Close Name:Guest
Subject: Buy Adobe

Apple has always been the choice for the creative folks. It would be a smart move that could grow the company immediately...

Close Name:Guest
Subject:

Profit share with their own employees! A lot of us do not get bonus's or stock options. Many times I feel like were just "janitors".

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