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
Thu Jul 31, 2008 4:20 pm Subject: I've been a loyal customer since the mid '80's.
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".
Thu Jul 31, 2008 10:29 pm Subject: One That's A Good Fit
Thu Jul 31, 2008 10:35 pm Subject: Conflict of interest
Thu Jul 31, 2008 11:57 pm 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.
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.
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.
Fri Aug 01, 2008 5:40 am Subject: Declare a dividend
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!"
Fri Aug 01, 2008 11:17 am 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?
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.
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.
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.
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...
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.
Thu Aug 07, 2008 12:27 am Subject: Re: Apple should buy HP's Computer Division
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