Go Shopping, Apple Inc. (AAPL)!

Page 1 of 2

In 2012, Apple Inc. (NASDAQ:AAPL) added $38.7 billion to its already sizable pile of cash.  This is more than the annual GDP of many small countries, including Serbia, Panama, and Bahrain. Although some have urged Apple Inc. (NASDAQ:AAPL) to return more cash to investors, Apple should use most of its cash to bolster its competitiveness, but finding productive ways to spend the cash is becoming difficult. It’s time to think big, as in major acquisition big.

Apple Inc. (NASDAQ:AAPL)Tim Cook’s message at Goldman Sachs

Little noticed by the tech media has been Tim Cook’s new found willingness to consider a “major acquisition,” something that would have been unthinkable in the Jobs era. At the Goldman Sachs Technology and Internet Conference last week, Cook said:

“In terms of large acquisitions, we have looked at large companies.  In each case . . . it didn’t pass our tests.”

“Would we look again?  I’m sure we will.  Is there a reason why we couldn’t do that? No.  I think we have the management talent and depth to do it.”

“We want to make great products. That’s what we’re about.  If a large company could help us do that even better, then that would be of interest.”

Why an acquisition would be a good thing

I see a large acquisition as having the following potential benefits:

Becoming more vertically integrated. The acquisition of a major hardware company would almost certainly have the effect of making Apple Inc. (NASDAQ:AAPL) more vertically integrated by re-incorporating more hardware manufacturing into the company. Apple’s chief rival in smart phone manufacturing is Samsung, one of the most vertically integrated electronics manufacturers on the planet. Samsung produces everything from ICs to LCDs.  Samsung designs their own ARM-based SOCs (systems on chip) and manufactures them in their own silicon foundry.  Apple Inc. (NASDAQ:AAPL) also hires Samsung to build its Apple Inc. (NASDAQ:AAPL) designed SOCs for the iPhones and iPads.

Is what’s good for Samsung necessarily good for Apple?  This remains to be proven, but in-sourcing does offer potential advantages in product development time and responsiveness to market changes.  It also means that profit that would have gone to the supplier goes instead to Apple.

Broadening the product portfolio. Apple has historically focused on making a few “insanely great” products.  This has worked well for Apple, but also has led to the belief that Apple can’t prosper without new breakthrough products. In fact, Apple was a little too dependent on breakthrough products in the Jobs era, and one way to reduce that dependency is simply to offer a wider variety of products.  Why not the proverbial Apple Television or even an Apple AV receiver?  Given how beautifully Apple products work together, Apple could set its sights on conquering the living room rather than merely occupying a tiny piece of it with Apple TV.

Tests? What tests?

It’s not hard to imagine the gist of the tests Cook mentioned.  First and foremost, the company would have to want to be bought.  Corporate raiding isn’t Apple’s style, and anyway, a hostile takeover of even an insignificant company would mean instant ostracism in the Valley, where no one wants to be branded “evil.”

And herein lies the chief difficulty, since it’s not easy finding a large company that wants to be bought that’s actually worth buying.  Which brings us to what is certainly an important test: the company has to be profitable, or if not, the unprofitable parts have to be easily jettisoned.  Apple is not a turnaround specialist, and in any case, they don’t want to be bothered.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!