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

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

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

How 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

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!