As Apple Inc. (NASDAQ:AAPL) fights for market share in light of Samsung’s success, the Street is wondering whether or not Apple will make compromises for the sake of revenue. In Tim Cook’s recent interview at the Goldman Sachs Group, Inc. (NYSE:GS) Tech Conference, the Apple CEO was resolute: Apple Inc. (NASDAQ:AAPL) remains laser-focused on creating the world’s greatest products. “That’s the only religion that we have,” said Cook. So what could this stay-the-course attitude mean for Apple investors in 2013?
Toss out concerns of a potential Apple Inc. (NASDAQ:AAPL) identity crisis. Central to Apple’s strategy today are the same two underlying tactics that drove Apple’s success in the past: a conservative acquisition strategy that avoids acquiring revenue for revenue’s sake, and a refusal to make “cheap” products. Together, these two approaches have been fundamental to Apple’s focused strategy.
Large acquisitions are unlikely
As pointed out by Goldman Sachs analyst Bill Shope, Apple’s acquisitions relative to its size and overall cash balance have been very small. Based on Cook’s comments in the Goldman Sachs interview, investors should expect this trend to continue. But given Apple’s success with acquisitions in the past (or at least Apple’s lack of poor acquisitions), this should be good news to investors.
Though Cook did claim that Apple Inc. (NASDAQ:AAPL) has looked at potential large acquisitions, and that the company would consider them in the future, his comments reflect continued conservatism toward acquisitions: “We don’t feel a pressure to just go out and acquire revenue.” In other words, it is very unlikely that Apple will make a large acquisition simply to put its cash balance to work or to diversify its business.
Not all tech companies have a conservative acquisition strategy. Microsoft Corporation (NASDAQ:MSFT) has spent a considerable sum on acquisitions. While some of its investments seem to have turned out exceptionally well (Skype, Bungie), others have failed miserably. Consider, for instance, Microsoft’s $200 million purchase of a 2% stake in Best Buy Co., Inc. (NYSE:BBY)‘s common stock or its $6 billion purchase of aQuantitive that ended in a $6.2 billion writedown. Microsoft’s spotty track record is clear evidence of the great risk involved in acquisitions. Of course, the larger the acquisition, the more this risk gets magnified.
Don’t expect a “cheap” iPhone
Cook was very clear when it came to Apple Inc. (NASDAQ:AAPL)’s stance on creating quality products: “Our North Star is great products.” Apple marketing chief Phil Schiller stated it even clearer: “Despite the popularity of cheap smartphones, this will never be the future of Apple’s products.”
