Apple's $20 Billion Cash and a 21st Century Mission
August 19th, 2008
"Superior ability breeds superior ambition."
- Star Trek, The Original Series: Space Seed
In order to realistically examine what Apple might do with its $20 billion dollars, one has to look at Steve Jobs' stated goals from the past plus the biggest threats to Apple in the future. Those two elements are good candidates for assessing how Apple might spend some of that money in the grandest sense.
First, there are other small potatoes things that Apple could do. For example, the idea that Apple should buy back some of its stock has been proposed by analysts. That would improve Apple's Earnings Per Share (EPS). Other analysts look at what company Apple might buy, but, again, the consensus seems to be that Apple would be distracted and slowed down by a large acquisition. Mr. Jobs likes to maintain the atmosphere of a struggling underdog, not a corporate giant like IBM. In addition, I'm thinking much, much bigger.
Apple's Cash Runneth Over
Credit: Todd Bishop's Microsoft Blog
Mr. Jobs' GoalsI went back and looked at some of the most high profile goals Steve Jobs has had is his career. Also, there is one significant unstated goal I'll get to below. Those high-profile goals are:
- Move on to the Next Big Thing.
- Be like Sony should have been.
"If I were running Apple, I would milk the Macintosh for all it's worth -- and get busy on the next great thing. The PC wars are over. Done. Microsoft won a long time ago."
Steve Jobs, Fortune, Feb 19th, 1996
It was hard to find a direct quote about Sony, but I've read about it, and others recollect the quote as well.
I believe Mr. Jobs' most significant unstated goal is to prove, in the end, that his original and continuing vision for personal computing is qualitatively superior to that of Bill Gates. The problem in the past was that people like John Sculley and Michael Spindler almost pissed it all away before Steve Jobs could fully implement his vision.
In fact, Mr. Gates probably said it best about Steve Jobs' original vision for the Macintosh.
"To create a new standard, it takes something that's not just a little bit different, it takes something that's really new and really captures people's imagination, and the Macintosh, of all the machines I've ever seen, is the only one that meets that standard."
- Microsoft founder Bill Gates, 1983
In order to prove to history the validity of that original standard, Apple has to surpass Microsoft, eventually, in wealth and and influence, and that gives a further clue about Apple's accumulation of cash.
The Threats to Apple
Looking at wealth, however, without examining the potential threats is folly. As we've seen recently, in the short term, the potential poor health of Steve Jobs is considered a grave threat to Apple's continued success. However, from what we've learned, Mr. Jobs has some stubborn dietary habits, and for the sake of this discussion, I'll assume that he'll remain a vigorous and far from a portly elder statesman in the world of computers for the next 15 years.
Looking at Apple's success in the market place, with the surging Mac sales, the iPods and the iPhone, it's hard to find a company that can threaten Apple's emerging success. Only an ill-advised merger or acquisition could put a torpedo into Apple's full steam ahead approach.
A far more serious threat, in the long term, would be a disruption to Apple's manufacturing and supply lines due to factors beyond its control. For example, a confrontation between the U.S. and China over the environment, resources, or Taiwan would seriously impact Apple.
China is struggling mightily to recover its self confidence and stature in the world. The 2008 Olympics in Beijing are going a long ways towards doing that, and the U.S. knows that China and the U.S. are both partners and adversaries. At some point in the future, however, if that relationship were to sour over some larger issue, Apple, depending as it does on China for the manufacture of its iPods and iPhones, would be out of business.
Manufacturing in the 21st Century
How would Apple, with the correct application of a large sum of money, fulfill Mr. Jobs' grandest stated and unstated goals as well as deal with potential future threats to the company?
First let's look at Apple's current manufacturing process for iPods and iPhones. There is a healthy dose of automation, but in the final assembly, Apple depends on Chinese workers to hand assemble those products. Apple first came under fire in 2006 when the living conditions of workers at Foxconn's plant were revealed. Now that the demand for the iPhone 3G is expected to soar in 2009 worldwide, and Apple has asked for production to increase, those conditions could conceivably get worse.
Next, Apple loves healthy gross margins. It gives them the liberty to develop new technologies and yet steadily reduce prices to put the squeeze on the competition. That has ensured Apple's dominance in the MP3 player market, and it'll do the same in the smartphone market.
The solution to many of Apple's potential problems, the public relations disaster of indentured Chinese laborers, the threat of a disrupted delivery supply line*, and the ability of Apple to make inexpensive consumer electronics, reminiscent of Sony's heyday, well into the future is, you guessed, it, to build their own completely automated, computerized plant that can assemble these products without a human hand ever touching them.
Such a factory would be a significant challenge and an expensive one. But, hey, that's what we're talking about here. Big bucks spent and a Grand Idea by one of the most successful computer companies in history.
At first blush, one might think about a plant in Mexico or Canada, but that's old style thinking. It's based on the idea, again, that labor costs have to be kept low. However, in this case, the ongoing labor costs will be almost non-existent except for some managers, overseers, and some technicians to keep the production line running smoothly.
Also, when thinking about locating a factory, companies have traditionally looked at locations where electricity is cheap. Again, that's 20th century thinking. This time, Apple could seriously think about making its own electricity with renewable resources: wind and solar power. With enough power at its disposal, water exiting the plant could be as clean as that going into it.
There are a few places in the U.S. where the two come together in order to insure a steady supply of power. New Mexico comes to mind. Near Roswell N.M. (Elida) there is a single wind plant that's generating 120 megawatts. The southwestern U.S. is also the only place where solar power can be consistently relied on, and other candidates are locations in west Texas, Arizona and California with good access to the Interstate system.
Such a plant, run by robots and Macs, would be expensive to build. In the long run, however, the economic and political advantages of such a plant would be enormous. Apple would stop sending money to China and suffering from continuing scrutiny over labor conditions in a foreign country. The plant would become a poster child for modern, 21st century manufacturing. Imagine Steve Jobs taking the next president of the United States on a tour of a plant that makes its own electricity, cleans its own water and cranks out millions of iPods and iPhones each month. And sends power back into the grid on occasion to power our plug-in hybrids.
Could it be that Apple's acquisition of PA Semi is the first step in this line of thinking? Assembly is the first step, but eventually making many of its own components would further improve Apple's bottom line.
The Final Frontier
In the end, however, the real goal is to make exciting products that cost less to make than the competition could ever achieve. When combined with the next generation Apple products that use a gesture language instead of mice, Apple could surge far ahead of the competition and achieve Mr. Jobs' goals. Apple would be creating dazzling and beautiful consumer electronics that no one else on the planet can touch in price or technical vision.
An Apple factory (or two), in the right place, costing several billions would be a worthy endeavor for Apple and its cash. It would achieve the grandest goals for Apple's technical future, make a contribution to the planet and its people's well being and help insure Apple's financial and political security.
But, sigh, it's just an idea.
* Of course, the raw components still have to be flown in to the factory. It's no worse than what happens now.
John Martellaro is a senior scientist and author. A former U.S. Air Force officer,he has worked for NASA, White Sands Missile Range, Lockheed Martin Astronautics, the Oak Ridge National Laboratory and Apple Computer. During his 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 include alpine skiing, SciFi, astronomy, and Perl. John lives in Denver, Colorado.
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