"Boldness is business is the first, second, and third thing."
-- H.G. Bohn
It's generally known that Apple has used an economic slowdown in the past to get a jump on the competition, for example in 2001-2. Now, almost a decade later, technologies have changed, and the things that Apple can do with much more capital are dramatically different.
Back in 2001, according to a reference at the Motley Fool, Apple had US$1.191B in cash, $2.836B in short term investments and $300M in debt. That left them with $3.727B, which is a nice chunk of change, about three years worth of payroll at the time. (8,000 regular employees, ave. $75K/yr, 2:1 overhead rate.)
Credit: Todd Bishop's Blog
Since then, Apple has been accumulating cash at an amazing rate, and, according to Peter Oppenheimer at the last earnings report on January 21, Apple has US$28.1B in cash and marketable securities. With a mixture of Apple retail store employees and regular staff, amounting to over 32,000 employees, it's a little harder to do that math above, but Apple could go for years, never earn another dime, and still make payroll and pay for operating expenses.
Even though many people think Apple should pay dividends in order to make holding the stock long term more attractive and others think Apple should buy back stock to increase the price/earnings (P/E) ratio, Apple has elected to do neither.
Apple is also extraordinarily wise, almost miserly with its capital. I can guarantee that, based on experience, in this economic slowdown, Apple departments are being asked to do more with less. Only bold visions can release R&D dollars.
That leads naturally to the strategic question of how Apple can, like the last time around, utilize its working capital to emerge from the recession strong, far ahead of the competition, and create a competitive advantage -- especially in a market where everyone has access to the same basic hardware technologies.
In the past, I've spoken about how Apple can pay cash for large run-rate commodities used in making hardware. That makes life difficult for the competition. However, in this case, the discussion will revolve around pure technology.
What Are the Key Technologies?
Apple has been extraordinary in developing technologies that give it a technical advantage over Windows, things like Core Image, Core Data, OpenCL, application sandboxing, HFS+ meta data and Spotlight indexing, and Grand Central. However, as has happened in the past, Mac OS X superiority has failed to make a huge dent in the Windows market because these technologies are subtle, not keenly visible or appreciated by the average, potential PC user, and easily mimicked.
It's a bit like the new touch screen smartphones. "Look, you can touch it with your fingers and make things happen. It's just like an iPhone!" the ads suggest. For example, a circular gesture with one finger can be interpreted to zoom a picture instead of an iPhone two-finger "un-pinch," something a recent AT&T commercial showcased for the HTC Touch.
In order to think about what Apple could do, one has to ask questions.
- What does the movement to netbooks say about the needs and buying habits of current and future customers? That's not the same question as asking if Apple should develop one.
- What fundamental changes to OS security could be developed that percolate into the consciousness of users in a quantitative, not easily duplicated way? Can virtualization be exploited?
- How does the AT&T 3G Microcell, which gives 5 bars for voice in a home, create a convergence between voice calls and what we think of as mobile computing?
- At what point does it make sense to commit to SSDs and other technologies in notebook computers so that the concept of turning the power on and off for a notebook is meaningless? The "always on" dream lingers.
- Along those lines, what would it take to kill the notebook computer as we know it and replace it with something that's always on and weighs 1.5 pounds?
- How can Apple continue to use manufacturing methods and industrial design to further its image as a top tier maker of quality computers while holding the line on prices?
- The end of the Finder. The concept of a replacement Finder has been discussed for years, but Apple has never figured out how to either replace it or improve it dramatically. Now would be a good time to shock Microsoft while it squanders time and effort with its own smartphone.
- How can Apple continue to develop a revenue stream, based on sales of music and video content, and still drive towards a breakthrough in computer and HDTV integration? Apple has been in a wait and watch mode with the Apple TV and, so far, hasn't contributed much to the state-of-the-art.
- Is the shirt pocket the definitive size/form factor for mobile devices or are there technologies which could be pressed into service to create a better visual experience while keeping the size and weight small?
- PC design is largely limited by the enterprise focus. IT managers have specific needs and goals that conflict with having the latest, cool technology. That places constraints on Microsoft that evidenced themselves in the design of Vista. What OS design changes would preserve Apple's enterprise revenue stream, yet put continued pressure on Microsoft -- thus preserving the Vista failure path?
- How can the gesture-based multi-touch interface of the iPhone be developed into a next generation product that preserves Apple's revenues while leaving the dated WIMP (Windows, Icons, Menus, Pointing device) behind, an aging relic of dusty business offices? Apple is doing something similar with the transition from the legacy iPod to the iPod touch. Can it be done with the notebook computer?
I Keep My Visions to Myself
At least, that's what Stevie Nicks said. However, with Apple, now is a time for bold, public visions. The question is, can Apple, steered through treacherous financial times by Tim Cook, come up with the bold visions required to put the company in afterburner in 2010? Simply saying that Apple has proven it can conduct business as usual without the traditional leadership of Steve Jobs is not good enough.
There are few companies that can give us hope. While many companies are laying people off and begging for government money, we all get the feeling that things have fundamentally changed, going from bad to worse. Apple is a company that, with nearly US$30B in cash assets, can continue to build on its dream. It's not a time for being too conservative, and future historians will judge Apple by the boldness of its vision while everyone else is in the dumpers.
Fear of product failure is not an option for a company with that much cash.