$50B: “Strategic Opportunities”

  • Posted: 19 October 2010 06:29 PM

    “We do feel that there are one or more strategic opportunities in the future.”

    -Steve Jobs

    Of all the big news yesterday, this was perhaps the biggest. And true to form, it is getting little to no press from the lemmings who are all up in arms about “disappointing” iPad numbers.

    To the best of my recollection, this is the first time that Steve Jobs has outrightly acknowledged that they have a specific plan in mind for the cash horde and that it is not just some rainy day fund.

    I think a sign of what this expenditure(s) might be will become known tomorrow, but not via an announcement on-stage. I am hoping it will be right before our eyes, quite literally staring us in the face: if Apple again elects to live broadcast the event, I think this will be a big tell on what Steve sees as his big-ticket “opportunities.”

    Think about it; we have Apple demonstrating its broadcasting abilities, $50 billion dollars cash sitting in the bank, a giant mysterious “data center” slated to go on-line early next year, a “hobby” device priced to silently invade millions of homes this holiday season, AirPlay technology being licensed to home theater manufacturers far and wide, and “The Year Of HD” that never was…

    To me, these are all interrelated. Apple is about to make a chair out of a stool.

    MacGuffin

         
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    Posted: 19 October 2010 07:26 PM #1

    I said this in another thread yesterday after the earnings call: Facebook.

    I see there is actually some analyst scuttlebutt today mulling the same thing.

    The question is what effect would this have on apples share price should they proceed? I’m picking any offer would quickly be one upped not only by google, but also by Microsoft - 3 companies with a lot of financial resources - a bidding war could easily escalate to obscene amounts.

    It would be an interesting tactic for apple, if it succeeded it could easily integrate Ping like itunes/app store intergration into facebook for a lot of synergy. However if it lost a bidding war and microsoft ending up paying over the maximum forseeable value for it, then it coul be a death blow to any future growth for Microsoft from a earnings per share perspective, being saddled with a huge amount of debt. Or maybe in this low interest rate environment it is an opportunity worth taking?

    thoughts anyone?

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    Posted: 19 October 2010 07:35 PM #2

    iOSWeekly - 19 October 2010 10:26 PM

    I said this in another thread yesterday after the earnings call: Facebook.

    I see there is actually some analyst scuttlebutt today mulling the same thing.

    The question is what effect would this have on apples share price should they proceed? I’m picking any offer would quickly be one upped not only by google, but also by Microsoft - 3 companies with a lot of financial resources - a bidding war could easily escalate to obscene amounts.

    It would be an interesting tactic for apple, if it succeeded it could easily integrate Ping like itunes/app store intergration into facebook for a lot of synergy. However if it lost a bidding war and microsoft ending up paying over the maximum forseeable value for it, then it coul be a death blow to any future growth for Microsoft from a earnings per share perspective, being saddled with a huge amount of debt. Or maybe in this low interest rate environment it is an opportunity worth taking?

    thoughts anyone?

    I see limited upside to an Apple purchase of Facebook. Unfortunately, most social media websites have been fad-ish.  Facebook does seem to have better staying power but I’m unsure of how it would be monetized by Apple.

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  • Posted: 19 October 2010 07:43 PM #3

    Why it won’t be TiVo:

    The NC data center is the storage.  There will be no channel lineup, no tuning in at the right time, no time shifting.  You?ll choose from the catalog what you want to watch/subscribe to, from TV shows, to movies, to sporting events.  It?ll come to you streamed for viewing over a 4G network.  The big question is content.  Where will Apple get the content, or the 4G network for that matter?

    There are ?a couple of opportunities? out there.  Craig McCaw is the CEO of Clearwire.  His model is to build a network and sell it, as he did with AT&T Wireless.  Clearwire and Sprint hold the majority of frequency licenses for Wimax around the world.  Price tag for both?  $20B?  Disney owns ABC, which owns ESPN.  Content anyone?  Price tag? $40B (for a majority share, counting SJ?s holdings)?  So let?s see?Data center to distribute content.  Disney/ABC/ESPN to provide content.  Clearwire/Sprint delivers the content over 4G network to AppleTVs everywhere.  Could this be SJ?s vision?  Could it be why Apple?s sitting on billions of dollars?

         
  • Posted: 19 October 2010 07:44 PM #4

    Play Ultimate - 19 October 2010 10:35 PM

    I see limited upside to an Apple purchase of Facebook. Unfortunately, most social media websites have been fad-ish.  Facebook does seem to have better staying power but I’m unsure of how it would be monetized by Apple.

    Ads. But that’s it. They’d never get their money out.

         
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    Posted: 19 October 2010 07:58 PM #5

    Johnsonwax - 19 October 2010 10:44 PM
    Play Ultimate - 19 October 2010 10:35 PM

    I see limited upside to an Apple purchase of Facebook. Unfortunately, most social media websites have been fad-ish.  Facebook does seem to have better staying power but I’m unsure of how it would be monetized by Apple.

    Ads. But that’s it. They’d never get their money out.

    Dont forget that 95% of googles revenue comes from ads of one sort or another.

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  • Posted: 19 October 2010 08:12 PM #6

    iOSWeekly - 19 October 2010 10:58 PM

    Dont forget that 95% of googles revenue comes from ads of one sort or another.

    Then Google should buy them. But I don’t think Facebook will go cheaply enough for anyone to get their money out. It’s just too hot a property, and I think they’re redundant with what Google and Apple can do anyway.

    [ Edited: 19 October 2010 08:18 PM by Johnsonwax ]      
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    Posted: 19 October 2010 08:37 PM #7

    apart form the lucrative advertising revenue, Apple can also include:

    - itunes/app store ping like integration for 500 million users
    - merge in the consuemr services of mobileme
    - merge in ios game centre integration with facebooks massive casual gaming market
    - can make facebook apps exclusive to apples mobile devices.
    - can marge facebook search and other features into core OS features for iOS & Mac OS X
    - gain a advertising relationship with millions of business’s who have facebook pages.
    - can add itunes store accounts as the exclsuive payment method for facebook based purchases.

    (and probably more I haven’t though of related to its future cloud services plans…)

    [ Edited: 19 October 2010 08:46 PM by Burgess ]

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    Posted: 19 October 2010 09:03 PM #8

    I’d sell all my AAPL the minute they bought FB or Disney. I did the same when Pixar was swallowed by Disney. Apple would soon become a behemoth with so many arms that growth would come to a screeching halt. Even if they had DIS, there’s so much content that the WOULDN’T have. How would they acquire that? Consumers want all of it (or most of it anyway).

    I agree, something is coming with the Data Center soon and I"m sure that as always, Apple will surprise with something that seems so obvious but no one has really thought how to do it before in an elegant, useful way.

    BTW, don’t think tomorrow’s show has anything to do with that.

    My 2 cents,
    Chas

         
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    Posted: 19 October 2010 09:48 PM #9

    SJ could just be being coy. 

    Does anyone really think Apple spending cash for the purpose of attaching a third or fourth arm that doesn’t really know what the other arms are doing is a good idea?  Apple is the highest-performing company in tech, period.  Google’s growth wasn’t even close. 

    If Apple ever does make a really major, megabillion acquisition, it will likely make immediate sense to all of us, and the synergies will be obvious.  Just one problem.  Does anyone know a major firm that could meld seamlessly with Apple’s corporate structure?  Apple will never buy anything it can’t understand and can’t completely integrate.  Maybe the big spend, when it ever comes, will be for something other than an “off the shelf” tech company.

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  • Posted: 19 October 2010 09:56 PM #10

    Fwiw, I think the last company that Apple would buy is Facebook, with Disney as a close second. (Ok, I can think of a couple better #2s, but you get the point.)

    Zeke, you and I are thinking the same thing. In fact, I bought some shares of CLWR this morning in case such a deal might come to pass. (With a backup reason being their just announced $45 unlimited 4G plan via mobile hotspot, which I think will sell like gangbusters. I know I myself will be dumping my DSL for it, so that I may use it both at home as well as in conjunction with my iPad…and eventually replace cellular service on my iPhone once my two years’ servitude to AT&T is up.)

    Chas, I completely agree that nothing will be announced about the data center or the “opportunity” tomorrow. My takeaway was that if the event is again live broadcast by Apple, this will imho provide a giant clue as to where that puck is going. If they do not broadcast it, my thesis is weakened.

    I for one am hoping to tune in tomorrow at the same Bat-time on the same Bat-channel…

    MacGuffin

         
  • Posted: 19 October 2010 10:29 PM #11

    I don’t think tomorrow is related to any of this stuff either. I’m convinced that if Apple is going to drop $1B on something, it’ll be for iOS, not Mac OS. (assuming they stay true to the event name)

    Advertising is messy and unpopular. Apple makes consumer products. Advertising isn’t a consumer product, and advertising is something that consumers generally hate, not love. They’ll do iAd as a means to an end (subsidizing apps in the app store, etc) but not as the end - even if there’s money in it. It completely changes the nature of the company if they make that a core business. Can you imagine Steve at a big keynote event talking about how many ads they made people watch? No, he talks about how much money he helped developers make and then about how many apps that allows them to bring to consumers.

    Apple will expand iAd in order to make some other thing possible. But it’s the other thing that matters. The ads are just the price that needs to be paid to get there.

    They won’t go anywhere near Facebook.

         
  • Posted: 19 October 2010 10:48 PM #12

    I agree that Apple wouldn’t buy FaceBook or TiVo EVER and I agree that whatever is going to happen it most certainly won’t be happening tomorrow. Tomorrow will be all about the Mac (with a couple of asides).

    I’m not an expert in this, but I believe that most mergers fail because the talent leaves and/or it’s too difficult for the acquiring company to meaningfully integrate the acquired company. This would be even more true with Apple. Anything Apple acquires has to be fully integrated into Apple and quickly.

    So what can be purchased that is easy to integrate? Technology? Content? Something along those lines. Examples of what Apple will probably not want to acquire are organizations and products. Any organization and any product would have to be re-built from the ground up and result in a net negative.

    The ESPN hypothesis intrigues me. What is one of the major stumbling blocks that Apple TV is tripping over? No live sports. Does ESPN have the long term rights to sports events? Perhaps Apple will just bid on the rights to NFL football and the other major sports. I have no idea if that’s their thinking, but the advantage to something along those lines would be that integration into the existing Apple paradigm would be quick and painless.

         
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    Posted: 19 October 2010 11:01 PM #13

    Johnsonwax - 20 October 2010 01:29 AM

    I don’t think tomorrow is related to any of this stuff either. I’m convinced that if Apple is going to drop $1B on something, it’ll be for iOS, not Mac OS. (assuming they stay true to the event name)

    Advertising is messy and unpopular. Apple makes consumer products. Advertising isn’t a consumer product, and advertising is something that consumers generally hate, not love. They’ll do iAd as a means to an end (subsidizing apps in the app store, etc) but not as the end - even if there’s money in it. It completely changes the nature of the company if they make that a core business. Can you imagine Steve at a big keynote event talking about how many ads they made people watch? No, he talks about how much money he helped developers make and then about how many apps that allows them to bring to consumers.

    Apple will expand iAd in order to make some other thing possible. But it’s the other thing that matters. The ads are just the price that needs to be paid to get there.

    They won’t go anywhere near Facebook.

    They paid a large sum for quattro.

    and steve jobs said they hope to have half of the mobile advertising market.

    I’m pretty sure they are interested in advertising. Just like they are interested in selling music (its not their core business but they happen to be the largest music reseller on the planet). Anything that can be deliviered digitally Im sure they will consider getting into (aside from the adult entertainment industry of course).

    I wouldn’t be surprised if they entered the search engine market also. Having apple search as the default option on all macs & iOS devices means having 150+ million users who are known to be on average in the higher income brackets - thats very valuable for advertising.

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  • Posted: 19 October 2010 11:07 PM #14

    To me it’s obvious… Apple must use their resources to further their master plan, which must be very focused on their narrow product line.

    1. MAC/ iOS: The single most important strategic move would be to quickly enable the MAC to be able to share iOS applications. Strategically, I see nothing more important than this.

    2. Cloud: The future is in the cloud. iTunes must be streamable from the cloud. Therefore, any enterprise purchase that would speed up their ability in cloud computing would be wise.

    3. Payment Processing: Having a in-house payment processing would cut out a major and expensive middleman and tie in neatly within their ecosystem.

    4. Search: This is a long shot, because Google is the best of the breed and I believe Apple wants to offer best of breed in services. That said, search scales globally, is incredibly profitable and ties into every device they sell.

    I feel strongly that Apple will not purchase any large enterprise that does not encompass the bigger picture in totality. It’s all about addressable market. Therefore, they will not purchase any type of data delivery firm (Cable, Wireless, etc.,) because none of them cover the entire world, nor any content companies, (Disney, etc.) as none of them own all of the content.

    It is Apple’s intent for their products to scale globally and not compete with their partners in distribution or content.

    Of course, it’s just my opinion. I hope this post gets us closer to where the puck is going.

    Now… Shoot it down!

    [ Edited: 20 October 2010 12:45 AM by jeffi ]

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    Posted: 19 October 2010 11:29 PM #15

    I think what we are missing is the fact that Apple may not be ready to buy anything.

    They are say that there are two opportunities, but the timing may still be a few years away.  I always felt that they want to acquire as much money as possible before spending it.  I think they want to have at least $100 to $120 billion.  This would buy them to investments and still have a few billion leftover for dividends.wink

    It would take them another 5 to 7 years to acquire that money.

    As much as Facebook seems like a good idea for many reasons, the bottom line is weather then can achieve the same goal for less money.  I think they can.

    Rather buying Facebook they could negotiate a joint agreement that gives both parties a cut out of the action.  Facebook makes money off ads and Apple needs further growth in iTunes and Mac sales.  I am sure they can work something out that may give Zack a few more billion in his account.  this process may take another year or two.

    I agree with jeffi that they are looking at global benefit of acquiring any company.  This is tough nut to crack but maybe a satellite consortium may do the trick.