Ever since Apple declared its spectacular quarterly results, I have been wondering what it could do with the billions of dollars it has amassed as cash reserves. When you have $76.2 billion in cash, and you keep generating cash faster than any other company, you have very little to fear about and can afford to make a lot of bold moves.
Right now, Apple could spend all its cash in the best possible way by making some acquisitions. Even though some of its stock holders are demanding a dividend, I would rather have Apple use it up in some big-ticket acquisition that makes strategic sense rather than distributing it as dividends.
Buy InterDigital ($3.3 billion)
Now that Apple has snatched away the Nortel patent portfolio from Google, it’s desperate to buy a huge portfolio of wireless patents from some other company to protect itself and its hardware partners from getting sued by Microsoft, Oracle, Apple and numerous patent trolls.
As we posted earlier, both Apple and Google are already in negotiations to buy InterDigital, which has over 8,800 patents related to wireless technology. It could just buy it for around $3.3 billion.
Buy Motorola ($15.5 billion)
Motorola is rumored to be another acquisition target for those scouting for patents. It has close to 17,000 patents and has applied for 7,500 more. It is easily worth more than $15 billion, if Nortel’s 6,000 patents was worth $4.5 billion.
If Apple acquires Motorola, then besides the patents, Apple could also shut down a major Android device manufacturer.
With these two acquisitions combined, there would be no company which could make a smartphone without infringing on at least one of Apple’s 40,000 patents. Apple could rake in billions in licensing fees and damages every year.
Buy ARM ($8 billion + $13.15 billion)
ARM Holdings is the single most important company which powers almost every smartphone out there. All chip makers license technology from ARM to make the processors and chipsets which power their devices.
While buying ARM may not allow Apple to completely control the smartphone industry, it will definitely give it a lot of leverage over the other manufacturers.
Buy Hulu and Netflix ($2 billion + $13.75 billion)
By buying Hulu and Netflix for around $15 billion, Apple could become the number one player in the digital TV business. These two acquisitions would also fit in perfectly with its Apple TV offering. The TV market is estimated to be worth hundreds of billions of dollars in the long run. It could also boost Apple TV sales and make it the next iPod or iPhone.
The total for all these acquisitions comes to just about $55 billion. We still have around $20 billion left, and I’m already running out of ideas.
So here’s one last idea.
Sell iPhones and iPads at Cost
Apple has a huge operating margin on the iPhone and iPad. It takes up a majority of the profits of the entire smartphone industry despite having much lower total sales. Despite its charging a hefty margin, it is still able to price its products (at least the iPad) lower than any Android tablet, due to its ability to acquire components at a much lower cost.
If Apple were to sell the iPhone and the iPad at what it costs it to make them, it would probably be able to completely dominate the market and cut Android’s smartphone market share down to size. It already dominates the tablet market, but if its starts selling iPad at cost, it will obliterate its competitors completely, before they even enter the market properly.
$20 billion would be enough cash to sustain Apple for a few years, and Apple will continue making money by selling its content on iTunes – apps, games, movies, videos, TV shows etc. It should make enough from Hulu, Netflix and ARM to sustain it in perpetuity. I doubt its competitors will be able to claim predatory pricing, even if Apple sells it at cost, as it could claim that it makes money from its ecosystem.
If everything goes as planned, in a few years, Apple could probably be worth more than Exxon Mobil, Microsoft, Google, Facebook, Berkshire Hathaway, HP, IBM and Samsung combined.
Note: In this post, I have just assumed that the current market cap (and not the enterprise value) would be the purchase price of that company. I’m also assuming that Apple would be able to buy these companies without any antitrust lawsuits or other hassles.