QUOTE(http://dealbook.blogs.nytimes.com/2010/10/19/flush-with-cash-will-apple-go-shopping/) said:Pulling in billions of dollars quarter after quarter, Apple has provided Silicon Valley with a seemingly endless guessing game about possible mergers and acquisitions — but one that has largely gone on up to now without the participation of Steven P. Jobs, Apple’s chief executive.
But during Apple’s conference call on Monday — after Apple reported a strong surge in profit and revenue in its fourth quarter — Mr. Jobs said point-blank that Apple was saving its cash to use some day for one or more “strategic opportunities” that the company would be in a unique position to pursue.
“We’d like to continue to keep our powder dry because we do feel that there are one or more strategic opportunities in the future,” Mr. Jobs said.
Mr. Jobs was responding to an analyst’s question about why Apple was not considering buying back its shares or offering a dividend, considering that the company now has an eye-popping $51 billion in cash and short-term and long-term securities.
Analysts agreed that this statement by Mr. Jobs was his most definitive in recent memory in regard to Apple possibly spending some of its riches on acquisitions — and perhaps flashier ones than the company has made in the past.
“They typically only make very small acquisitions and focus on organic growth and product development,” Bill Kreher, an analyst with Edward Jones, told DealBook. “For them to really move the needle with an acquisition, they are going to top need to move up the scale, so to speak.”
Most of Apple’s recent acquisitions, like the chip maker Intrinsity in April or PA Semi two years before that, have been aimed at providing components or human capital that will bolster Apple’s product development. A bigger target that fits within that space would be the chip maker ARM Holdings, which Apple has been rumored in the past as having an interest in buying (although Mr. Kreher said he did not believe Apple would have much to gain in such an acquisition, given that its partnership with ARM seems to be working just fine).
More intriguing, perhaps, would be if Apple instead switched gears from components and began to pursue companies that deal in the world of content — either companies that deliver content or make it. In the former category, both Mr. Kreher and Shaw Wu, an analyst at Kaufman Brothers, suggested Netflix as a possibility. In the latter category, they pointed to video-game companies, with Mr. Wu highlighting Electronic Arts as a possible match.
The most headline-grabbing acquisition Apple could make would likely be in the realm of social networking.
“Facebook may make sense, as crazy as it sounds,” Mr. Wu said. “It’d be a game-changer.”
While speculating about Facebook’s potential suitors is practically its own parlor game, Mr. Wu was not alone in bringing up the company as a potential target for Apple. Peter Kafka of All Things Digital made the same suggestion on Monday, writing that Facebook is the rare company that Apple “seems unlikely to be able to move aside, even if it wanted to.” Adding to the speculation about a possible match is a report in The Los Angeles Times last week that Mr. Jobs invited Facebook’s chief executive, Mark Zuckerberg, to dinner recently.
Brian J. White, an analyst for Ticonderoga Securities, said that further expanding into social networking would be a logical next step for Apple following the company’s push into the business with Ping, a music social-networking service built into iTunes that it rolled out last month.
“Facebook would give you 500 million subscribers and a great advertising ecosystem to deal with,” Mr. White said. “It makes a lot of sense.”
Not everyone is on board with the idea that Apple would gain from a big-ticket acquisition, however. Daniel Ernst, an analyst for Hudson Square Research, cited “the old build-or-buy problem”: given how successful Apple has been entering new markets on its own, why, he suggested, would it change habits now?
Mr. Ernst said in regard to content delivery or social networking, Apple could argue that it had no need to make a big-ticket acquisition in order to expand and be competitive.
“Apple has the largest content delivery mechanism in the world — they have 160 million iTunes accounts,” he said. “They don’t need Netflix.”
So the guessing game continues.
– Thomas Kaplan