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Summary:

Steve Jobs said yesterday that Apple plans to “keep our powder dry” for “one or two” strategic acquisitions in the future. He was referring to the $50 billion in cash assets Apple is currently sitting on. But what fight is he gearing up for?

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Steve Jobs said during yesterday’s conference call that Apple plans to “keep [its] powder dry” for “one or two” strategic acquisitions in the future. He was referring to the $50 billion in cash assets Apple is currently sitting on. But what fight is he gearing up for?

By not paying out dividends or using the money to buy back company stock, Apple is making sure it’s uniquely positioned to make acquisitions to defend or augment its place in the market. That cash can instead go back into R&D, but more importantly, it can be used to acquire companies whose IP and resources might strengthen Apple’s business, or help it expand to new areas.

But what does Apple want to buy, and how big will it go? While it isn’t easy to say, it does appear that Apple’s acquisitions are very much situation-dependent, and that the limit of what it’s willing to spend is on the rise.

Apple only started buying up other companies three years ago (its coffers were significantly more full following the introduction of the iPhone) and since then, it’s made more purchases every year. The size of the deals varies, but the number of acquisitions consistently rises. So as Apple’s money pile grows, its aversion to the risks associated with acquisition decreases considerably.

Stacey Higginbotham wrote yesterday about the Big 11 tech acquirers, as identified by Deutsche Bank. You’ll recognize all the names on the list, and probably won’t be surprised to find Apple up there alongside its major competitors in both the PC and smartphone markets. The way tech is headed, acquisitions are quickly becoming the best way to gain competitive advantage. It’s how Apple developed the A4 chip, the component that’s probably made the most difference in terms of production costs for Apple’s iOS devices.

There are a wealth of choices for future acquisitions with $50 billion in the bank. Google only has $30 billion, by comparison, and Microsoft only slightly more with $31 billion. In a very real sense, that means that Apple has more buying power than its competition. It also means something like Facebook could even be on the table. The best guesses say the social network is worth anywhere between $10 and $33 billion, which could potentially put it beyond the reach of anyone other than Apple.

But Apple won’t be buying Facebook, despite meetings between Zuckerberg and Jobs, and what Peter Kafka at All Things D thinks. Not only would it take a huge chunk out of Apple’s cash pile, but it would prove a massive distraction from Apple’s main lines of business, and its contribution to Cupertino’s core interests would be negligible. I can see Jobs wanting to acquire some social networking IP to bolster its efforts with Ping, but buying Facebook to accomplish that would be like swatting a fly with a nuclear bomb.

No, Apple’s acquisitions will be focused on providing its mobile products with key competitive differentiators. That means battery, streaming, and radio tech. We’ll see buys that provide RFID expertise, ways around the battery crunch that’s fast becoming the major barrier in mobile tech, and speedy and dependable methods of streaming content to and from smartphones and tablets. This is where the fight on the horizon is in the mobile sector, and this is where Apple’s many guns will be pointed when the battle comes.

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  1. I’d love to hear that Apple is buying IP/infrastructure to bypass AT&T and VZW alltogether. It would be a very interesting proposition if Apple controlled everything from hardware to software to the data network their products work on…

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    1. I had the same thought as you, Sergio. Jobs loves to control the entire user experience, much of which is now heavily diminished by the mobile phone and internet providers. It seems to me that AAPL is cozying up to QCOM which, I believe, owns some wireless spectrum. Either QCOM’s spectrum or unused television station spectrum that may be put up for auction would be my guess. Google is after this spectrum as well.

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  2. I’d argue batteries and better design for improved power management would go first. Chips advancements are huge but battery technology is barely where it was 10 years ago. It’s insane and while smaller PCBs, micro-SIM and bigger batteries do the job in the iPhone, Apple will need more juice than ever in the coming years to power the always online digital eg0 most of us will carry in out pockets.

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  3. Apps ! I bet you $1 Apple will start buying apps – i dont think Job will forget letting Forethought Inc. go to Microsoft (product – Powerpoint) for a mere 14 million in 1987. apple wants an integrated ecosystem – closed, with full control – it’d be foolish to think they would let a few good apps weaken their hold on their customers…

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  4. I think your analysis is pretty much on the money.
    Couple notes:
    I could not figure out that first chart.
    On my site yesterday I wrote which company Apple *should* buy — cost: $25 billion.
    Bloomberg. Symmetry and opportunity and the kind of game changing move that would appeal to both Jobs and Michael Bloomberg.

    http://brianshall.com/content/steve-jobs-should-instead-have-dinner-michael-bloomberg-then-buy-bloomberg

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  5. you know, the more i think about it, the more it might make sense for apple to buy myspace…if they could get it away from news corp for a decent price. myspace has a huge hold on music. if apple could integrate it with ping and clean the whole thing up, it might be worth it.

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    1. A good idea! And sure would breathe life back into MySpace.

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      1. they could just rename it iSpace

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    2. Completely agree Rob.

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  6. While I think the ideas expressed here are good ones, they wouldn’t cost anywhere near 50+ billion. We need to be thinking way bigger. When Jobs returned to Apple he indicated that they hopped to make Apple the center of our digital lives. What is more central to this than Facebook? Facebook combined with iAds could create a very powerful combination unmatched by anyone. Addionally, Apple needs to address content discovery and Facebook could big a big part of that as well.

    Analyst Horace Dediu (asymco.com) suggests that Apple could purchase Foxconn and move into manufacturing and block competitors – a very interesting idea in my opinion. Whatever Apple has planned for this cash, it has to be huge to cost anywhere near 50 billion (note as well that by the end of next year Apple could have as much as $70 billion based upon how quickly this horde of cash has been growing).

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    1. Maybe Mr. Jobs dreams of taking Apple private ?

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  7. He also said something along the line that the iPad is being adopted by business much to his surprise.

    They haven’t pushed it, but the corporate world is one big market.

    The best thing after innovation is integration, here the integration of the consumer world with the corporate world. Who wants to let’s say go from an iPad at home to a Tab at work or visa via?

    Apple has a small window to try to take on corporate. If they miss it, they will become a designers choice. After all it’s not about open,closed, fractured what ever. It’s about good and good enough and then about price and integration. In other words value for the customer. Good enough always catches up to good, which leaves other things to define value.

    I don’t think iTunes integration is a value proposition in corporate.

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  8. What about Apple owning its own manufacturing plants in Asia and elsewhere.

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  9. Think bigger, folks. Not that he’ll take my suggestion; but, I emailed SJ to consider purchasing DirecTV.

    Last time a controlling interest changed hands – Murdoch selling 39% to Malone – that cost $11 billion.

    Such a purchase would provide immediate access and control of distribution of everything from series TV, movies, music, sports, sports, sports.

    AppleTV could become part of the HD-DVR.

    Endless possibilities.

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  10. Well, I think some good companies could be…
    1- Some ISP provider. AT&T is too big but some Verizon could be posible.
    2- Yahoo. This is not really an apple business but they could start to be everywhere if they own Yahoo too.
    3- Skype. Want the user to use video conference calls? Just buy Skype and integrate it in all macs

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