Keeping the Powder Dry: What Will Apple Buy?


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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