How Apple should spend its $50 billion in cash

How Apple should spend its $50 billion in cash

Summary: Apple, with its stock trading at around $300 a share and swimming in over $50B in cash, now needs to figure out how to spend its money. I've got a few suggestions.

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TOPICS: Apple, Banking
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Apple, with its stock trading at around $300 a share and swimming in over $50B in cash, now needs to figure out how to spend its money. I've got a few suggestions.

Times are indeed very good for the turtlenecked ones in Cupertino.

As I write this, AAPL is now trading at over $308.00 a share. For the 4th quarter, the company has posted record revenue of over $20 Billion from its sales of the iPhone, iPod, and the iPad, and Mac sales continue to grow and expand into new markets. Apple now has a market capitalization of over $280 Billion and has amassed a huge cash war chest exceeding 50 Billion Dollars.

Yes, say that again, but with a Doctor Evil voice. FIFTY BILLION DOLLARS! Muhahahahahahahah!

Apple could just sit on all that cash, but the logical thing to do with it would be to make some strategic purchases or expand its infrastructure in order to maintain that growth. I've been thinking about this for a while and I've come up with five suggestions. And no, "Sharks with frickin' lasers" did not make the list. So without further ado...

Page 2: [Cupertino, we have liftoff...]  »

Launch a Geomapping Satellite of Its Very Own

Anyone who uses an iPhone or an iPad with 3G and GPS capabilities will tell you that much of the functionality that you get from some of the best apps for these devices come from geolocation and mapping services. However, at the moment Apple currently depends on Google Maps, Google Earth, and Google's GeoEye-1 satellite to provide this data.

Also Read: To Boldly Go Where No Search Engine Has Gone Before (Sept. 2008)

With the strained and cantankerous relationship that Apple and Steve Jobs has now put itself in with Google, it would behoove them to become as independent as possible when it comes to the key services that it needs to offer the core functionality that makes "The Apps for That" actually work.

That includes not only Search capabilities -- which it should probably consider building its own engine or perhaps partnering with -- GASP! -- Microsoft and its Bing! service, but Apple should also consider launching its very own mapping satellite in partnership with one of the major geospatial companies, such as GeoEye, DigitalGlobe and Spot Image, and a major Aerospace company such as Orbital Sciences, Boeing Space and Intelligence or Lockheed-Martin Space Systems.

What does it cost to launch and operate one of these things?

Well, a lot of money. In fact it costs so much that the US Goverment actually financed about half the cost of GeoEye-1, which was over $500 Million in 2008, so Google only gets to use it partially. Apple actually has enough cash that it could easily launch its very own bird and form its own geospatial services firm if it wanted.

It should also be noted that the GeoEye company (GEOY) that provides the mapping services in partnership with Google and the United States government currently has a market capitalization of about $1B right now, so the company might not be a bad acquisition target for Apple either.

Page 3: [iGlobal Delivery]  »

Build Its Own Content Distribution Network

If Apple's soaring profits on the iPods and iPad and the recent sell-outs of the new Apple TV are of any indication, much of the company's future with these devices is going to rely on the sales and distribution of content and applications on the App Store and on iTunes.

As the company grows, it's going to need to expand its content distribution infrastructure. That means in order to get things like huge, bandwidth-hungry HD movies downloaded to iTunes or even streamed directly to Apple TVs and iPads, it is going to have to get that content in close proximity to the ISPs that provide broadband service to consumers as well to the Tier 1 providers that provide backhaul services to wireless carriers that sell the iPhone and iPad 3G worldwide.

Apple has invested lots of money in new datacenters to house servers and storage that power its back-end infrastructure -- its most recent infrastructure expansion project has been in building a huge, One-Billion dollar 500,000 square foot facility located in North Carolina, and rumor has it that Apple is looking into possibly doubling its size.

However, having huge centralized datacenters isn't enough. It won't solve latency issues globally, Apple will need to spend a considerable amount of money connecting these datacenters to the ISPs with high-speed links and possibly even replicate some of that data globally so that the most popular or in-demand content doesn't overload the centralized infrastructure.

Also Read: Delivering the Olympics, Akamai and Limelight Respond (August 2008)

Also Read: Why the Olympics Didn't Melt the Internet (August 2008)

Content Distribution Networks, or CDNs, can solve these problems. Apple could build its own global CDN, or it could purchase an existing CDN, such as Limelight Networks (LLNW) or even Akamai (AKAM). Limelight is currently capitalized at about $600M and Akamai, which is considered the leader in the space, is hovering around a whopping $9B.

Page 4: [Steve Jobs, Can You Hear Me NOW?]  »

Build Its Own Wireless Network

The iPhone and 3G iPad have become incredibly successful products, but their success in the United States have come at a huge cost: an overall customer dis-satisfaction with AT&T, whose 3G wireless network has become overloaded with the data-hungry devices.

AT&T Wireless is almost certainly going to lose its exclusive provider contract in 2011 on the iPhone, and plenty of armchair analysts and industry watchers predict that Apple is likely to partner with Verizon, which has a much beefier network than AT&T.

But if the device's success is any indication, it's certainly possible that Verizon could get caught up in the very same network overload due to a mass customer exodus from AT&T to their system when existing iPhone 3G and 4G contracts run out.

In all fairness though, Verizon has been very successful in managing data demand with their Droids, which have similar data-hungry needs to the iPhone 3G and iPhone 4, and their network is also more robust with a much wider 3G coverage area with a lights-on of 4G LTE service scheduled for 38 US cities in early 2011.

Also Read: If iPhone Comes To Verizon, We Got Answers (June 2010)

However, in order for Apple to not have to deal with carrier mishegas in the US anymore, it probably makes sense for it to become a carrier itself. Obviously, there would be significant regulatory issues that the company would have to overcome, but it wouldn't be impossible for Apple to do.

In terms of actual infrastructure costs of what would be needed to build a 4G network, the company would be looking at anywhere between 5 and 10 billion dollars to pull it off, depending on whether or not they needed to build new towers, could piggyback their transceivers on existing ones, what backhaul services they would need to buy, network operations centers needed, et cetera.

And as the main manufacturer of wireless carrier transceiver equipment is Motorola, they'd probably want to settle their lawsuit with them, unless they built the infrastructure on Qualcomm-based equipment. [EDIT: Motorola's carrier equipment company is now a subsidiary of Nokia-Siemens, which is the largest carrier equipment manufacturer in Europe, so the lawsuit with the handset manufacturer wouldn't affect this.]

Of course, Apple could go and buy a carrier that already does business in the US. The logical choice would be Sprint/Nextel (S), which is currently capitalized at approximately $14.5B and already has a significant customer base.

The other carriers are way too big for the company to swallow -- the next smallest would be T-Mobile, which is actually a subsidiary of Deutsche Telekom AG (DTEGY.PK) a German-owned company. Apple could certainly offer to take the US subsidiary off the company's hands, and it may even be attractive for Deutsche Telekom to dump the asset, but given how painful it is to buy a company in the EU of any substantial size without going through a huge regulatory ordeal, it's unlikely Apple could complete the transaction.

Page 5: [Apple, you have 500 MILLION friend requests pending. Accept or Ignore?]  »

Purchase a Controlling Share in FaceBook

FaceBook. Uhhhhh, yeah. FaceBook.

As much as it drives me crazy, FaceBook is the hottest company right now next to Apple itself. And with over 500 million users sharing data and communicating, it makes it among the most desirable, if not the most desirable audience for Apple to integrate its products with.

This has become something of a hassle of late, as Apple recently launched its own pseudo-social network with iTunes version 10 in the form of Ping, which was supposed to have FaceBook connectivity at launch date but issues with last-minute negotiations apparently caused Apple to have to pull that feature from the software.

The problem of course is that FaceBook isn't a publically-traded company and its market valuation depending on who you talk to is estimated between $25B and $30B. That's a huge chunk of change for Apple to blow even with its massive war chest for what is essentially a freakin' web site, so the chances of the Fruit Loop and company sucking up Zuck and Friends is pretty close to nil.

For Apple to have a private controlling share it would probably have to cough up anywhere between 5 and 10 billion dollars in order to have a 20 to 30 percent stake in the company. Whether that would be actually enough for Zuckerberg and friends to seal the deal is unknown.

If the companies couldn't come to some sort of agreement, Apple could certainly go head to head with FaceBook, by hiring away its top talent, and built an Apple Social Network, which I'm tentatively calling "iFriends".

Also Read: FaceBook for Grownups -- Can Apple, Microsoft or Google Build One? (May 2010)

I actually proposed this earlier in a piece I wrote about the maturity and questionable ethics of FaceBook and its founders, because I believe Apple does indeed have the skills and talent to produce a high quality and secure, family-friendly Social Network. But iFriends would have to be something of a Manhattan Project for the company, and it would likely eat up at least a billion dollars in development and infrastructure, if not more.

If not FaceBook, perhaps Apple should consider going the professional network route, and throw some cash at LinkedIn, which in 2008 was valued at about $1B. Apple could probably snatch up the whole thing for around twice that today, if not significantly less. And unlike a fresh Social Network that Apple would have to build from scratch, it already comes with a strong user base.

That might actually allow the company to make some serious inroads with the enterprise and business crowd, which are still tied to their BlackBerries and may see a business networking advantage integrated into their smartphones and tablets as a reason to switch to Apple's platform.

Page 6: Don't wanna close my eyes... Don't wanna lose my platform license...[]  »

Initiate ARMageddon

For the entire mobile and consumer device industry, an Apple purchase of ARM Holdings (ARMH) would be an absolute nightmare. For Apple, it would allow them to have exclusive rights to the company's technology roadmap and control the licensing of a key embedded systems technology that sits at the core of many electronics products.

Once the licensee terms ran out, Apple could easily terminate the architectual licenses of companies it views as its competitive enemies, and then the major mobile players like Google, HTC, RIM, HP/Palm, Microsoft, Motorola, Texas Instruments, Freescale, Marvell, nVidia, Qualcomm and dozens of others would be out in the cold if Steve Jobs decided he wanted any of them to go away.

This is all assuming, of course, if any of these players didn't have perpetual license agreements in play, in which case Apple would be obligated to permit those players to continue to manufacture ARM-based chips, depending on the IP of which chip architectures they had access to.

Still, the architectural platform which powers the core of just about every smartphone device and SOHO routers and numerous other consumer electronics products would be under Apple's total control. This could cause any number of players using the ARM platform to go scrambling for alternative embedded technologies, such as low-power x86, MIPS, or even the PowerPC architecture which powers the Sony Playstation, the XBOX 360 and the Nintendo Wii.

Of course, with any large purchase of this type -- and the British company is capitalized at about $8B at the moment and would likely sell for no less than 10 to 12 billion dollars -- it would be subject to serious government scrutiny in the US, the EU and Asia and Apple would very likely find itself hard pressed to "go medieval" on ARM licensees like a flock of Angry Birds. But it could definitely make life difficult for its competitors.

What do you think Apple should do with its money? Talk Back and Let Me Know.

Topics: Apple, Banking

About

Jason Perlow, Sr. Technology Editor at ZDNet, is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer.

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69 comments
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  • There's one thing Apple could do with their money....

    ...is pay me a big freaking dividend. I wouldn't mind a few bucks to reinvest.

    I also like the ARM idea. Yes, those cute little Euro market watchers would probably get all tangled up in their croissants, but controlling ARM could throw a time-to-market wrench into competitor's plans.
    alsw
    • Apple already owned pig part of Akamai, but sell it off; Jobs does not want

      <b>... to own a business with less than 40% gross margin.</b>
      DDERSSS
      • Buy gold & silver before Dollar crashes

        Obama and Bernanke are hellbent on trashing Dollar to zero so don't be the last fool having a load of it stuck in your hand.
        LBiege
      • Densirs, isn't it funny

        Jason writes :<br><br>"amassed a huge cash war chest exceeding 50 Billion Dollars."<br><br>This "huge" amount is less than the US is printing each month ( on top of their borrowings). Apple, like other savers including myself, have to look to spend the money somewhere. The resulting inflation will see the government stealing even more of our hard earned. Makes me sick.
        Richard Flude
      • RE: How Apple should spend its $50 billion in cash

        @denisrs hello my name is miss emilian here is my email: (emilian.oromo@yahoo.com) pls contact me and i will tell you more about me and send you my pictoru thanks from emilian
        emily120
    • Apple already owned big part of ARM too, being it's co-creator

      @alsw: but, again, Jobs sold it off during recent years.
      DDERSSS
      • RE: How Apple should spend its $50 billion in cash

        @denisrs Jobs hated the project that created the ARM, the Newton. Funny how years later, it's now a strategic part of their product designs.
        jperlow
      • Not necessary "hated"; Jobs killing Newtons is him being pragmatic

        @jperlow: I mean we all know the history. Jobs loved Lisa, but eventually agreed to basically drop it (it sold formally, but he did not care).

        He also obviously considered Power Mac Cube from 2000 to be work of art (in ergonomics and design), but he was quick to drop it.

        Newton was not really selling well by 1998 and Jobs decided that this business was not worth the effort at the time. He also got rid of printers (LaserWriters and StyleWriters), videocameras and many more stuff then.

        And he kept using much of technology from non-Jobs Apple -- like PowerPC, QuickTime, etc.

        So no, he did not have to feel hate or jealousy to kill Newton back in 1998.
        DDERSSS
      • RE: How Apple should spend its $50 billion in cash

        @jperlow I think you're wrong. The Newton did not create the ARM. It was designed by a British company (Acorn) as a successor to their use of the 6502 processor in their BBC Micros. It was then used in their Archimedes computers. Apple came in later as an investor when they divulged the processor division for the ACORN RISC MACHINE.
        romromk
      • No mistake: both ARM and PowerPC (in XBox and PS3) exist because of Apple

        @romromk: back in 1987 Apple started Newton project. They saw a **desktop** CPU from Acorn and said they need a **mobile** version of it for hand-held, energy-optimized devices. So Apple became initiator and co-owner of the whole ARM line (little to do with Acorn's desktop RISC processors except for mostly the same command set) which changed the history forever.

        The same was with PowerPC: Apple needed **desktop** CPU to replace the aging Motorola CISC architecture. Apple saw **high-end server** Power CPUs from IBM. So Apple, IBM and Motorola got their engineers together and came up with PowerPC, which since changed the history forever, too (sold hundreds of millions of units in all kinds of devices).
        DDERSSS
      • RE: How Apple should spend its $50 billion in cash

        @denisrs And here's me thinking that the internal processor design team at Acorn had already developed a lower power consumption (mobile) version of the chip and formed ARM with apple and VLSI technologies with Apple being the first customer of an enhanced version of this chip ARM 610....which is a different design but nevertheless, a commissioned one. Apple did not create ARM. They commissioned a chip for their purposes in much the same way as manufacturers do today. They had an investment in ARM Ltd along with Acorn and VLSI when it was created - that's all.
        romromk
      • You might want to recheck this, Acorn never wanted to do a mobile CPU

        @romromk: ... until Apple came and said they need a mobile CPU. Acorn did not have it (by the way, even aside of factual side of it, you might guess it through the simple reasoning that if Acorn already had ARM mobile chip, then they would not need to have anyone else's money, would not need to give up major share of its own profits); they only ever did desktop CPUs.<br><br>Even though desktop CPUs had similar command set, it is totally different thing in terms of mid/low level design, comparing to mobile CPUs.
        DDERSSS
    • RE: How Apple should spend its $50 billion in cash

      @alsw

      Well, since the cash reserves are priced into the share price, why don't you give yourself a dividend by selling some of your shares?
      Marcos El Malo
    • haha.... CrApple would be forced to buy out over 150 long term licenses!

      @alsw You fool..... ARM isn't even up for a hostle take over... let alone CrApple having a chance to buy what they sold in a Fire Sale when they were hard up in the 90's!<br><br>Should pay their outstanding debts off, but the interest is so low on them, that too would be a mistake. None of you hard core CrAppleholics realize just how overvalued CrApple is. Their net assets don't amount to a hill of beans minus debt. So Market Cap only reflects the overhyped value investors wish they could get in an attempt to make a fast buck off other lame investors!
      i2fun@...
      • RE: How Apple should spend its $50 billion in cash

        @i2fun@... <br><br>"Their net assets don't amount to a hill of beans minus debt."<br><br>Apple doesn't HAVE any debt, you buffoon. Seriously, you should spend some time researching before posting.

        Edit

        Next time, try finding data that isn't a year old !

        http://finance.yahoo.com/q/ks?s=AAPL

        "Balance Sheet
        Total Cash (mrq): 25.62B
        Total Cash Per Share (mrq): 28.04
        Total Debt (mrq): 0.00
        Total Debt/Equity (mrq): N/A
        Current Ratio (mrq): 2.31
        Book Value Per Share (mrq): 47.19"

        This delusion of yours is very odd.
        Jkirk3279
      • haha.... You should do the research fool!

        @Jkirk3279 Every company has debt..... you doofus!!!! ....even on wiki alone that's easy to see (even though it's old, they still have some debt as in paying the bills just like we all do. Even CrApple are smart enough to leverage at least some debt for tax benefits. Why do you think few people pay off a fixed low interest loans on there house? "Debt to Equity Ratio" is found in their monthly financials report fool. But here it is compared to Microsoft. Granted it's lower than Microsoft's:<br><a href="http://ycharts.com/search?q=AAPL,%20MSFT&c=debt_equity_ratio" target="_blank" rel="nofollow"><a href="http://ycharts.com/search?q=AAPL,%20MSFT&c=debt_equity_ratio" target="_blank" rel="nofollow">http://ycharts.com/search?q=AAPL,%20MSFT&c=debt_equity_ratio</a></a><br><br>But still it doesn't look like there's any zeros there for CrApple! So you should do some real research before putting your foot in your mouth!!!<br><br><a href="http://ycharts.com/search?q=AAPL,%20MSFT&c=assets" target="_blank" rel="nofollow">http://ycharts.com/search?q=AAPL,%20MSFT&c=assets</a><br><br>Pardon me, but soft assets are simply promises of future value. This is CrApple's hard assets value and if you compare it to their Market Cap which is not based on true corporate asset value you have a company that is vastly over valued with it's stock price. That promise can fall through the bottom if their parts suppliers shut them down, to nothing overnight! Samsung and LG are already squeezing CrApple's parts supplies for iPad. Why do you think investors were upset with their production of iPads being 900,000 less than projected? haha..... (hint they are both Korean and vowed to compete with CrApple in co-operation together recently. Don't expect iPad's to be anymore plentiful in the future because of this!

        Note: If you want to see a balanced company today, you have to go to Asia. Samsung Electronics hard asset equity totals near match their their Market Cap..... fool! No American company can boast that with everything outsourced today!
        i2fun@...
      • RE: How Apple should spend its $50 billion in cash

        @i2fun@... Thanks for providing the "drooling retard" portion of our show. If Apple users/supporters are the brainwashed zealots they are made out to be, why is it that the Apple detractors are the one that show the signs of obsession and psychosis? No matter how many times Apple bests itself, bests it's competitors and rewards it's supporters faith in Apple, there remains to this day a group for which no amount of Apple success means Apple is a successful company. So guess who is actually a zealot? Guess whose world-view is distorted by a fantasy?
        His_Shadow
      • RE: How Apple should spend its $50 billion in cash

        @i2fun@... Go back to your corner and be quiet, the adults are talking.
        non-biased
  • RE: How Apple should spend its $50 billion in cash

    With ideas like yours Jason, that is why you are broke and Apple is rich... Ain't got a single bit of business in you.
    minardi
    • RE: How Apple should spend its $50 billion in cash

      @minardi
      Because you totally have access to information indicating that Jason Perlow is actually broke... [/sarcasm]
      guardianmega