How Apple should spend its $90 billion in cash

How Apple should spend its $90 billion in cash

Summary: Apple, with a market capitalization of over $416 billion, its stock trading at around $445 a share, and swimming in over $90 billion in cash, needs to figure out how to spend its money. I’ve got a few suggestions.

TOPICS: Banking, Apple

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  • 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 was building a huge, One-Billion dollar 500,000 square foot facility located in North Carolina in order to house the iCloud infrastructure.  

    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.

    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 $347M and Akamai, which is considered the leader in the space, is hovering around a whopping $5.64B.

    Both of which should be considered a bargain since that's about half of what they were capitalized at two years ago.

  • A lot has changed in the wireless landscape in the last two years for the iPhone and and the iPad. In the United States, AT&T lost its exclusive on the iPhone, and Verizon and Sprint joined in on the fun. But each carrier has had their own set of problems accommodating the devices and huge amounts of data demand from iPhone and iPad users.

    Despite the phenomenal device growth on all the US carriers combined, It hasn't been as smooth a ride as everyone has wanted. Apple is an extremely customer service oriented company and having to leave the network support to the carriers is probably not something the company will ever admit to be happy about.

    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.

    Of course, Apple could just 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 $6.4B 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 USA, 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 still even be attractive for Deutsche Telekom to dump the asset, as it tried and failed to do in its aborted $39B acquisition with AT&T, but given how painful it is to buy a telecom company of any substantial size without going through a huge regulatory approval ordeal, it’s unlikely Apple could complete the transaction, even though it could easily finance it all by itself.

    But you never know.

  • 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 800 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 in 2010 Apple tried to launch 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. 

    Apple also tried to get Facebook integrated into the last iOS 5 release that debuted with the iPhone 4S, but the companies failed to friend each other. As it happened, Apple chose to go with Twitter instead. There is some evidence to support that that iOS 5.1 will have Facebook integration, but we can only wait and see.

    The problem of course is that FaceBook isn’t (yet) a publically-traded company and its market valuation depending on who you talk to is estimated between $50B and $100B.

    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 completely 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 10 and 20 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 may still have reasons to be tied to their uncool BlackBerries and may see a business networking advantage integrated into their smartphones and tablets as a reason to switch to Apple’s platform.

    And then of course, there's Twitter, which like LinkedIn is still a private company that Apple could make a huge land grab on.

Topics: Banking, Apple


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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  • RE: How Apple should spend its $90 billion in cash

    Sorry, but buying a telecom is out. Apple cannot afford to alienate the other telcos - world wide - that it depends on for distribution & support of its products.
    • RE: How Apple should spend its $90 billion in cash

      @z2217 <br>Why not globally in partnership with Walmart, Tesco, Amazon and Google buyout the entire ready-made and operational T-Mobile setup and stop the robber baron's nefarious activities of the incumbent Cell Phone companies.<br><br>- Pay as you go or Unlimited Calls within Country<br>- 1Gb, 5Gb, 10Gb and Unlimited Data plans within your Country<br>- Data free to use as you choose (i.e. no Tethering ripoff surcharge)<br>- Unlimited Texts within Country<br>- International roaming at a fixed price per week/month/year on your above plan - no $1000 overage bills for using some data whilst on holiday<br><br>They would clean up and the likes of Vodafone/Verizon, AT&T, NTT, Telefonica etc would be p155ing in their pants and have to change their ways.<br><br>Much in the way over the last 10-15 years Amazon have revolutionised on-line retailing for stuff, and Apple for entertainment soft-media.<br><br><br><br>-Considering Apple used to own 40% of ARM, as they were a set-up partnership with Acorn Computer (BBC Micro and ARM creators) and VLSI, this is amusing - didn't John Scully have to hock a large chunk of this in the dark days ?<br><br>Increase iCloud Storage to at least the same as your Apple device, preferably double. or even 100Gb as standard.<br><br><a href="" target="_blank" rel="nofollow"></a>
      • RE: How Apple should spend its $90 billion in cash

        @neil.postlethwaite@... You don't seem to understand the Apple Business Model.

        It does not involve taking an established industry and offering similar services at vastly cheaper prices.

        Just the opposite. Apple makes money taking various target markets, creating a superior product and charging lots MORE for it.

        An "Apple Provider" would be seamlessly integrated for 3G, 4G, Wifi, satellite, bluetooth with iCloud backup across a variety of (Apple exclusive) devices, and it would cost $200 per month instead of your existing $80 cellphone+data plan.
  • RE: How Apple should spend its $90 billion in cash

    I like the CDN idea best of all.
    Makes a lot of sense from an eco system point of view, takes care of a major pain point for a lot of mobile users and creates more incentives for users to stick with Apple products.
  • None of these Ideas except for

    internet infrastructure make any sense based on Apple's business model. Instead, look for Apple to spend that money on startups with exciting hardware technologies, like anobit.
  • RE: How Apple should spend its $90 billion in cash

    How about filing lawsuits against the world
  • RE: How Apple should spend its $90 billion in cash

    Or Apple could pay its employees in other countries a fair wage. Or even bring some of those jobs to the United States...
    • RE: How Apple should spend its $90 billion in cash

      @babymommy That will never happen because the CEO has already stated it is not his job to worry about american jobs.
  • RE: How Apple should spend its $90 billion in cash

    I expect them to prop up their iCloud infrastructure. The initial sign in for iTunes Match and the whole comparing of the music libraries was painfully slow.
    I would also expect them to bring in some of the old MobileMe iDisk functionality.

    Buying a telco? Nah! They'd have to setup infrastructure in every single country they operate in. Best leave the dumb pipe role to others.

    A sattelite? Nah to that also. Too expensive to maintain and operate and too risky. What I do expect them to do however is introduce a bran new 3D mapping service. Didn't they buy a Swedish company lately?

    Buying ARM? No way. If they do and lock others out of thgat technology, watch out for the lawsuits. Too risky for them. Besides, with their cash reserves, all they have to do is lock up supplies from various manufacturers thus effectively locking out competitors from those same parts. They do that now anyways.

    Buy FaceBook? Why? It is in Facebook's best interest to play nice with Apple. Any screw ups on privacy can always be pointed away from Apple. They don't need the hassle.

    Search engine? Sure why not and make it spectacular. This goes hand in hand with the Swedish 3D mapping company. Develop your own. Let the others try pulling their engines away from iDevices. Will Google want to loose the clicks? OTOH Apple can offer their own, nicely integrated into iOS and OSX while still telling its customers, "Well if you prefer to have an inferior one , go ahead."
  • RE: How Apple should spend its $90 billion in cash

    Well now we know why you are not a CEO or business sense, Most of these ideas not only indicate a failure to understand the Apple business model, but are dubious in their own right. Apple has tilt up this incredible pile of cash by running a business with a minimum of baggage. Suddenly spending it on baggage does nothing for them. They have no manufacturing and very few employees, They outsource everything except the critically service affecting data centers to house iCloud. Launching their own satellites does nothing when the data is readily available and noon controls it. Your suggestion re ARM would leave Apple in court forever and pair a regulatory target on their back. No, Apple's current drive into publishing content and education fit their content expansion business case better than on expensive physical assets, and has the additional advantage of most of apples plans, very little risk to apple and low overhead
  • RE: How Apple should spend its $90 billion in cash

    How about paying some fat dividends? Return the money to shareholders for them to re-invest.
  • RE: How Apple should spend its $90 billion in cash

    Before reading the second idea, form the picture I thought you might be suggesting they buy the moon or at least put their logo on the face (ala Chairface from "The Tick".)
    silent E
  • RE: How Apple should spend its $90 billion in cash

    Lower it's prices? Seriously.
  • Deal with endemic fraud causing pain in the US by foreign service companies

    One of the most outrageous areas of corruption is the endemic fraud done by firms supplying services to tech companies. For example, Apple willingly disclosed finding 62 % of the 229 facilities it inspected were not in compliance with the company's maximum 60-hour work policy; 13 % did not have adequate protections for juvenile workers; and 32 % had problems with the management of hazardous waste. These frauds take place abroad, but they harm employees at home. Wages and pensions are slashed to save competing firms located in the US. All this suffering in the name of squeezing out profits. The article by William K Black of the New Economic Perspective paints a picture of indifference and simple avarice. This behavior is now part of everyday and one I personally avoid like a disease. So if Apple is seriously wondering how to spend these profits here are some well documents areas.
  • Dividend, R&D, then bigger dividend

    Dividend: would add huge value to the stock price.

    R&D: spend money on keeping ahead of the game (designing products people are willing to pay a premium for) and on developing really key technologies, particularly the SOC's needed for small, fast and efficient chips that do everything their devices need to do, and push the envelope of designing products as a single unit, minimizing the number of physical chips in devices. If that means buying another chip design company or talent, so be it.

    The problem with any good suggestion is that if it is indeed a good business decision, they'll just keep growing the cash pile, which brings us back to my first suggestion: dividend.
  • Buy Microsoft

    and a couple of other beleaguered corporation. Kill that Windows crap, it would be a giant step for humanity.
    • RE: How Apple should spend its $90 billion in cash

      Hear, hear!!
  • Buy the US Postal Service

    Make it cost $0.99 to send mail anywhere in the universe, but the person who gets the mail must also be a US Postal Service customer otherwise their mail is recycled into shipping boxes for more iPads.
  • RE: How Apple should spend its $90 billion in cash

    If I was made CEO of Apple and found $90b in the bank?

    Spend 0.1% of that and rewrite iTunes for Windows to be lean, fast and bug free. Seriously, iTunes on Windows is the one thing that makes Apple look bad.

    And time to rationalize the fading iPod line; the classic and shuffle to go and for the Touch range to scale up to have a model between the current model and the iPad. iPods are still often the gateway to other Apple products, so cheap or underpowered/old fashioned models dont help the Apple image. Oh and bundle headphones that cost a few cents more but dont make your products look and feel like crap.

  • Content

    Buy exclusive content. Games too.

    And Adobe, please.