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...
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.
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.
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.
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.
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.
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.
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".
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.
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.