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Who Should Apple Buy?

Lots of options with $50 billion in the bank

By OptionsZone Experts

Apple’s Next World to Conquer

Apple Logo

Apple logo

Apple Inc. faces two dilemmas in the near term – one unhappy, and the other too good to be true. Steve Jobs, the business genius who led the firm to become possibly the most popular firm in the country, maybe the world, announced recently he would take a leave of absence to focus on his health.

Meanwhile Apple (NASDAQ: AAPL), developer of the iPod, iPhone, and iPad, is sitting on a cash hoard estimated to be $50 billion, and that some say will grow to $70 billion by the end of the year.

Apple doesn’t pay dividends or conduct stock buybacks to the ire of its shareholders. Instead there is much talk that Apple should be expanding through acquisition. Rumor has been rife of the companies that Apple could buy to grow to the next level of world domination.

So where should Apple spend its money? In no particular order, here are some ideas.


Netflix Logo

Netflix logo

The company that grew to own the DVD rental by mail business and sent Blockbuster into bankruptcy, has a market cap a little north of $10 billion. Buying Netflix (NASDAQ: NFLX) with its 16 million North American subscribers would give Apple instant entry to movie delivery and the growing field of entertainment streaming to consumers via the Web, television, the iPhone and iPad and many other devices.

Streaming certainly appears to be the future of entertainment delivery, a field Apple has failed to energize with its Apple TV venture. And the monthly Netflix subscription fee could become a modest charge on the consumer’s phone bill, further cementing Apple’s value to telecom partners Verizon and AT&T.

Adding a streaming Netflix app to the iPhone could mean boffo box office.


Walt Disney logo

Disney logo

This combination of two consumer favorites would bring thousands, millions? of hours of content to Apple’s devices, presumably for a family-friendly price. Major problem would be the price with Disney’s market cap recently listed as nearly $75 billion. However, Jobs became one of Disney’s largest shareholders, and earned a seat on its board, when the consumer entertainment giant bought Pixair from Apple in 2006 for about $7 billion.

Walt Disney Co. (NYSE: DIS) owns hugely successful brands like ABC and ESPN, movie studios and distribution arms, a publishing house, licenses its popular brand globally, and has developed a large online games group.

One question – how does Disneyland fit into a tablet? The marketing geniuses could figure something out. Or maybe the theme parks could be spun off to help pay for the purchase.

A combination of Apple and Disney would be no Mickey Mouse deal.


Visa logo

Visa Logo

The payments monster Visa (NYSE: V) offers Apple entry to the next massive iPhone application – the phone as wallet. Consumers in Korea and Japan have already embraced using their smart phones to pay for everyday goods with a wave of the phone at the neighborhood retailer. The phone/wallet could well replace traditional credit and debit cards in the U.S. and Europe in the next decade as consumers move their accounts into their smart phone.

For instance, last week Starbucks (NASDAQ: SBUX) announced that it had launched a free app for the iPhone, iPod and Blackberry that allowed users to make purchases at 6,800 of its stores and another 1,000 of its outlets in Target (NYSE: TGT) stores. Customers load an account with a major credit card or Paypal account and their smart phone displays a bard code that is read at the point of sale.

Visa has a universally-established brand, a top-of-the-line payments network, a long standing relationship with the banks that own consumers financial accounts, and a relationship with tens of thousands of retailers. With a market cap near $58 billion, a Visa purchase would be expensive. But a combination of Apple and Visa would make cash registers ring, if they still rang.

Advanced Micro Devices

Advanced Micro Devices

Advanced Micro Devices logo

It may be cheaper in the long run, possibly even the short run, to have your own chip-producing firm in your pocket. Advanced Micro Devices (NYSE: AMD) with a market cap of about $5.5 billion recently unceremoniously dumped its CEO, announcing it needed to “increase shareholder value.” Is that an “I’m available” signal?

AMD’s chips are best known for their graphics and computing technology used in computers and game consoles. The complaint against the firm has been its slow pace in entering the tablet and smart phone sector. For Apple an AMD purchase would be a defensive move to shore up its Apple laptops.

And that could fit Apple well as it already has a large holding of chip designer ARM Holdings plc (LON: ARM) in a joint venture with UK-based Acorn Computer. ARM-designed chips are used in the iPad, the iPhone, the Xoom tablet from Motorola and many new cell phones. ARM earns royalties from the use of its chips by such firms as NVDIA (NASDAQ: NVDA), Broadcom (NASDAQ: BRCM), Texas Instruments (NYSE: TXN)  and Qualcomm (NASDAQ: QCOM).


Borders Books

Borders logo

This is a fixer-upper. The down-on-its-luck book store is teetering on the edge of bankruptcy and probably could be had for a song. Its market cap of $60-something million may not include the debt it owes publishers as it asks for an extension of its loans. But Borders (NYSE: BGP) has a national retail network of about 650 stores where it tries, haplessly, to sell e-reader style devices. It also claims 40 million Borders members, loyal customers that visit to buy a cup of coffee, but not a lot of books.

Borders would offer Apple an inexpensive path to a national brick-and-mortar presence and access to massive publishing content that is quickly shifting to electronic delivery. Bring in the customers, sell ‘em a tablet, give them a subscription deal on books and magazines, and serve up a cup of Joe.

An Apple purchase of Borders would bring near-term negative publicity as it would mean shutting outlets and laying off swaths of staff at the chain that once counted 19,000 employees. Longer-term, Apple would be hiring and training Apple-nerds to sell its products in several hundred stores and demonstrating to the country how new technology can carry us out of this recession.

News Corp.

News Corp logo

News Corp logo

News Corp. (NASDAQ: NWS) and/or its flailing social media site Myspace. Does Rupert Murdoch want to sell before he hands the firm over to his children, and/or other successors? It’s possible but not likely. For one, he is hungry to prove he didn’t overpay for the Wall Street Journal in his life-long goal to top the New York Times. For what it’s worth, News Corp. has a market cap of $37 billion and massive amounts of content from all over the globe to offer Apple.

However, indications are that News Corp. would like to sell its social networking site Myspace. Its days of running neck and neck with Facebook are long gone, but stamping the Apple brand on Myspace could generate millions of new members. And don’t sell MySpace short. It had more than 54 million visitors in November, and is refocusing on delivering music and videos, possibly helping Apple to build its market share. Google may disagree but Apple may be the only company with the savvy and resources to take on Facebook.

Article printed from InvestorPlace Media,

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