Apple Still Has Piles of Cash: Should It Consider a Strategic Acquisition?

Apple (NASDAQ:AAPL) finally announced a plan to start paying out dividends to investors, but the estimated $10 billion yearly payout (combined with a share buyback plan) means the company will still be left with a huge cash pile that will continue to grow. Some pundits are calling on Apple to spend some of that cash hoard on a strategic acquisition. Twitter has often been mentioned, as has Nintendo (PINK:NTDOY) and even Disney (NYSE:DIS).

Apple has bought companies in the past, including the recently acquired Anobit (a flash memory producer) and Chomp (an app search software developer). But it has avoided large-scale, blockbuster buys to eliminate a key competitor or to buy its way into a lucrative new line of business.

The last time the term “blockbuster” was associated with an Apple purchase was in 1996, when the then-ailing computer company bought NeXT computer for $400 million, bringing ousted Apple cofounder Steve Jobs back into the fold.

More typically, when Apple has targeted a new market — such as portable music devices, mobile phones, retailing and streaming video — it has developed the products itself. Sure, it danced with Motorola (NYSE:MMI) with the ROKR iTunes phone, but that was only a partnership and a toe in the water before Apple introduced its own iPhone.

Why — and why not

Cult of Mac argues that Apple should ignore the calls to buy, pointing out that any push to have Apple make a blockbuster purchase “is to suggest that the most successful company in the world should start doing everything differently from before, and stray from its successful way of doing things.”

The Cult of Mac article uses Hewlett-Packard (NYSE:HPQ) as a prime example of a company that went wrong through acquisitions. Rather than innovate its way around competition, HP bought Compaq, its main rival in the PC business in 2002, and Palm, which challenged it in the mobile space.

The Palm deal has brought HP very little (it has been busy dismantling Palm’s webOS division while letting Palm hardware dwindle to a single Pre 3 smartphone). The Compaq acquisition took a few years to gel amid consistent criticism from the media, and it cost HP’s then CEO Carly Fiorina her job. But it eventually bore fruit and Hewlett-Packard’s stock price grew by over 150% between the 2002 merger and 2008. However, in 2011 the Wall Street Journal reported that HP CEO Leo Apotheker was considering spinning off its PC business altogether to focus on enterprise service software. That plan was reversed with the firing of Apotheker and the hiring of a new CEO, former eBay (NASDAQ:EBAY) chief Meg Whitman, who announced that HP would remain in the PC business.

The price of uncertainty

Hewlett-Packard shareholders have been on a roller coaster ride during the past five years. Its stock traded at over $47 at one point in 2008, dropped to $37 late that year, climbed from $27 to $53 in 2009, and began a steady decline to a low of $22.45 after Apotheker was ousted. After a brief rally in 2012, the stock is currently in the $24 range. At least part of that volatility can be attributed to distraction caused by integration challenges and strategizing related to the purchased companies.

There is a long list of other companies that have arguably lost their edge after major acquisitions: Time Warner‘s (NYSE:TWX) 2000 merger with America Online stands out as one of the more disastrous in the tech industry; the 2007 Nokia (NYSE:NOK) and Siemens AG (NYSE:SI) joint telecommunications venture Nokia Siemens has faltered; Sony (NYSE:SNE) spent $1.5 billion to buy out Ericsson (NASDAQ:ERIC) from their struggling Sony Erissson mobile phone joint venture; and online auction company eBay spent $2.6 billion to buy VOIP company Skype in 2005 — only to unload ownership in 2009 when it turned out that Internet telephony had no real synergy with it’s e-commerce and online payment businesses. EBay sold its remaining stake to Microsoft (NASDAQ:MSFT) in 2011.

While it’s possible that there may be a big company out there that would offer Apple an opportunity through acquisition, it seems unlikely to end its 16-year run of organic growth any time soon. As its stock continues to hit new highs, “if it ain’t broke, don’t fix it” comes to mind.

As of this writing, Brad Moon did not own a position in any of the stocks named here.

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