Friday, July 29, 2011

How Should Apple Spend It's Money

Record profits and earnings, Apple has more money, over 76 billion dollars, in the bank, than even our own government. So what should Apple and Steve Jobs do with it besides hide it in the mattress.

There has been some speculation that Apple should release a dividend or buy back it's stock, pleasing to shareholders, but not a long term strategy for growth. Others want Apple to purchase another company, and the latest talk is Hulu. Where Apple has had a purchase strategy through its iTunes' store, Hulu has delivered a rental and subscription strategy. But it's owners, a consortium of programmers, may have deals in place with Hulu that may not be ideal in the long term. I don't believe that Hulu and Apple would be a great fit.

So let me throw out other possible acquisitions for Apple that would excite me more. Apple needs a streaming rental play; Netflix is pushing hard in that space. With Amazon and You Tube on its heels, Netflix could use a strategic partner in Apple and Apple could easily integrate the Netflix model into it's products and software stores. It would also enable a better fit to the Apple TV device pushing rental content as well as purchased content into the TV. And as content drives use of iPads and iPhones, Netflix brings Apple more content and another streaming platform.

Another idea for Apple is Barnes and Noble. While Liberty Media may be making a run, Apple could benefit again with another content play. E-books are growing, a Nook powered by Apple, gives it additional credibility and broadens Apple's product line, and the digital print platform fits nicely with the iTunes library. Add to that the retail locations, which gives Apple even more access across the country.

Lastly, and perhaps a long shot, Apple should buy a company like Lightsquared. To own a wireless platform to enable broadband access across the country means that Apple could have more control of its content delivery directly into the hands of the consumer. At the same time, it puts them into a stronger competitive position against the cable operators, and lead to even faster cord cutting. The challenge for such an acquisition is that it would also put them against the telcos as well, who currently sell 3G and 4G distribution for their products.

Now I wouldn't mind if Apple sent me a check for a 100G, but that is not going to happen. Still with so much cash on its hands, and a shareholder desire for Apple to keep growing, Apple must either be spending more on R&D or looking for an acquisition to build out better synergies. It is unlikely that Apple will simply issue a cash dividend or stock buyback. It is their nature to innovate and grow. With that in mind, a content or distribution play is the likely next step.