Originally Posted by Dr Millmoss
Boiled down to their essence, the facts are really quite simple. A public company accumulating cash is presented with three options for what to do with it. The first is reinvestment in plant and equipment (i.e., growing their business).
And Apple does this. The well publicized ones are $500M a pop. Above your "few hundred million" assertion.
If they are unable to do so, then they have probably hit some sort of barrier to growth that the money cannot cure, at least not without increasing risk significantly. Unless Apple wants to start building their own assembly and component manufacturing plants, then they have few opportunities for capital reinvestment that represents any meaningful fraction of the cash they have accumulated. Expanding into the manufacturing business presents what seem to me to be obvious risks which they have thus far avoided.
$1B data center in NC. Apple has multiple initiatives to grow their business and some evidently have billion dollar price tags for ONE segment. Just a data center doesn't buy you anything.
The second is the acquisition of other companies. The history of these mergers should not give anyone who believes Apple should start buying up large companies any comfort. In fact the only way they make sense is if "2+2=5" (or in common terms, "synergy" is produced).
Synergy/economies of scale (2+2=5) isn't the only reason for acquisitions. Market dominance/consolidation (take Lockheed Martin), vertical integration are all valid reasons with both success and failures.
Apple buying Adobe probably wouldn't work out. But AdMob for $750M? A series of related tech companies for a total of a few billion for a combination of IP, talent and infrastructure? Sure.
Couple these with some key $1-2B CAPEX projects and simultaneous initiatives in mobile, set top and computer spaces and we're talking billions to open new markets, dominate existing markets and grow Apple's business.
This is only rarely the case. These mergers can also put the company in a weakened, not improved, competitive position.
You will have to show that this is "rare" beyond simple assertion. There have been spectacular failures. However Exxon Mobile, GE, DuPont and other large companies are the results of successful mergers that are dominant (or once dominant) in their industries.
The TWC example you suggested is perfect illustration of the latter issue, in particular. If Apple does expand their TV initiative into the set-top arena as rumored, then their ownership of one of the major providers creates an instant barrier to adoption of the technology anywhere else but within the network they own. They now want to be both a partner and a competitor. Oops. I used to hear often about how Apple should buy one of the music, film or TV companies. A bad idea for the same reason.
It all depends on execution. Sony used its studio ownership in its fight against Toshiba over Blu-Ray. It was both an advantage and disadvantage when dealing with the other studios. There were certainly some that went HD-DVD simply not to do what Sony wanted. On the other hand Sony had real skin in the game with respect to studio earnings and a certain level of credibility not enjoyed by Toshiba/Microsoft.
Has Sony executed particularly well the last decade? No not really...but ownership of a studio did not cause senior leadership failure.
Simply being a competitor does not mean you cannot partner. Apple owning a major content producer can be an extremely positive strategic advantage over MS in a fight for the living room.
The TWC example is one that provided GOOG with instant last mile infrastructure. Clear would probably be a better choice despite a smaller customer base.
AAPL ownership of TWC would give AAPL a seat at the industry table of major cable providers. This would be the same kind of advantage Sony enjoyed in the Blu-Ray fight as a studio as well as CE manufacturer in a fight regarding cable set top standards.
The third is giving at least some of it back to the stockholders.
Again, I think a demonstrated failure to appreciate the scale of Apple's cash reserves and the pace at which they are increasing, is at work here.
I think I put it in clear context: 2.5 years of Verizon CAPEX. You think $40B+ is huge. In certain contexts this is true. In others, not so much.
No matter how large they get, some are of the mind that there's no logical or practical limit to the value of larger and larger cash reserves, more always being better. I don't see the support for this argument. In fact, I started raising this question when the reserves were at a paltry $25b. Now they are more than twice that much, but the reasoning of the cash hoarding advocates never changes.
Finally, stockholder ownership of a company's equity is in fact meaningful. If it were not meaningful, then the markets would be of no value or purpose. The fact that equity is often wiped out in a bankruptcy does not change this fact.
What bankruptcy tells you is the pecking order of common stock holders vis a vis "ownership" of a company. That in the most objective and practical measure (bankruptcy) shows it has no substantive meaning (as in stockholders get butkus) does not make the markets of no value.
The markets has immense value in making some folks richer and some folks less rich.
You don't own Apple in the normal meaning of the term ownership. You own shares of the equity in AAPL should it be liquidated. You enjoy some rights as shareholders and if you want your 2% dividends you can vote in a BoD that will make those changes.
Good luck with that.And there aren't only three uses.
I have clearly shown a another where GOOG has used its warchest to successfully influence another market to go the way it wanted. Something it could not do without the actual means to successfully carry out their threat. Neither GOOG nor VZ wanted GOOG to enter the ISP market ever. VZ has more to lose in such a fight and backed down on an issues that related to a future collateral revenue stream for them (content and eyeballs) but a primary revenue stream for GOOG.
Do you really think they willingly caved on terrestrial net neutrality?
Large warchests have real
value. Just like large militaries even when they aren't being directly used to conquer other people.