October 24, 2010 5:41 pm

Jobs unlikely to overstretch Apple cash

Apple chief executive Steve Jobs’s declaration last week that the technology company wants to hold on to its $51bn in cash and securities because it sees “strategic opportunities” ahead, has provoked speculation about what it might acquire.

Apple Thumbnail

Apple Thumbnail

With one of the largest cash hoards in the world and a business that spans hardware, software and content distribution, the possibilities are wide.

Among the most fanciful ideas being batted around by outsiders are takeovers of Facebook, the social network valued in private share sales at more than $30bn, and perhaps Disney, the media group worth $67bn, including a large stake held by Mr Jobs.

But either would break Apple’s long-running pattern of investments – it has never paid more than $500m for a target – which risks straying into unfamiliar arenas. Former executives and bankers said they would be shocked if the maker of the iPhone, iPad tablet and Mac computer did anything as far-reaching.

“I don’t think they will buy anything big any time soon. It is just not in their genes,” said a former Apple strategist.

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Instead, ex-employees and analysts noted that Apple has historically bought smaller companies with intellectual property and strong talent in areas of growing importance for the company. Modest deals in the past have resulted in the iPod – which grew out of contracts with software engineer Tony Fadell and outside design firm PortalPlayer – as well as the software behind the popular GarageBand music composition and Final Cut video editing programmes, which appear on its computers.

A key emphasis for Apple now is the company’s push into internet-connected television, with its Apple TV streaming media player, relaunched in September. It is a complex, technology-intensive battleground, where Apple faces already established cable operators and well-heeled Silicon Valley competitors, such as Google.

Apple last month licensed know-how in the sector from Rovi, a company that propelled the technology provider to a record $5bn market capitalisation. Apple could easily buy the company, or one of its competitors, outright.

Other logical extensions of Apple’s clout would be in chip design or manufacturing, where the company has bought in the past, and desktop software and internet services, including advertising and content streaming.

With a $14bn market capitalisation, Adobe Systems could be one of the largest software targets to tempt Apple, in part, for defensive reasons. In the smartphone sector, Apple is in a major fight for superiority with devices running on Google’s dominant Android operating system. A key advantage of the latter is they have the ability to display videos based on Adobe’s Flash technology.

Mr Jobs has complained that Flash is “buggy” and consumes too much battery life, but he may still want to take charge of the company, improve the software, and optimise it for Apple devices.

Adobe also has an enviable presence on Microsoft desktops with its free Reader document display program. Steve Ballmer, Microsoft chief executive, recently discussed with Adobe possibilities for the companies to work more closely and even mentioned a possible offer, which no doubt prompted Apple to consider contingency plans.

More plausible would be a deal to strengthen Apple’s shift toward streaming content for use on all its devices, rather than making consumers download shows or music for use on a particular device.

For that purpose, Apple could benefit from a content delivery network with significant infrastructure, such as Akamai, which stores copies of website data at locations around the world to get the material to users faster. Akamai is worth $8.5bn, but it has smaller competitors.

Apple has also sought more control over the hardware in its devices, allowing it to differentiate its products, control features and maintain secrecy. It bought Silicon Valley chip start-up PA Semi in 2008 for $278m, which helped it develop the A4 microprocessor used in the iPad, iPhone 4 and iPod Touch.

That was based on a chip design by the UK’s Arm Holdings, prompting speculation that Apple could buy that company. It seems unlikely given Arm’s open business model of licensing designs to most of the world’s chipmakers.

Private investors and analysts said Nvidia, the $6.4bn market cap Silicon Valley graphics chipmaker, is a more likely target.

But there is a chance Apple will do nothing. Mr Jobs has often hinted at future purchases without a major move. Given Apple’s near-death in the 1990s, Mr Jobs “likes having a huge cash cushion”, a former executive said.

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