Why So Boring, Apple?

Source: http://www.flickr.com/photos/ollesvensson/

Source: http://www.flickr.com/photos/ollesvensson/

Does Apple (NASDAQ:AAPL) need to take a page from Mark Zuckerberg’s playbook and reenergize itself with a large acquisition? Last week, Facebook (NASDAQ:FB) revealed that it was acquiring instant messaging service WhatsApp for approximately $4 billion in cash and $12 billion in stock. As noted by Zuckerberg in a press release, the deal gives Facebook access to WhatsApp’s nearly 1 billion users.

In a recent commentary at Forbes, Eric Jackson argued that Apple needs to ditch its slow-and-steady-wins-the-race approach to its business and start making aggressive acquisitions like Facebook. Jackson is the founder and managing partner of Ironfire Capital, a tech-focused hedge fund.

According to Jackson, Facebook’s acquisition of WhatsApp will serve its long-term business interests better than Apple’s $14 billion stock buyback. Tim Cook recently told the Wall Street Journal that Apple repurchased $14 billion of its own shares soon after the company announced its fiscal first-quarter financial results. Although major investors like Carl Icahn have long been pushing Apple to return more capital to shareholders with a large stock buyback, Jackson pointed out that Apple’s share price is actually lower since Cook’s announcement.

The tech industry commentator also noted that there are gaps in Apple’s business that could be bolstered by a major acquisition. For example, he believes Apple would benefit from abandoning its so-called “walled garden” ecosystem and acquiring a major cloud storage company such as DropBox that would draw non-Apple users into the company’s business.

Apple is famously averse to using its substantial cash hoard for large acquisitions and has historically taken a slow and thoughtful approach to its product business. In Apple’s preliminary proxy filing, the company noted that one of its reasons for opposing Icahn’s share repurchase proposal was that, “The Company’s rapid pace of innovation require unprecedented investment, flexibility and access to resources.” This financial strategy has allowed Apple to accumulate a $159 billion cash hoard.

However, Jackson argued via Forbes that Apple has moved too slowly when it comes to introducing long-rumored products like an Apple television or a large-screen iPhone. He also noted that the company’s conservative strategy is out of synch with the rapidly changing tech environment.

For these reasons, Jackson believes that it is time for Apple to abandon its timid strategy and begin aggressively making strategic acquisitions. The tech commentator pointed out that Cook would have to spend $56 billion of Apple’s cash in order to spend the same percentage of cash that Zuckerberg spent to acquire WhatsApp. For that amount of cash, Apple could snap up Tesla (NASDAQ:TSLA), noted Jackson. Not only would Tesla reenergize Apple investors, it would also give the company the ability to make an Internet-enabled car that would mesh with its iOS in the Car initiative.

Although Jackson makes a compelling argument for Apple to enter new markets with large acquisitions, it is hard to argue with the company’s history of success that has come through its slow and deliberate approach. Although the iPod and the iPhone were not the first digital media player or mobile phone in the market, both devices were hugely successful because of Apple’s careful and thoughtful approach to each product category and market segment. This record of success makes it unlikely that Apple will suddenly adopt a riskier approach to its business.

Cook gave a brief summary of Apple’s acquisition philosophy at an investor conference hosted by Goldman Sachs in 2012. “We have looked at large companies,” said Cook via the Wall Street Journal. “In each case, it didn’t pass our test. Will we look at more, I think so. But we’re disciplined and thoughtful, and we don’t feel a pressure to go out and acquire revenue. We want to make great products. If a large company could help us, then that would be of interest. But again, deliberate, thoughtful, is our mantra.”

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