Here We Go Again: What Apple Needs to Buy Now!
January 2nd, 2018Over the years, there has been a growing list of companies that Apple should/must acquire to remain relevant. Or something.
Apple, after all, has $268.9 billion hanging out in overseas accounts and investments. However, if all or most of that money were brought into this country, Apple would have had to pay an income tax of up to 35% on the repatriated funds. So the money sits.
With the new tax law, the rate is reduced to 15.5% on such funds — it’s otherwise 21% — which is meant to provide an incentive for companies to return its foreign cash. The theory is that an estimated $2.6 trillion in repatriated overseas funds would, in part at least, be used for to expand companies, hire more people and/or give them raises.
At least that’s the theory.
In practice, it may not work out that way. Consider the previous attempt to repatriate corporate money. In 2004, Congress approved a measure targeting overseas funds, known as the Homeland Investment Act, in which the tax rate for such money was reduced to 5.25%. This law simply failed deliver anything near the expected benefits. According to a New York Times story from 2009, some $299 billion was returned from foreign sources. Most of it went to share buybacks and higher dividends, despite reported prohibitions of such practices in the law itself.
So why should anything be different with the 2017 tax cut? Right now, corporations are already sitting on hundreds and hundreds of billions of dollars in unspent domestic money and little has changed.
But Apple is supposedly a different sort of company, so what might it do? Give Apple employees a huge raise, hire more of them maybe? While higher salaries could happen, I suppose, businesses don’t just expand the workforce unless more sales make it necessary. It doesn’t just happen.
So what would Apple do with all that extra cash? Would it consider switching tactics and, on a one-time basis at least, buy up a large company? Over the years, there have been suggestions that Apple buy Netflix to get a leg up on the TV streaming market, Tesla Motors to jump start its autonomous driving project, and even Time Warner.
Well, AT&T is attempting to do the latter, although Apple was mentioned, without any support, as one of the suitors of the large entertainment company. In retrospect, what would you think if Apple ended up in control of such properties as DC Comics? Would Superman bear the Apple logo? Supergirl? CNN?
Now it is true that Apple may buy a couple of dozen companies each year to acquire new technologies. Notable examples include the 2008 purchase of PA Semi, a microprocessor chip designer, which helped move forward the creation of those powerful A-series CPUs, the 2010 purchase of Siri, then a voice-command app, the 2012 purchase of AuthenTec, forming the basis of the Touch ID fingerprint recognition system, and the 2013 purchase of PrimeSense, which helped jumpstart development of Face ID.
Each of these acquisitions had price tags in the hundreds of millions of dollars. The largest acquisition, so far, was the $3 billion takeover of Beats Electronics in 2014. In addition to assuming control of Beats headphones and speakers, it gave Apple the foundation for Apple Music.
So with the passage of a huge corporate tax cut, two Citi analysts, Jim Suva and Asiya Merchant, claim there is a 40% possibility that Apple will now move to buy Netflix.
So why would Apple want Netflix?
Well, the company’s rumored efforts to set up a TV subscription service reportedly failed, evidently due to the inability to reach agreements with the entertainment companies. Apple has reportedly allocated $1 billion to produce original TV programing, and has hired seasoned TV executives from Sony Entertainment and Amazon to spearhead the project.
According to published reports, the new TV projects include a reboot of Steven Spielberg’s anthology show from the 1980s, “Amazing Stories,” a drama on morning TV featuring Jennifer Aniston and Reese Witherspoon, and a sci-fi drama from Ronald D. Moore, whose accomplishments include the highly acclaimed “Battlestar Galactica” reboot.
Meantime, Netflix has over 100 million subscribers worldwide, more than any individual cable or satellite provider. In addition to huge libraries of movies and TV shows, Netflix has produced dozens of original TV productions. I’m sure most of you have heard of “Orange is the New Black” and “House of Cards.”
So wouldn’t an acquisition of Netflix not only enhance Apple’s service portfolio big time, but put them at the top of the heap in TV streaming?
But is this really the right time to buy up Netflix? While it continues to grow, there appear to be some troubling signs. “House of Cards” is nearing the end of its run, in large part because of the firing of star/executive producer Kevin Spacey over sexual abuse allegations.
In addition, Disney plans to remove all or most of its content from Netflix as the prelude to setting up its own streaming service. This would include Star Wars films, but may also involve the original Marvel Comics programs that include “Daredevil,” “Iron Fist,” “Jessica Jones,” “Luke Cage,” “The Punisher” and the superhero team up, “The Defenders.”
But with reports that the firm is investing $7 billion on original content in 2018, does that even matter?
On the other hand, if Netflix remains a successful company, why would it even entertain a buy out from any company?
Such an acquisition would surely represent a romantic ideal of how Apple can get a leg up entering the entertainment business. It’s the sort of acquisition that would likely pass muster from the U.S. government, since Apple is technically not buying a full-blown competitor despite making efforts to develop original TV content.
As a practical matter, though, how would it impact the relationships Apple has with other streaming services on Apple TV and other products? Would Amazon want to continue to offer its Prime Video service to a competitor? What about Hulu and other services?
Besides, just what is Apple’s end game producing its own original content? Is it meant to serve as a value-added feature to boost Apple Music? Hence Apple Music and TV?
As with other suggestions about the companies that Apple ought to buy, I cannot take this one seriously, even if it will soon be flush with repatriated cash.
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Yeah, don’t see Apple buying Netflix. I hope they put more $$$ into the Mac, via engineers & designers. I appreciate the positive moves of 2017, but Apple needs to do a bit more to reduce bugs in new releases; use newer, faster chips from Intel or whomever.
Normally we think of a given sum money by visualizing the goods and services it can purchase. But if we are dealing with a sufficiently large sum this understanding fails us because our imaginations cannot comprehend goods and services on that large a scale. At that point, better to think of money as a form of energy, that is, in terms of the work it is capable of doing.
Now take this insight and apply it to Apple. Sure, Apple needs to have a few billion of reserve cash on hand, for three reasons, a. to be able to ward off hostile takeover attempts, b. to protect itself against the numerous lawsuits that it (presumably like any similarly creative and innovative company) attracts, and c. to permit further forward motion, either in the form of funding research and development or acquisitions in order to gain desired technologies and employees.
The money Apple has stashed away far surpasses such needs. So think of this money as if it were energy. Would anyone imagine it is desirable or in any way advantageous for someone to accumulate huge numbers of kilowatts of electricity and store it away on batteries unused? This, I think, would be considered absurd to the point of insanity: it would only amount to withdrawing that amount of energy from the sum total available to society for getting work done without conferring any matching benefit on the owner of the batteries.
Apple, I suggest, is doing something similar. It would be desirable for society as a whole if all the money Apple is allowing to sit uselessly were put to work, and in the last analysis the means whereby this is achieved is unimportant: whether this is done by taxation, by voluntary investment, or by releasing the money in the form of stockholder dividends essentially does not matter since any of these means would have the same beneficial effect for enhancing our nation’s prosperity. Any of these means would in the last analysis be socially responsible.
I am not harping on this theme of social responsibility because I have any personal interest in it. I do so because it is a theme that periodically resurfaces in the pronouncements of Tim Cook in a way that it never did in Steve Jobs.’ Since he has this ostensible enthusiam for the subject and wishes to seem politically engaged, I would be very interested to hear how he would reconcile this interest in social social responsibility with the fiscal policy of the corporation over which he presides. Personally, I suspect this would be impossible.