No company is in a better position to reshape electronics and Internet media than Apple—but not necessarily because of its design genius or engineering prowess. It’s because of Apple’s wallet.
Apple shareholders are pressuring the company to do something with the $137 billion it is holding in cash and short-term investments (for the details, see pages 7 and 8 here). Sitting on cash is a poor use of a company’s resources, especially with interest rates so low. So Apple is likely to increase the dividend it pays to investors, buy back some of its shares, or both. But Apple’s 12-digit cash stockpile is so vast that dividends and buybacks won’t significantly dent it. Even doubling its dividend would cost Apple only about $10 billion a year.
That means that even after this shareholder tumult dies down, there still will be a huge pile of money burning a hole in Apple’s pocket. And because there are only so many great engineers to go hire or R&D projects to invest in, Apple could be tempted to pull off a major acquisition. For instance, Netflix has a market capitalization of $10 billion. Even with a generous premium, Apple could probably buy the company for around $20 billion, greatly enhancing its online video delivery aspirations. Or maybe Apple will decide it needs to own a cellular network, or more data centers, or a mobile social network.
We might like to think that the histories of technologies are driven mainly by the people who develop the most innovative products. But often the best technologies do not dominate; the winners might be those with the best sales forces pushing them or the ones with the most aggressive patent lawyers protecting them. Sometimes the determining factor in whether a technology prospers or wallows is whether it gets acquired by a huge company with the means and the motive to push that innovation very widely. And, to be sure, sometimes an acquisition dooms a technology by bottling it up inside a giant company that can’t actually do great things with it.
That’s why my eye is on Apple’s cash hoard. I’m not suggesting that Apple make a big acquisition or several of them. But if it does, it could have wider ripple effects than the next thing Apple invents.