Top 10 places for Apple to spend its cash
2011-07-27
Apple [stckqut]aapl[/stckqut] has come under a great deal of discussion in the past week or so due to it’s ever expanding hoard of cash. Most companies hate having that much cash in the bank (or perhaps they are not fortunate enough to accumulate it) but Apple seems to really enjoy having a big savings account.
Since all the other bloggers that discuss companies and investing seem to have chimed into this conversation, I have to decided to do it as well. Here are my suggestions:
- Use the cash like they have been. Apple uses its cash very effectively and very aggressively. As pointed out in PC Magazine, Apple effectively uses its cash to gain a technical advantage by locking up its supplier community in ways that their computer and device competitors such as Toshiba, Dell [stckqut]dell[/stckqut], and Hewlett Packard [stckqut]hpq[/stckqut] simply cannot afford to do. They are able to help manufacturers build their plants to create new components and lock in a pricing and supply chain that virtually locks out or delays the competition from the latest and greatest hardware advances. This competitive advantage means that they can continue to create large amounts of profit and build more cash.
- Increase R&D and rapidly expand their products with things that people want. Last year, Apple spent about 2.7% of revenue on R&D (and last year about 3.1%). I would like to see this grow to 7 or 8% of revenue. Yes, this is a big increase but Apple has a unique opportunity to solidify their presence in the markets that are important to them. Think what would happen if Apple had twice as many products that covered a broader spectrum of electronic experience.
- Increase their library. They should vastly increase their library of movies and video content to stream. While they shouldn’t be stupid about the deals that they cut but they need to make deals with every movie and TV content holder out there. The consumer needs to feel that if they want to watch a professionally created video, Apple will always have the content. Making a ton of money in this area is not incredibly important (but don’t do it at a loss). What is more important is that they use this content to drive the sales of more multimedia devices and computers. While they are at it, they need to cut deals with the newspapers and magazines as well. Apple has had some short-sighted rules that have prevented the allegiance of those that create printed material – they need to put these rules aside.
- Streaming. They should make it so that they can stream to their subscribers more easily and more reliably than ANYONE else. Supposedly they are investing in more data centers and that is a project that should be accelerated and expanded. Also, there are rumors of acquisition discussions with Hulu, this would be an acquisition that makes sense as it fits with their core offering today. Some commentators suggest that they should diversify by buying a company like Facebook but that would be ill-advised. Most companies that try to expand into vaguely related markets end up screwing up (think of EBay [stckqut]ebay[/stckqut] buying Skype).
- Integration with the cloud. They should make it so that integration between their products on your local network and between their products and the cloud is seamless and easy – in fact even fun. Lion looks like it has great features in this area but they should take it to a new level. They would do well to expand that connectivity by putting a Windows application out there that makes Windows computers integrate easily and rapidly with Macs/iPhones/iPads. This doesn’t mean iTunes but instead iTunes on steroids – no cords – use the cloud, the private cloud, and the local connectivity connection of the computers.Read More →