During Apple‘s last quarterly earnings call, Steve Jobs hinted that the company might use its huge pile of cash — over $50 billion now — to make a large strategic acquisition. You could already hear the bankers salivating about all the pitch books they were going to put together.
Forget it. It’s going to happen.
Apple has no debt, a highly profitable business, and has been piling up cash forever. Many analysts think that’s not a great use of the company’s resources and have been wondering if Apple should find a more productive use of it, like a megadeal or returning it to shareholders.
But here’s the thing: most mergers destroy value, and Jobs is acutely aware of it. Which is why Apple mostly does small acquisitions with a strong team and product that it can then expand into something more formidable. That was the story behind Apple’s recent acquisitions of PA Semi (its mobile chips), Quattro Wireless (iAds) and Siri (mobile search to compete with Google). Jobs doesn’t want, or need, the headache that would come with integrating and transforming a multibillion dollar company into its business. One of Apple’s key assets is its legendary focus on its technology and products.
The one place where Apple might want to acquire a company could be the living room, where it hasn’t broken through yet, with Sony or Nintendo (which has been called the Apple of gaming). But Sony also has a movie studio and dozens of product lines in consumer electronics that Apple doesn’t want. Sure, it might sell those off, but again — does Jobs want to be stuck with that headache for the next five years? What if there’s a double dip recession and Apple can’t sell Sony’s movie business and Jobs has to be in the moviemaking business (again)? And with a huge conflict of interest as Board member and largest individual shareholder in Disney?
Another, smaller potential acquisition might be Netflix, but he would have to overpay massively given where the stock is (and that Amazon and Google would probably bid up the price if nothing else), and then Jobs would have a DVD-shipping business and a media store business most of whose suppliers go with because it’s not Apple.
And Jobs is certainly not going to dividend out that cash. He worked very hard to earn it and he’s not going to return it to shareholders whom he doesn’t like and to whom he’s already given an amazing ride. In Steve Jobs’ world, Apple belongs to Steve Jobs, not to shareholders.
That cash is staying on the balance sheet.