Thursday, 21 October 2010

What will Apple do with that $50 billion?

File this one under 'thinking allowed'....
Image courtesy of Ben Stanfield, 2007, Flickr
Steve Jobs Keynote

Yesterday Apple had their 'Back to the Mac' event in which they unveiled a new series of MacBook Airs and updates to the iLife suite of software, as well as Face Time for Macs. They also made some impressive sales announcements regarding the success of iPhone 4, despite falling a little short of the iPad sales they were hoping for. You can watch the full event by clicking this link.

However, yesterday's event was all about the Mac computer range.  The US market share of the Mac is 20.7% and the machine makes up 33% of Apple's revenue.  13.7m Macs sold in the 2010 financial year, bringing its revenue to  more than $20 billion.  There have been 7 billion downloads from the app store to date and they to launch a similar store for Mac software.

These reveals all came on the back of an earlier report which claimed its quarterly profits leapt by 70% to $4.31 billion and its revenues increased by 66% to $20.34 billon as it sold 14.1m iPhones, up 91%, and 4.19m iPads (they had expected to shift 5 million iPads).  So much for 'antenna-gate' harming sales.  Their last quarter revealed turnover of $20 billion and they are sitting on a cash reserve in excesses of $50 billion.  Based on their market valuation, Apple are set to overtake the oil company Exxon within a year (after already having overtaken Microsoft's value).

Money from Apples

What I'm really interested in is what Apple are going to do with that $50 billion.  Steve Jobs has hinted that there may be some big acquisitions in future.  What could Apple realistically buy?  It seems unlikely that they are going to go for a shares dividend and their real success in the last decade has come in the guise of harmonising hardware and software, so it wouldn't make sense for them to buy a certain troubled search engine would it?  This seems doubtful as that would pit them against one of the other tech behemoths with whom it is already fighting on the software front, namely Google (Android vs iOS4).  There were rumours back in April that Apple were interested in ARM for their CPU business, but that no longer seems likely given the success of their own A4 chip.

It would seem logical that Apple would build on their strengths (hardware+software integration), design principles (usability+simplicity), and their recent successes in the gaming sphere (iPad+iPod Touch+iPhone+Steam for Mac+Game Centre) and enter the next-generation gaming market place.  Both Sony and Microsoft have announced that they expect their current generation of systems to last another 5 years before being replaced which would give Apple ample time to design and build a system that would be ready for launch in time for the next console cycle - they might even be able to steal a march over their rivals...

Apple are a savvy organisation and Jobs has a keen eye for market opportunities.  They've had great success with their portable gaming devices and must be acutely aware of the rapid domination of the gaming sector when it comes to home entertainment.  They already have infrastructure success when it comes to direct selling of entertainment direct to consumers (iTunes and the App Store), and the industry is currently awash with talk of cloud-based gaming services.  How long will it be before Apple realise that they can take a bite out of this sector?

This idea isn't new; games analyst, Michael Patcher, predicted something similar back in March this year, however, Apple have never been in a stronger position.

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