Sitting on its Laurels

Apple is certainly not going to sit on $60 billion (tangible assets as of 03/2011). Currently I can think of a few things that the company is doing with this cash:

  • A data center was just built for the its new iCloud service, which estimated at $1 billion to build (and probably $1 million, at least, to maintain for every day it is “on”)
  • Steve Jobs just pitched the idea for his new company HQ in Cupertino, which is definitely a pretty penny to build. Imagine having to erect the entire underground into parking, planting hundreds of trees, and using large glass panels for your windows.
  • Apple has entered the chip manufacturing business in the past years, and will continue to ramp up the efforts to produce A6 and beyond chips for its line of devices, which may include MacBooks someday.

Aside from these expenditures, Apple also has several products in its pipeline, most of which are not even known to anyone past the C’s of the company. These products will require several new initiatives in research, manufacturing and distribution. For example, it is not far fetched to suggest the iPhone 6 will be a world phone that will need to be produced 20+ times to meet consumer demand. Cheaper manufacturing processes along with ramped up scrutiny in the company’s value chain are both necessary to the company’s continued success. One of the best ways to have success is to buy it: people, companies, factories, whatever it takes.

Horace Dediu, from the Critical Path:

What’s really not good enough about Apple today is they cannot meet demand… if they can solve this production issue, I think that would be a very big win.

As Dediu remarks, Apple has not lost its core business. Unlike Microsoft and other companies, Apple’s products and vision have not deterred and does not seem to show signs of seizing. So, instead of looking at other ventures (like the TV business), the company should go back and improve internal capabilities like manufacturing and distribution.

It is not a bad thing to sit on cash, and a company could do so for numerous reasons. Both Google and Microsoft have about the same number of tangible assets. Google is building new products around its core business while Microsoft has tried to make acquisitions to expand its core business. The difference between the two companies is how their decisions have paid off. One company knows that its value is still high when they stick to their original ideas, while the other company knows that the value of their original product is not as high. Google can continue to use the money it has to expand its other business ventures, while Microsoft can use its money to go back to a clean slate and re-invent their original vision. Apple seems to sit in between: they understand their core competencies and continue to grow them as such, but they also know that success comes with continued innovation and imagination. The cash Apple sits on, while growing, is likely to be reinvested into what they know and to be spent on future businesses they do not know much about.

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