3 Reasons Why Apple Won't Buy Sony

Shares of Sony (NYSE: SNE  ) closed higher in Japan today, after rumors surfaced of an Apple (Nasdaq: AAPL  ) takeover.

Don't wait up for that Apple Bravia television or Mac PS3 console, though. This deal isn't going to happen. It's just another case of analysts dreaming out loud after Apple's coy plans for deploying its enviable $51 billion war chest.

Let's go over a few reasons why this just isn't going to happen.

1. Sony isn't Apple's way into your living room
Piper Jaffray analyst Gene Munster turned heads this summer, suggesting the possibility of Apple rolling out high-def televisions as early as 2012.

It was laughable at the time. Hewlett-Packard (NYSE: HPQ  ) and Dell (Nasdaq: DELL  ) flopped when they figured that their success in moving large PC monitors would transition easily into LCD televisions. Why should Apple be any different?

Oh, that's right. This is Apple. If Apple does crank out an HDTV with its proven iOS platform and its history of stylistic superiority, everyone knows more than a few people who would pay a premium for that.

If Google (Nasdaq: GOOG  ) is able to market its Google TV more effectively than Apple's new set-top interface, it's probably because Google already has a partner making flat screens with Google TV built in. Oh, and that partner happens to be Sony.

I'll concede that I can see Apple making a bigger play for home theater components in a few years, but why would it buy Sony to get there? Sony has one of the best-recognized brands in this space. Wouldn't it be far easier -- and cheaper -- to either partner with a lesser brand or buy a small manufacturer that it can simply slap its Apple brand on after a few stylistic and technological upgrades?

2. Apple is already playing the gaming market the right way
The video game industry has been in a funk for nearly two years, and Apple is a major reason for the malaise.

The three gaming giants -- including both Sony and Apple rival Microsoft (Nasdaq: MSFT  ) -- are struggling. They have had to mark down their consoles, and now gamers aren't so keen on forking over $60 for a console title -- or $30 for a handheld game -- when Apple's App Store has populated the planet with free and $0.99 diversions.

Obviously, the specs on Sony's PS3 -- and to a lesser extent the PSP -- are far superior to gaming on an iPod touch. The games are better. Sony and Microsoft aren't losing their die-hard console gamers, but they are surrendering the casual gamers who made this a mainstream niche.

Apple doesn't need this. There are now around 300,000 downloads available through its App Store marketplace for the more than 100 million devices running on its iOS platform -- and we're only two years into this movement.

3. Sony has more conflicts of interests than synergy points
Sony isn't just about hardware. It also runs one of the leading movie studios and watches over one of the largest major music labels.

Do I really need to point out the obvious problem here? There's just no way that Apple comes out ahead by owning motion picture and prerecorded music content.

Rival studios and labels would be weary of striking content deals that empower Apple's iTunes and Apple TV initiatives. These are also finicky -- and one can argue, fading -- forms of media in tomorrow's leveled playing field.

Even the digital distribution play that was once hailed as the mother of all lifeboats is taking on water. Warner Music Group (NYSE: WMG  ) posted a 10% sequential decline in digital music in its latest quarter, and Web-delivered video purchases and rentals are also losing out to free alternatives and unlimited streaming plans.

It just won't happen
Move along folks. There's nothing to see here.

Sony won't have to kowtow to a Western suitor. Apple shareholders won't have to worry about being held back by Sony's single-digit sales growth and sandbagging margins.

I do believe that Apple will pick up the pace on the acquisitions front. There is too much money sitting on its balance sheet collecting too little interest income. It won't issue a dividend, because it doesn't need to. It won't aggressively buy back shares, because it will decrease its total market cap. Going shopping is the logical plan, but please let it also be spent on logical purchases.

No offense, Sony. You're just not it.

What should Apple do with its $51 billion? Share your thoughts in the comments box below.

Google and Microsoft are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz isn't going to buy Sony, either, so that should kill that rumor as well. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy, and it knows that roaming charges weren't billed in one day.


Read/Post Comments (13) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 26, 2010, at 12:39 PM, JokerJoey wrote:

    Logically, if Apple was to have anything to do with courting a takeover or merger, the obvious choice would be Disney if only for the fact that Steve is already the largest Disney shareholder.

    It would not give Apple any appreciable advantage in hardware, but then they don't need any. It would give Apple one hell of an advantage in terms of content, and the possible synergies in delivery systems (ie. network ownership and diversity of those networks) might be very attractive.

    Just me thinking out loud like those crazy overseas analysts.....

  • Report this Comment On October 26, 2010, at 12:58 PM, techy46 wrote:

    Apple should spend $10b ($200/s) and buy Netflix. That would make more sense than Disney or Sony

  • Report this Comment On October 26, 2010, at 1:14 PM, gslusher wrote:

    "If Google (Nasdaq: GOOG) is able to market its Google TV more effectively than Apple's new set-top interface ..."

    In the earnings conference call, Jobs said that Apple has sold 250,000 Apple TVs. That's in 6 weeks or so from the time they were announced and could be pre-ordered--much less from when they were actually available. Take a look at the remote control for Sony's Google TV set and you'll see one big difference. Google TV is essentially a browser, so you need a keyboard and pointer. Another is that one would have to buy a new TV set, rather than a box. That's a factor of 10+ in the up-front cost, plus there are lots of people who prefer LG TVs, for example.

  • Report this Comment On October 26, 2010, at 1:59 PM, SonyFan wrote:

    I think it would be a great move. The iPhone is pretty mature and the iPad is close to it. Steve doesn't have much left to revolutionize in the computer/phone space. This gives Steve the power to transform sooo many other industries. Between Sony TVs and Playstation, Apple could get Apple TV into hundreds of millions of home, and transform the living room with the app store.

    Plus this is a bargain for Apple. The playstation brand, all the great game studios, gran turismo, uncharted, all the movie studios, music labels, blu ray, the cell, TVs, cameras etc. All that for 30-40 billion is a bargain price and Apple could transform all those industries, they are all in need of a shakeup of sorts.

    Apple getting influence in all those industries would be a good thing. They would suddenly trounce MS and Google in how many assets they own.

    Sony would be apple's lower tier brand for fantastic products that don't quite meet Job's insane standards. This is what Toyota is to Lexus, Honda is to Acura, VW is to Audi and Sony can be to Apple.

    I love Sony. I love Apple. Sonys tendency to use cutting edge tech combined with Apple's aesthetics and user interface would make for epic products. The only way to screw it up is if Apple demanded the Apple markup from Sony branded products like the PSP2 or Playstation 4, which would be foolish and they have no reason to do. Keep the Apple markup limited to Apple products only.

  • Report this Comment On October 26, 2010, at 2:00 PM, two4onebill wrote:

    3 things AAPL is actively working on which are strategic - 1. redefine home entertainment (i.e. get into your living room) and 2. get a corporate customer base. 3. Cloud computing. I would think any acquisition would move them towards one or both of these goals. For 1, I would think companies like AKAM or NFLX would be good for content delivery and actual content. For 2, maybe companies like Unisys or CRM could help them get into enterprise - i.e. they could pair CRM software with their mobile devices when they provide solutions for their corp clients.

  • Report this Comment On October 26, 2010, at 2:14 PM, SonyFan wrote:

    It doesn't even have to be a takeover. Apple could buy 30% of Sony and get a ton of influence in the company.

    Sony would retain the Sony branding for all of Sony's products that Jobs didn't personally oversee. But if Jobs gets an itch to transform videogame consoles, or cameras, or HDTVs, or the distribution of Sony's music or movies, or the licensing of blu ray into Apple's devices, or the compability of Sony Vaio laptops with Mac OS X, he could do just that. Apple would get all the benefits but none of the blame.

  • Report this Comment On October 26, 2010, at 2:21 PM, dargus wrote:

    I recently read an interview with John Sculley and he mentioned Steve Jobs' fascination with Sony in the early days of Apple, especially the Walkman. It seems possible to me that Jobs would look at this acquisition with some nostalgia. If this is the case, it would make points 1 and 2 weaker in my mind. As for point 3, Apple could sell off the media arm of Sony to someone else. There are things for Apple to like about Sony, and Steve Jobs sometimes seems to operate based on his feelings, so it doesn't seem unreasonable to me that he could convince himself it is a good deal under the right circumstances. Of course, I'm simply speculating here.

    It just seemed interesting to me that these rumors would surface soon after I read about Jobs' admiration for Sony. It stands to reason that someone else might have read that interview too, and crafted this rumor based on the information.

  • Report this Comment On October 26, 2010, at 2:31 PM, two4onebill wrote:

    good point sonyfan. which is exactly the type of investment jobs has in DIS. he didn't need to buy DIS, but he certainly seems to have a lot of influence.

  • Report this Comment On October 26, 2010, at 2:41 PM, Ellisee wrote:

    241bill-

    Jobs started Pixar, sold to disney.

    I'm with RIck, the idea is preposterous, but the "move along ..." line makes me think that Jobs has made his career out of being preposterous.

    I just see no advantage to AAPL in owning an inferior and less innovative company.

  • Report this Comment On October 26, 2010, at 6:05 PM, JXYWZ wrote:

    Dude, Sony's revenue in 2010 was 77.205 billion, Apple's was around 40 or so billion. It goes against all logics to say that a lesser company would buy a bigger company. That's the bottom line, there's no need for your 2 explanations.

  • Report this Comment On October 26, 2010, at 6:27 PM, mattack2 wrote:

    George Lucas started Pixar, and sold it to Jobs..

  • Report this Comment On October 26, 2010, at 8:39 PM, alexkhan2000 wrote:

    Sony's TTM revenues is more like $89 billion and Apple's is now $65 billion. Sony has 172,000 employees while Apple has around 34,000. Sony's net income was a measly $270 million for the TTM while Apple's was $14 billion. That's nearly 52 times more earnings for Apple on far less revenues. Why in the heck would Apple want to take on this kind of grotesquely bloated dinosaur?

    JXYWZ, a smaller company could always buy a larger company in revenues. Market cap of the acquisition target and the cash position of the acquirer is all that really matters. Apple *could* easily buy Sony but it just doesn't make any sense. That's the point of this story. It's just not going to happen.

  • Report this Comment On October 27, 2010, at 2:21 PM, rfaramir wrote:

    I don't see this happening, but Sony has so many parts it's interesting to speculate.

    Sony's media could be largely divested, as a goodwill move towards the other studios/labels. Even better, Apple could break up the catalog into 'old' (no living authors with contracts) and 'new' portions; put the 'old' stuff into a form of public domain license (creative commons more likely) for every media store to sell cheaply (benefitting Apple's media devices), and spinning off the much smaller 'new' portion into a weakened label after giving its iTunes store long-term low-but-reasonable cost deals.

    Sony's unique DRM could be totally eliminated for its music catalog. Sony's rootkit DRM division eliminated (if not hung or jailed).

    Sony's laptops given both MacOS X and BootCamp for Windows partitions, so more customers can try out the Mac life. The FireWire ports could be properly labeled (instead of iLink).

    Sony's Playstation gaming could be merged with AppleTV. Imagine hordes of XBox and Wii gamers being tempted by $0.99 to $7.99 apps in the App store instead of $30-$60 physically distributed games.

    Sony could get Apple's products into the Japanese market like never before. Apple's penetration there has been spotty at best.

    So a lot of things to think about. A lot of areas Apple could improve for Sony. Apple could kill/reduce/divest so many unproductive, dead weight divisions that Sony just culturally can't bring themselves to do.

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