3 Bold Moves to Kick-Start Apple

After reaching an all-time high, Apple's (NASDAQ: AAPL  ) shares have fallen off a cliff over the past few weeks. Since mid-September, the stock is down 24% to a valuation that has a lot of investors scratching their heads. Apple trades at 12.2 times trailing earnings, has nearly a quarter of its $511 billion market cap in cash, and is expected to have another blowout quarter after the holidays.

What Apple needs is a move that will kick-start investor enthusiasm about the stock again. So, I've come up with three potential ideas, which I've listed below from most likely to most improbable.

The $100 dividend
No company -- not even Apple -- needs to have a $121 billion cash hoard. If we spread it out to the 940.7 million shares outstanding we get a total of $128.90 in cash per share held by Apple. So, why doesn't Apple pay a one-time special dividend of $100 per share? If Apple did this, it would still hold $27.2 billion in cash, more than enough to run its business.

There's recent precedent that this may be a good move. Wynn Resorts (NASDAQ: WYNN  ) recently announced a special dividend of $7.50 per share and the stock jumped 7.2% -- or more than $8 -- the next day.

Investors are waiting for Apple to return more money to shareholders and a big dividend would instill confidence that Apple's cash generation machine will be returned to shareholders.

An app-expanding spending spree
Apple has been known for killing some of the most successful third-party apps by developing internal apps. Google's (NASDAQ: GOOGL  ) Maps app was most famously dumped for an internally developed map app, but there are others Apple has nullified. Pocket's capabilities are now built into Safari; a multitude of free texting apps have gone by the wayside with iMessage now integrated into the iPhone; the iCloud negates the need for a service like Dropbox; and Reminders and Notes do the work that other apps once did.

So, Apple is clearly keen on adding capabilities to its own apps with little regard for developers. But why not buy some of the key apps Apple uses and build on the capabilities others have already developed?

Yelp (NYSE: YELP  ) is integrated with Maps and could be had for $1.5 billion or so. This would be great to incorporate even more intimately with Maps and would give Apple a foot in social media.

Netflix (NASDAQ: NFLX  ) isn't built into iOS, but it is built into the Apple TV and it would augment some of Apple's own capabilities in iTunes. For $6 billion, the company could probably be bought. Competitor Hulu has been rumored to be worth $2 billion and is also another option.

Another interesting acquisition target could be Square. The company is squarely (pun intended) in the center of the payment revolution that Apple would no doubt like to be a part of. Apple already has over 400 million iTunes accounts with credit cards attached, the largest set of accounts in the world. Square, iTunes, and the addition of near-field communication on the next iPhone could be a game changer for payment solutions, adding a highly coveted business to Apple's fiefdom. Square recently raised funds that valued the company at $3.25 billion, so $5 billion or $6 billion in cash could get the job done.

If Apple acquired all three companies, we're talking a spending spree of about $13 billion or so, a drop in the bucket for Apple.

Big, bold acquisition
It hasn't been Apple's style, but with $121 billion in cash, the company could also make a huge acquisition. So, what about buying chip maker Intel (NASDAQ: INTC  ) ? I know, it sounds outlandish, but hear me out.

Apple's share of the PC market is now about 12% and growing, so demand from Apple is certainly a meaningful chunk of Intel's business. It's also been rumored that Apple could soon have the capabilities to use an ARM-based chip in its iMacs. Why leave and develop a new chip when you can buy Intel outright and integrate its technology to develop your own chip?

Intel has also gained little traction in smartphones and tablets, which Apple dominates. Buying Intel would bring the engineering capabilities of both companies under one roof, able to optimize chips for Macs, iPads, and iPhones.

The dollar figure also isn't as outlandish as it may initially seem for Apple to bring production in-house. Reports are that Samsung spent $9 billion to build a plant in Austin, Texas that primarily produces Apple chips. Intel has its own fabs and could become a dedicated supply source.

To put icing on the cake, it would be great to see Microsoft (NASDAQ: MSFT  ) and computer makers like Dell (UNKNOWN: DELL.DL  ) and Hewlett-Packard (NYSE: HPQ  ) scramble to find a new supply of chips so they don't have to buy from Apple.

An acquisition of Intel may not pass regulatory muster and no doubt has other hurdles, but I don't think it's as crazy for Apple as it initially seems and would certainly create a splash.

Foolish bottom line
Apple needs to do something to excite investors. Maybe it has something in the works, like Apple TV. But I think these three moves would be good for Apple and shareholders.

There is absolutely no argument that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (9) | Recommend This Article (14)

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 November 15, 2012, at 6:33 PM, cpemail wrote:

    “Dead Jobs, Rotten Apple, 300 by 13.

    The King is back. Good Job Nokia 13 by 13.

  • Report this Comment On November 15, 2012, at 7:21 PM, qdarwin wrote:

    Other than the $100 dividend, the title of this piece should be called "3 Bold Moves To Kill Apple". The lack of moves like those referred to here is exactly why Apple has reached the success it has today. It makes no sense to water than down by buying big bloated companies.

  • Report this Comment On November 15, 2012, at 8:23 PM, someoneincensed wrote:

    Dear Mr. Hoium, your suggestions are remarkably sense-free.

    Much of Apple's cash is overseas and subject to repatriation taxes should the company attempt to dole it out as a dividend. Like a large marlin towed back to harbor from deep waters, the cash would be much smaller and less appealing by the time it reached its destination. Do not wish this sad, sad fish on Apple.

    Acquisitions are not the panacea you envision, their success arguably inversely proportional to their size and cost. Do not wish this on Apple.

    It would be difficult to make a rational argument for why "Apple needs to do something to excite investors." Sure, investors would appreciate it, but the short-term AAPL share price is hardly a concern for the company. If the company is healthy, the stock will continue to reflect the company's stellar earnings over time; if the company is unhealthy, the last thing it should be focusing on is the share price. In other words, share price is a distraction. Do not wish this on Apple.

    Lastly, you neglect to mention that Apple is already using increasing amounts of its cash to maintain its humungous supply chain. Nor do you consider cataclysmic events the company might face in these uncertain times. You would have the company pare its resources to a mere $27B, which despite your assertion is not enough to run its business.

    Your sentence structure seems fine, but it is nevertheless rather amazing that you're holding down a paying job as a financial writer. Please do not wish articles like this on readers.

  • Report this Comment On November 16, 2012, at 10:31 AM, gilbertmj2 wrote:

    NOTHING BUT APPLE MARKET AM I RIGHT GUYZ

  • Report this Comment On November 16, 2012, at 6:02 PM, dwilh51183 wrote:

    APPLE CAN USE THE MONEY TO BUY BACK THEIR OWN SHARES WHICH THEY ARE STARTING TO DO RIGHT NOW. THAT IS A DUMB ARTICLE GIVING AWAY 100 BILLION IN CASH/ STUPID!!! APPLE CAN USE THAT MONEY TO BUY OTHER BOOMING COMPANIES SO THEIR EARNINGS CONTINUE TO EXPLODE.

    AAPL TO ANNOUNCE IPAD SALES EXCEEDING ESTIMATES ANS INCREASING ESTIMATES FOR DEC QUARTER .BUY BEFORE MONDAY

  • Report this Comment On November 16, 2012, at 6:04 PM, dwilh51183 wrote:

    ORIGINA ESTIMATES WERE FOR APPLE TO SELL 5 MILLION IPAD MINI'S....

    LOOKS LIKE THEY COULD SELL 42 MILLION MINIS...

    AND IPHONE 5'S ARE STILL SELLING VERY WELL

    AAPL STORES ARE PACKED

  • Report this Comment On November 23, 2012, at 11:21 AM, Jim278 wrote:

    Agree with the dissenters to article. Basic Economic analysis of Apple should lead any investor away from the writers advice. Hope no one pays for his. The Fool was foolish to even post it.

  • Report this Comment On November 23, 2012, at 3:18 PM, WineHouse wrote:

    Indeed, there is no question that the first idea is pure idiocy.

    A far wiser choice would be for Apple to slowly increase the dividend year over year, maintaining very conservative ratios of both earnings to payout and free cash flow to payout. That way it will provide growing and meaningful "value" to its individual investors regardless of the herd mentality of the moment.

  • Report this Comment On November 24, 2012, at 3:58 AM, TempoAllegro wrote:

    Jobs famously narrowed the focus of AAPL, so it would seem any big purchases of other companies would just lead to deworsification.

    Since Apple is doing quite well in the post-PC world, why hook up with INTC? Production of chips is a commodity business now, and the direction of research at INTC would be unlikely to help AAPL.

    A much better fit if you are thinking this way would be QCOM. It's "only" 10 billion more than Intel and would bring AAPL much closer to total dominance in mobile.

    Still, any lack of focus in terms of poor product development or distracting mergers can only hurt AAPL, so why fix something that ain't broke?

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