Wall Street vs. Silicon Valley: Where is Apple's $100 billion cash spent?

Imagination Technologies, which provides GPUs for iOS devices, has also been rumors from Apple. Apple's team responsible for mergers and acquisitions is small, led by former Goldman Sachs Adrian Perica, and most of their acquisitions came from engineers. Apple's product managers usually conduct a regular meeting with Perica's team each month to discuss potential goals, including talent or technology. The same number of people within Microsoft's internal team is also small, but last year when they acquired LinkedIn for $26 billion, they employed consultants from Morgan Stanley, an investment bank, and they defeated Facebook and Salesforce. At Google, the head of the department is Don Harrison. Sometimes they talk about potential acquisitions. Their commercial director, Philipp Schindler, will participate. Even the two founders, LarryPage and Sergey Brin, will join. In the acquisition negotiations, Apple often refuses to hire the bank advisor hired by the seller. They are more willing to discuss directly with the management of the company. Sometimes even Apple will put the contract in front of the other party and tell them to either sign or leave. The 2014 Wall Street Journal wrote in the article: (EddyCue, senior vice president of Apple's Internet and Services) is known for his tough negotiation style. A cable company executive summed up Cue’s negotiating strategy: “We are Apple”... The other person will be puzzled, as if thinking “Do you actually know how this industry actually works?” The person who was a senior executive at Time Warner said that Cue thinks the negotiations in the television industry are too complicated. "Time is on my side," was what Cue had said in the negotiations. In 2015, when Apple and AR Metaio negotiated, Metaio hired a bank advisor who was rejected directly by Apple. Metaio thinks that Apple's offer is too low, but Apple has been trying to persuade them to accept it. This tough strategy of Apple is effective for small-scale acquisitions. In the past four years, they have acquired 15 to 20 companies each year. However, this is obviously very difficult for large acquisitions, especially when they also encounter competitors. In 2013, they lost to Google in the acquisition of Israeli GPS navigation company Waze. EricRisley, manager of ArchitectPartners, said: "They are arrogant in their corporate culture." Apple's corporate culture may have a lot to do with Jobs. For money, Jobs has said many things, including: "My favorite life The thing is that it does not cost money. I think the most precious resource for humanity is time - this is obviously not obvious." Regarding Apple's income, he once said: "Basically, this industry (PC) has only Apple and Dell. Making money. Dell makes money by imitation of Walmart, we rely on innovation." And for Apple's higher goals, he said: "Apple's goal is not to make money. Our goal is to design and develop good products for the market ... We believe that good "The product brings users' love, and then they will save money. We are very clear about what we are aiming for." Jobs's idea is fundamentally in conflict with Wall Street. Apple’s evaluation of the service on Apple Music launched after Apple’s acquisition of Beats was mixed. Wall Street believes that this is Apple’s lack of experience in large acquisitions. Apple's prudence in buying other companies at high prices is naturally justified. Microsoft’s $9.5 billion acquisition of Nokia’s mobile business proved to be a failure. However, Wall Street believes that Apple's prudence has reached near-extreme level. They are very willing to see Apple's offer to Netflix. The latter’s stock price soared by 60% within a year and the market value exceeded 60 billion US dollars. Not just Wall Street, Ben Thompson, an independent blogger who once worked for Microsoft and Apple, also believes that Apple should buy Netflix on the grounds that: 1. Netflix can provide the strongest support for Apple's future business model changes; 2. Let Apple focus on its own The best part is the hardware. But where is Apple's business model problem? First of all, their income is extremely dependent on hardware sales, especially the iPhone, and Apple’s high-priced strategy guarantees its profits. If the market demand for the iPhone is reduced (this is a matter of morning and evening), Apple may not Do not cut spending and raise the selling price to maintain profit margins, but it has been unwise to squeeze the surplus value from the iPhone. If Apple's Internet service can maintain growth, it is undoubtedly a relief. And why the goal is Netflix? BenThompson thinks that “iPhone is the pinnacle of product business model” and iPhone is also the pinnacle of hardware and software integration. However, it cannot be overlooked that Apple’s Internet service part has always been a short board, from MobileMe to iCloud, iTunesMusicStore. This is one of the paradigms of success, but the market for digital music downloads has only quadrupled in the 10 years between 2005 and 2015, so the upper limit is easily reached. Netflix is ​​in a good growth period. Toni Saconagaghi of Sanford C. Bernstein believes that Apple will reach the 50 billion target in 2021. In the next four years, in addition to its own, it needs to look for an additional 13 billion from the outside world. Netflix's revenue in 2016 is close to 9 billion. Dollars. Global digital music revenues in 2005–2015 (in billions of US dollars) If the 20% equity premium, then the acquisition of Netflix costs at least 75 billion US dollars, but the problem is that Netflix thinks the company is not for sale. Finally, for Wall Street, John Gruber, the famous apple-related blogger DaringFireball blogger wrote: A group of bastards who only want to see Apple spend every penny. ">
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Wall Street vs. Silicon Valley: Where is Apple's $100 billion cash spent? From Baidu VR

"We have been looking for the possibility of an acquisition." This is Apple's CEO Cook told analysts last month.

Apple holds more than 250 billion U.S. dollars in cash, and investors have been exerting pressure on management. They hope that Apple can enter new markets, such as transportation. We can use Cook's words as a response to pressure.

Over the years, Apple’s large-scale acquisitions have been unsuccessful. Despite their wealth, the people who had worked with Apple told Bloomberg that Apple kept some quirks in the course of trading: aversion to trading risks and reluctance to work with banks. Or the consultant of an external consulting agency cooperates.

"The first step in mergers and acquisitions is to determine what you really want," says Eric Risley, manager of Architect Partners, who has been involved in negotiations with Apple. "Apple is more willing to make things by itself (not by acquisition)."

The largest amount of acquisitions in Apple’s 41-year history was the purchase of Beats for US$2 billion in 2014, followed by the $400 million acquisition of Jobs’ NeXT in 1996. Facebook's 13-year-old company has three more billion-dollar acquisitions: $22 billion for Whatsapp, $2 billion for Oculus, and $1 billion for Instagram. Google was founded in 1998 and has reported four major acquisitions. Microsoft also has at least ten such big shots.

Cook and his team focused their main growth on Apple's services like Apple Music, App Store and iCloud. These investments have seen returns in the latest financial reports, and the market expects Apple to increase this portion of annual revenue to US$50 billion in 2021.

But investors want to see them take cash for direct acquisitions, especially streaming video on demand, because Apple's current video business is far less than Netflix and Amazon's Prime Video.

Baird analyst William Power is even more exaggerated. He sees both Tesla and Disney as potential acquisition targets for Apple.

"They need to pursue bigger goals than Beats," said Erick Maronak, chief investment officer of Victory Capital, who is one of Apple's shareholders.

AT&T has been preparing to buy Time Warner for more than US$80 billion since last year. Some people think that AT&T is worried that Apple will step into this transaction. There was a lot of rumors last year that Apple might buy McLaren, a luxury sports car manufacturer. In addition, Imagination Technologies, which has been providing GPUs for iOS devices, has also been rumors about Apple.

Apple's team responsible for mergers and acquisitions is small, led by former Goldman Sachs Adrian Perica, and most of their acquisitions came from engineers. Apple's product managers usually conduct a regular meeting with Perica's team each month to discuss potential goals, including talent or technology.

The same number of people within Microsoft's internal team is also small, but last year when they acquired LinkedIn $ 26 billion hired investment bank Morgan Stanley consultants, this acquisition they defeated Facebook and Salesforce.

At Google, the head of the department is Don Harrison, and sometimes the Philipp Schindler, the commercial director, will be involved when negotiating potential acquisitions. Even the two founders, Larry Page and Sergey Brin, will join at some point.

In the acquisition negotiations, Apple often refuses to hire the bank advisor hired by the seller. They are more willing to discuss directly with the management of the company. Sometimes even Apple will put the contract in front of the other party and tell them to either sign or leave. The 2014 Wall Street Journal wrote in the article: (Eddy Cue, senior vice president of Apple Internet and Services) is known for his tough negotiation style. A cable company executive summed up Cue’s negotiating strategy: “We are Apple”... The other person will be puzzled, as if thinking “Do you know exactly what the industry is doing?” The person who was a senior executive at Time Warner said that Cue believes that the negotiations in the television industry are too complicated. "Time is on my side," was what Cue once said in the negotiations.

When Apple and the company Metaio negotiated in 2015, the bank advisor hired by Metaio was directly rejected by Apple. Metaio thought that Apple's offer was too low, but Apple tried to persuade them to accept it.

This tough strategy of Apple is effective for small-scale acquisitions. In the past four years, they have acquired 15-20 companies each year. However, this is obviously very difficult for large acquisitions, especially when they also encounter competitors. In 2013, they lost to Google in the acquisition of Israeli GPS navigation company Waze.

Eric Risley, manager of Architect Partners, said: "They are arrogant in their corporate culture."

A corporate culture like Apple may have a lot to do with Jobs. For money, Jobs once said many things, including: “The most loved thing in my life is not spending money. I think the most precious resource for humans is time. - This is obvious again." About Apple's income, he once said: "Basically this industry (PC) only Apple and Dell are making money. Dell earns money by imitation of Walmart, we rely on innovation." And for Apple's higher goal, he said: "Apple's goal is not to make money. Our goal is to design and develop good products for the market... We believe that good products bring users' favorite, and then they will save money. We are very Know what your goals are.” Jobs’s idea is fundamentally at odds with Wall Street.

Apple’s evaluation of the service on Apple Music launched after Apple’s acquisition of Beats was mixed. Wall Street believes that this is Apple’s lack of experience in large acquisitions.

Apple's prudence in buying other companies at high prices is naturally justified. Microsoft’s $9.5 billion acquisition of Nokia’s mobile business proved to be a failure. However, Wall Street believes that Apple's prudence has reached near-extreme level. They are very willing to see Apple's offer to Netflix. The latter's stock price has soared by 60% within one year and its market value exceeds 60 billion US dollars.

Not just Wall Street, Ben Thompson, an independent blogger who once worked at Microsoft and Apple, also believes that Apple should buy Netflix on the grounds that: 1. Netflix can provide the strongest support for Apple's future business model changes; 2. Let Apple focus on The best part of yourself is hardware.

But where is Apple’s business model problem? First of all, their revenue is extremely dependent on hardware sales, especially the iPhone, and Apple’s high-priced strategy guarantees its profits. If the market’s demand for the iPhone is reduced (this is a matter of time), Apple may not Do not cut spending and increase selling prices to maintain profit margins, but it has been unwise to squeeze the residual value from the iPhone. If Apple's Internet services can maintain growth, it is undoubtedly a relief. And why the goal is Netflix? Ben Thompson thinks that “iPhone is the pinnacle of product business model” and iPhone is also the peak of hardware and software integration. However, it cannot be ignored that Apple’s Internet service part has always been a short board, from MobileMe to iCloud, iTunes Music Store is one of the successful examples, but the market size of digital music downloads has only quadrupled in the 10 years between 2005 and 2015, so the upper limit is easily reached. Netflix is ​​in a good period of growth. Sanford C. Bernstein analyst Toni Sacconaghi believes that Apple will reach its 50 billion target by 2021. In the next four years, in addition to its own, it will need to look for an additional 13 billion from the outside world. Netflix’s 2016 revenue Nearly 9 billion US dollars.

Global Digital Music Revenue, 2005-2015 (Unit: billion U.S. dollars)

If you take 20% of the equity premium, then the Netflix acquisition costs at least $ 75 billion, but the problem is that Netflix thinks the company is not for sale.

Finally, for Wall Street, John Gruber, the famous Apple blogger Daring Fireball blogger, wrote that a group of assholes who just want to see Apple spend every penny.

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