Apple Just Did Something With Its Cash

 | May 09, 2014 | 10:26 AM EDT  | Comments
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It's crazy what Apple (AAPL) has been doing with its cash on its capital allocation recently.

Buybacks, dividends, stock splits. I don't think these moves have made much impact on the stock price, and they have caused Apple to spend a lot of cash that could have otherwise been spent on acquisitions.

What to make of the recent run-up in the stock since the company last reported earnings? I think it has much more to do with the iPhone sales -- and the speculation about the new iPhone 6 -- than the financial engineering.

A few weeks ago, I expressed my view that Apple should spend its cash on mergers and acquisitions and not on dividends and buybacks. I got an earful from Apple fans and bloggers who patiently explained to me -- an Apple tourist in their eyes, clearly -- that Apple doesn't do M&A, at least not big M&A.

Apple has a culture, they said.

Big M&A is not their way. Leave that for desperate companies like Google (GOOG) and Facebook (FB), which move from big acquisition to big acquisition, as if going from bar to bar on a Friday night.

Apple has to stay focused, they said. Apple would never do a $19 billion WhatsApp deal, because that would cause Apple to lose focus.

I've never understood what was so sacrosanct about Apple's culture. Take the case of WhatsApp. I'm not saying that Apple should have done a WhatsApp deal, because it already has iMessage, and the big motivation for that kind of deal would have been to play "keep-away" so that WhatsApp didn't fall into the hands of Google or Facebook. But let's say Apple did the deal. We're talking about a 53-person company. That's a smaller headcount than most of the dozens of deals that Apple already does. So explain this focus problem to me again.

So I'm happy that Apple is spending $3.2 billion on Beats. It's doing something. It's hardware with the earphones. It's a streaming service that's popular with record companies. There's a possibility that Apple could build or adapt its wearables into the earphones. It's also bringing on board some talented people, including Jimmy Iovine.

Tim Cook just showed all the Apple fans that the company can do big acquisitions if the company judges them to be a good fit. Apple's culture is still intact.

I'm more excited to see if this is the first of many more deals for Apple. That could be the biggest takeaway of this Beats deal.

There have been so many for so long saying, "You can't give Apple credit for the cash on its balance sheet because they'll never use it." What if they do, and what if this is the start of it?

That $150 billion cash hoard is a big asset to start deploying for strategic use.

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