Apple (AAPL) recently announced that they would be paying out a cash dividend of $2.65 per quarter, which is around a 1.8% dividend. They also announced that they would be instituting a share buyback plan of $10 billion starting in September. While this is great for income investors, I think Apple could have made better use of its cash by making some strategic acquisitions.
I believe the following companies would have been great acquisitions for Apple:
Corning provided the initial touchscreen for the iPhone 1st generation. They also provide the glass for most of the HTC, Samsung, LG, and Motorola phones. Corning produces Gorilla Glass, which is thin, light, and scratch-resistant. Apple should consider purchasing Corning, as it would yield great synergies for the company. In addition to this, the company would effectively be able to stop supplying the glass to its competitors such as HTC. It is widely believed that Apple has been using Gorilla Glass for the current iPhones as well. There is a chance that Corning's Gorilla Glass 2 is in the iPad 3 as well.
Market Cap: $22 billion
Possible Buyout Market Cap: $33 billion
Net Cash: $3.43 billion
Synergies: Control of one of the largest electronics display manufacturers. Access to patents on products such as Gorilla Glass.
Omnivision develops semiconductor image-sensor devices. Rajvindra Gill, an analyst from Needham and Co., said Omnivision will be producing the front and back cameras for the new iPad:
According to Chipworks, "Apple has recycled the 5MP back illuminated CMOS image sensor from the iPhone 4. That unit was the Omnivision OV5650. The OV5650 is the second-generation back illumination (BSI) technology from OmniVision. This 5MP camera features 1.75 μm pixels, and is designed to deliver DSC quality in a mobile phone application."
Gill said the company could produce a $191 million in revenue just from the iPad alone. We still don't know how much revenue is produced from iPhones, but there is a pretty good chance is much more than the iPad.
Market Cap: $1 billion
Possible Buyout Market Cap: $1.75 billion
Net Cash: $189 million
Synergies: Control of camera sensor supplier for iPhone and iPad. With this acquisition, Apple might even be able to generate enough revenue to offset its purchase within the next 5 years.
Cirrus Logic, Inc., a fabless semiconductor company, develops high-precision analog and mixed-signal integrated circuits for audio and energy markets worldwide. In the most recent quarters, Apple accounted for 62% of Cirrus' revenue. Cirrus' chips control the power and sound in electronics. Its important to note that every single Apple product uses Cirrus' chips. So with Apple contributing to more than half of Cirrus' revenue stream and both companies having a strong relationship, it would be in Apple's best interest to acquire Cirrus Logic.
Market Cap: $1.6 billion
Possible Buyout Market Cap: $2.2 billion
Net Cash: $137 million
Synergies: Apple is already using Cirrus in all of its products. Instead of paying Cirrus, they could acquire the company. This would save them costs over the long-term as well as having access to Cirrus' patents.
Broadcom Corporation designs and develops semiconductors for wired and wireless communications. While Broadcom does not depend on Apple as much as Cirrus does, 11% of Broadcom's total revenue came from Apple. Broadcome supplies the Bluetooth and WiFi chips for the iPad. Broadcom's BCM4330 chip is also inside the Apple TV.
Its also important to note that the same chip is in the Samsung Galaxy tablets, so it will allow Apple to have some control over its competitors, even though Samsung does not even come close to Apple's market share.
Market Cap: $21 billion
Possible Buyout Market Cap: $32 billion
Net Cash: $3.33 billion
Synergies: Control of WiFi and Bluetooth chips market. Control over supply to competitors. Access to patents.
Apple really has no intention to drive its competitors out of the market. Its main job is to simply build a superior product than its competitors. Even with these acquisitions, Apple could choose to supply or not at their own discretion. These acquisitions would yield significant synergies to the bottom line. Apple would essentially be supplying itself by integrating these companies.
Also when I posted a buyout market cap, I was actually overestimating how much Apple would pay. I was mainly observing it from a shareholder's point of view on how much of a premium they would need to accept an offer. If Apple made acquisitions like this, its possible it may send the wrong signal to the market about the company's growth strategy. However, I think it would have been much more efficient than simply paying a dividend and buying back shares.