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Timothy Perdian
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Investing in stocks or twenty years, undergraduate degrees in Englis and Genetics from the University of Wisconsin. M.A. in Creative writing from University of Wisconsin-Milwaukee. And a Doctor of Chiropractic degree from NCC. Post graduate Certificates in Worker's Compensation (California),... More
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  • Three Companies Apple Needs To Buy Yesterday-But Won't 0 comments
    Apr 10, 2013 8:04 AM | about stocks: INTU, NUAN, SAP, SSNLF, ORCL, AAPL

    Companies grow in different ways. Oracle (ORCL) and Cisco (CSCO) have a long history of making excellent acquisitions. Both companies make it clear to shareholders that they will continue to innovate through acquisitions whenever they are beneficial to the share holder's interest. Each company discusses the strategy on their respective web sites. No other technology companies have been as successful as Cisco and Oracle at implementing this strategy and then integrating the new companies into their corporate frame work.

    The purchased companies bring in new blood, patents, technology and income. Both the above companies have led their respective sectors for years by virtue of both developing new technology and buying advancements when it was necessary or expedient. Microsoft (MSFT) on the other hand has had a history of developing technology that its competitors have through reverse engineering or copying. However you want to say it. Microsoft ends up with a browser similar to Netscape without buying it, mysteriously Word Perfect goes out of business and is replaced by Word, Bing has a familiar look to Google (GOOG) and the list goes on. Apple (AAPL) has made a few strategic acquisitions but not at the rate of Cisco and Oracle. Apple improves upon products that are in the market place but not by merely duplicating them. Apple altered the phone and digital music markets through mostly in house research and development. With Jobs at the helm this has been an ideal path to corporate success. Now though the time has come for Apple to use its cash to save time and money on research by leapfrogging its competitors through acquisitions. The visionary no longer exists. It is that simple and Apple can't move forward without new ideas and cutting edge technology. Current management has dug in its heels and refuses to see the obvious: People want larger phones and Phablets like Samsung's (OTC:SSNLF) Galaxy Note and S class phones. Voice recognition technology is the new frontier and soon the phone should work as a credit card one way or the other. The voice recognition technology in Siri gave Apple a huge shot in the arm after Mr. Jobs passed away. However, voice recognition technology is just in its infancy. Nuance (NUAN) is the leader in that field and to counter the many complaints about Siri (especially in non-English speaking areas) and to insure the future belongs to her and Apple, Nuance must be purchased.

    In a previous article I made the case for why Apple should by Nuance so I will only summarize here. Briefly Nuance brings 4000 plus patents, cutting edge voice recognition technology, Swype, and 1.5 billion in revenues to add to the top line. Nuance has a market cap of 6.5 billion. If it were purchased for 8 billion Apple would barely miss the money and the benefits would be legion. Try to think of a few reasons why Apple would be worse off with a Nuance acquisition. The projected 25 percent return is just icing on the cake. The company is well run and has no debt. This is a no brainer if there ever was one.

    While that would move the iPhone forward there is the Mac itself to think about. Last quarter Mac sales were down for the first time since 2006. In fact they were down a staggering 22% (a billion dollars in lost sales).

    Current Apple management shrugs off the declining sales and claims Mac users are buying iPads instead. To be blunt this is simply not true. Mac sales declined more than overall PC sales. If the decline were due to switching to iPads from laptops one would expect a decline in PC and Mac that was equal.

    Another explanation is that the Mac is no longer giving users a reason to upgrade or more importantly PC users a reason to switch. The plethora of criticism and frustration of the Mac community over the Lion and Mountain Lion OS X upgrades explains some of the reluctance to buy new computers. Many programs run under Snow Leopard and do not run under the Lions. Quicken, Auto Fx, and others that worked on Rosetta can't run on Lion because Apple ended Rosetta. Rosetta is the code that made the switch from the PPC processors to the Intel chips (INTC) painless. Curiously it would have cost Apple nothing to continue Rosetta, the code was already written. It just makes the OS larger. Not a big deal in today's world of GB hard drives. This frustration has led to many web sites and forums that give instructions on how to convert your Mac back to the old OS, Snow Leopard, and to junk the Lion (and Mountain Lion) systems. When has that ever happened before? Apple users have always embraced change, but this and the other non-upgrade change for the sake of change features have created a back lash among Mac devotees. To name a few, the absence of the search box in Safari, the disappearing tiny scroll bars and the inconsistent behavior of option+click to open a link in Safari. Sometimes the link opens next to the window you are looking at an sometimes it opens at the end of all the tabs, prior to the upgrade the links always opened at the same place. Now it is hard to find the link if you have many tabs on your browser.

    On the Mac itself there is no financial program that can compare with Intuit's (INTU) Quicken. And the Quicken most people have used for years runs only on Snow Leopard. So either Apple should write one themselves or just buy Intuit and make Quicken work for the Mac. The absence of a good financial program is a glaring hole in the Mac software library. It is a big reason not to upgrade or buy a new Mac. So Apple must either buy Intuit and make a deluxe financial program for the Mac that will seamlessly upgrade all the older versions of the program and integrate with FileMaker Pro, Apple's previously superb database. Here again in FileMaker Pro Developer edition Apple has dropped features long used by software writers for no reason. To name a few the auto select same kind (one check selected all the data entry fields) and the 3D look that was a hallmark of the program for years. Although buying Intuit would not solve all of Mac's problems it would remove one of the largest barriers to upgrading to the Lion or Mountain Lion OS's and give Mac users a reason to buy a Mac instead of a reason to keep their old one. Clearly Intuit's technology would help pave the way for the pay by phone instead of credit card tsunami that is coming to the world of consumers. Apple cannot afford to let Samsung and Google leap frog them again.

    Sap AG (SAP), however, is the stock that can change the game for Apple. With one bold stroke Apple would cease being a small player in the enterprise to become the dominant provider for both hardware and software for companies around the globe. Purchasing SAP AG would use up most if not all of Apple's cash. But the merger would allow Bill McDermott, the current co-CEO of SAP AG to take the same position at Apple. He could sell iPads and software to corporations around the world. With all of SAP AG's software set to run on iPad, iPhones and Macs hardware sales would increase geometrically. Apple would become the Microsoft of the eighties and nineties. Every government and corporation would use Apple hardware and software. This could result in a trillion dollars in sales in ten years. In addition Bill McDermott could do the new product presentations. He is very articulate and has some charisma. Unfortunately Steve Jobs surrounded himself with capable people not exciting leaders, this would change over night if Mcdermott came to Apple.

    The three acquisitions above are not going to happen. Apple's current management has shown no desire to think outside of the box. They are content to circle the wagons and maintain the status quo. Steve Jobs was a man who would push the envelope and test limits. He surrounded himself with people who helped him find the right place to stop, now with no one to challenge leadership they all think where they are is just fine. Unfortunately for Apple users and shareholders that is not going to change any time soon.

    Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: I know you get lots of articles on Apple, I believe my articles offer a unique perspective. Thank you in advance for giving them a chance.

    Themes: long-ideas Stocks: INTU, NUAN, SAP, SSNLF, ORCL, AAPL
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