We all know by now that Apple (NASDAQ:AAPL) is sitting pretty on $137B cash, which currently constitutes a third of Apple's $413B market cap (as of Jan 27, 2013). That cash is losing value to inflation. Repatriating it to issue a dividend would incur significant tax liabilities, and the company seems loath to engage in share buybacks.
In the meantime, Apple's growth has come under serious scrutiny and skepticism, so we've pulled together a list of three major M&A (mergers and acquisitions) opportunities for Apple to start putting some of that cash to good use. These ideas are not all new, and their total values is currently over $30B.
1. Twitter: Twitter is rumored to have a current valuation of about $10B, for secondary employee stock option trading purposes. There are three good reasons why Apple should acquire Twitter: First, Twitter is a master of engagement and sharing. As Apple's hardware loses its uniqueness and shine, Apply needs to think increasingly about growing revenues through owning and controlling social engagement, content and activity. Second, Apple integrating Twitter could give Twitter a big leg-up in the fight with Facebook for users' time. Apple could thus make Twitter a lot more valuable. Third, because Apple's web services are pretty miserable, notably iTunes, iCloud, Ping etc. Twitter knows how to get those kinds of services right. Particularly as Apple TV comes on line, that could drastically impact Apple's business.
2. Waze: Waze is a target for Facebook (NASDAQ:FB)(http://www.merjerz.com/deals/facebook-waze), and rightly so. But Apple needs Waze desperately. Apple's recent maps fiasco underscores its need for a good mapping solution. In addition, if Apple used Waze for its mapping solution, a core iPhone function would be built on social engagement, and would be the first integral Apple service built on a social layer. This would considerably raise the bar for Android smartphones. Future music, news, stock information and other functions could all be crowd-driven social apps, and this would give Apple back an edge that it has been losing. This has the potential to drastically change the way services are deployed by Apple in the future and give Google (NASDAQ:GOOG) and Samsung a real run for their money.
By acquiring Twitter and Waze, Apple could put smartphones on a new trajectory; they could become fundamentally social devices, rather than phones with mobile browsers and a good apps platform. On a whole different and less transformational level, is:
3. Corning (NYSE:GLW): Corning makes the specialty glass used in iPhones and iPads, and is an R&D driven company that constantly puts out new and improved product. It trades at very low multiples (P/E around 8), and issues a nice dividend; in general it looks undervalued, and Apple can own Corning's IP around glass surfaces for its products. That is nothing to be snuffed at; Corning invented Pyrex, makes windows for NASA's space ships, and is at the forefront of OLED surface designs. Their IP should be critical in the next generations of TV, entertainment, and smartphone devices, and Apple could own those innovations.
In summary, Apple has a chance to use its cash to undertake some transformational M&A (Twitter, Waze), as well as to lock in some incredible R&D capabilities that will help it own a bigger piece of the TV pie it so desperately wants.
Disclosure: I am long FB, GLW, GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.