Apple Considering a Break-Up?

rlthomps-1 writes "Despite Apple's recent sucesses with the iTunes music store and the latest round of PowerBooks, TheDeal.com has an analysis of the options that Apple investors might force the company to take, including a breakup into separate hardware and software companies, a merger with both Universal and Pixar, or a leveraged buyout by private investors. Their analysis points to Palm as a case study for a successful breakup of a company that made both operating systems and hardware in a competitive market. Could separate Apple hardware and software companies revitalize the brand and challenge Microsoft's monopoly?" He forgot to call Apple "beleaguered;" however, he did say their decades-old position is "untenable."

Comments

Nothing new here

[grouchomarxist]

There is nothing new in this article that hasn't been said before and argued to death. This will never happen under Jobs' reign, as this is exactly what he reversed after he returned to Apple.

Some points:

There is still no sign that non-tech people using PCs will switch to an Apple-built OS, especially not in the numbers that would justify the port.* (Note that PC users currently aren't switching to other OSes in big numbers. Remember how Sun was considering cancelling Solaris for Intel?)

The jury is still out on Palm Source. It is far too early to consider it a success.

There is no sign that Apple shareholders are particularly discontented.

*Yes, we all know that the port exists. The problem is the cost of maintaing the port as a consumer product (esp. all those drivers).

Re:Nothing new here

[drunkenbatman]

Quite to the contrary, there is ample evidence that Apple shareholders are positively thrilled.

No, there isn't.

I've made a tidy sum in the past month with my modest number of shares, and there are lots of folks out there who hold way more shares than I have.

You made most of that is less than a month- just a few weeks when Apple's price went from $13.8x to $18 due to the music service buzz. Let's compare that to the last few years...

If you just made a tidy sum, you just bought recently... And you are not the Apple shareholders mentioned or are who unhappy. Individual investors (well, 99.999% of them) move penny stocks. They don't move a stock with a market cap of 5.5+ billion. Any existing Apple shareholders mentioned in the article didn't sell 3.5 years ago at $60-$75/share, or buy at $13 and sell recently at $18. We're talking blocks of tens of thousands of shares... funds, institutions. Not you and I on tdwaterhouse or scottrade.

From 1990 to 2000 Apple stock hovered between the teens and the 20's. In late 1999 and 2000 there was a really fun spike and subsequent split. The stock split at around $50 in mid-2000, a 2-1 split... making each share worth ~$25. The stock jumped back to the very low 60's, then plummeted to the low-to-mid-teens in the span of a month or so. Not a big shock, lots of other stocks had the same thing happen... but many have shown actual recovery of their price and sequential growth. Not all have, but then again gateway shareholders aren't exactly happy either.

Since then it's been able to hit the mid-20's for a few months at a time, but always falls down to the low teens again... or hovers at the $15 mark. It stands to reason then that most who have bought have picked it up in the mid-20's or mid-teens (i'd have to go over transactions looking for large blocks, but that's what I'd guess) and over the last 2.5 years that doesn't translate into much growth. If they bought before the split or right after, they're still waiting for any growth.

So, over the last 2.5 years the stock has hovered in the low $20's twice, and in the low teens for the rest of it... usually with it's market cap at ~5.5 billion. Considering Apple generates 5.5x billion in revenue, and has 4.x billion in cash... basically all the analysts who have followed Apple's financials and make the big-stock-fun purchasing decisions have decided that Apples hardware and software business was worthless as it was usually operating at a loss with interest from its horde of cash making up the bulk (or all) of the profit.

So, don't count your chickens before they hatch- The stock price jump so far has been on the hope that the music store could turn into an actual revenue stream for a company which is seeing all of its others shrinking (except in very select areas, such as the iPod but the money made from them is a drop in the bucket). It could keep going up if there is continued exponential growth of the service, or it could drop right back, or hit the mid-20's again and die again as it seems prone to do.

For you and I (yep I made a bundle by buying at $13.x too... but still waiting on my $24 shares to pay off) that might be fine... for some huge mutual fund where Apple has been the under-performer of their fund quarter after quarter, they aren't happy with Apple's performance.

I mean look. If Apple's Mkt Cap is 5.5 billion, and they have 5 billion in cash, if you bought them chances are you could make a billion selling all their plants, contracts, intellectual property, etc and come out of the deal with half a billion in profit. When a company is in that situation they have to do something and lots of people (yes, large shareholders) feel that whatever Apple's been doing has either been ineffective or they just haven't been doing enough.

drunkenbatman

Wholly Owned Subsidiaries

[Johnny Mozzarella]

Apple currently has several wholly owned subsidiaries such as:
FileMaker - database sw
Emagic - audio production hw & sw
PowerSchool - student information system sw

These subsidiaries are all primarily software companies that were purchased to round out Apple's offerings on their platform. Steve has long touted Apple's strength being it's ability to control and integrate both hardware and software.

I could however see some of the following happen:
? WebObjects sold to FileMaker
? Webobjects becomes it's own company
? Alias/Wavefront acquired as W.O.S.
? AMD($2.6B) acquired by Apple($6.8B)

Re:Wholly Owned Subsidiaries

[Anonymous Coward]

? AMD($2.6B) acquired by Apple($6.8B)

I'm not sure what you base this on, but you wanna hear a funny story? You know where the originally Apple/AMD story came from? It's hilarious.

One of the rumor sites picked up word from inside Apple that the company was working on AMD. Naturally, they ran the story as speculation that Apple was looking at either new CPU's, or new embedded microprocessors, or something like that.

Except it was all a big mixup. Apple wasn't working on AMD, the company. They were working on AMD, the auto-mounter daemon. They were working on fixing some bugs that were keeping AMD from working on OS X.

Funny, huh?

Argh!

[Dixie_Flatline]

Geez, did reading that article make anyone else's temperature rise? The whole thing is a mishmash of poor conclusions based on shaky assumptions, with a little bit of misinformation thrown in. Apple doesn't have a 'proprietary PPC' microprocessor. Why would people want to buy OSX on their PC? Half the non-computer people I know don't even know what version of WINDOWS they're running. And given that Dell and HP have had such a time trying to offer Linux on their machines without Microsoft breathing down their necks, this author and those analysts think that OSX on Dell is going to fly? What fantasy world do these people live in?

Splitting up Apple MAY be a good idea, but the way they propose and the conclusions that they come to are all stupid. If it's a good idea, it's not a good idea the way THEY'VE laid it out.

For anyone that hasn't read the article yet, don't bother. It's another one of those Apple-is-already-dead-but-they-just-don't-realize- it-yet articles.

Postcard from the REAL World

[gcondon]

Even though there are several business practices which are uniquely prohibited for monopolies, rest assured that there are plenty of other illegal acts that businesses can and do commit - including Microsoft. Many of the resulting cases are settled out of court, oftentimes with agreements that are disproportionately favorable to the 800 pound gorilla.

If you are really so interested in the REAL world, it's about time that you accept the fact that Microsoft's big break came from striking a particularly favorable deal with some soft-headed IBM execs to sell a product that they bought off another company which in turn blatently stole from a genuine computer visionary. Their success has largely derived from using that break to foist a series of mediocre products on a largely ignorant public until they reached the critical mass necessary to quash nearly all perceived threats.

I hope that Apple continues to thrive. First, because I love an underdog. Second, because, whenever you use one of their products, you can tell that the people who made them really love computers - much like myself. I have never had that experience using anything made by Microsoft.

porting OSX to WIntel is insane

[uncadonna]

Wintel systems dominate the "market", to some extent, not despite the fact that they are dreadful but because of it. People feel compelled to upgrade in the forlorn hope that MS will get it right this time. That means more dollars spent on hardware to support the latest re-bloat of the OS.

I am convinced that Apple has much larger mindshare than its market share shows. Apple users LIKE to use their Apples, and use them a LOT for a LONG TIME. I would bet the usage per dollar expended on Apple machines is much more favorable than for Wintel boxes.

As a consumer or a developer of applications that depend on good UI design and solid infrastructure (as opposed to cutting-edge performance-critical applications), I am interested in finding systems that work for me for a long time, not in finding systems that compel constant infrastructure hassles, learning and retooling costs, and on-hold music from unhelpful help desks.

THe existing Apple strategy will gain total sales and market share but only slowly. (At some point, it may actually shrink the total market size, as it returns more value to the consumer.) This may be small consolation for investors. The current strategy has a good chance of winning in the long run, but the turnaround will continue to be slow.

Splitting Apple won't help from the financial point of view.

Consider. Why does Apple suddenly have stunningly good software? There are three parts to the answer. 1) capitalizing on excellent pre-existing software (BSD and NextStep) 2) hard work by talented people and 3) a closed, finite set of hardware platforms.

Support random Wintel boxes and away goes your ease of development and low cost/high quality support.

If Apple splits in order to sell OSX to the WIntel platform, the hardware division suffers direct competition from Dell and the software division gets huge support nightmares in exchange for either a tiny market (post-OEM OS installs) or a market that MS has shown no inclination to share (commodity Wintel platform OEM installs).

There's no great market advantage to Aqua screens of death. Though I am sure they would be more attractive and polite, I don't think that's the best way to gain market share.

There are tremendous productivity and reliability advantages to an integrated hardware/software company for commodity machines, and Aplle stands alone in owning this space. Apple has it right and should stay the course.

If the investment community tries to derail this, Apple should indeed go to a privately held company, but held by people who appreciate the amazing work they have recently done and intend to hold to the plan to capture the eventual return. I wonder if ownership by a user consortium might actually work to protect the platform from this muddleheaded strategy.