Apple is considering splitting into three companies and selling of its computer division. Yes I make that up. But it was equally crazy If I was telling you in 1995 IBM would get out of the computer and laptop business. The Thinkpad was doing so well and they were good machines. Unthinkable? Well they did.
This is not happening anytime soon, at least when Steve Jobs still the CEO. Like many other Apple fans, I don't think it is a good idea. But what do I know. One day, consultants and i-bankers will be pitching to the board and shareholders that splitting up the company can increase total enterprise value and getting out of the hardware business are a good idea for Apple.
Manufacturing will be outsourced to factories in China (which is already the case) and the will license the MacBook name to multiple manufacturers. That way Apple can focus on competing on high value opportunities such as mobile, software, content and even advertising.
When Steve Jobs spoke about Google’s acquisition of AdMob last year. “Google came in and snatched them from us. We bought a much smaller, but good company Quattro,” he said. Now with iAd, Apple directly targets Google. Jobs thinks user behavior is different on the phone vs. the PC because the 200,000 plus apps currently available on the iPhone “get you into every corner of the internet. I think he is right. The PC paradigm is outdated.
Apple business strategy will evolve and eventually some of their strategic assets will slowly become strategic liabilities. Apple’s war chest will get bigger and bigger (it is already big with almost $40 billion in cash I the bank). A significant accounting change now allows Apple to book revenue sales of iPhones immediately instead of over two years sales as before. This moves revenue to nearly $15.7 billion and per-share profits to $3.67. Think about this: Apple reported more revenue in the first quarter of 2010 than it did for the entire fiscal year in 2005. We can see this trend continuing, just looking around you and see people with all walks of life taking an iPad wherever they go. It is a mass product in day one. Probably the first Apple product that needs zero time for diffusion.
In addition of coming up with the next killer iSomething, now Apple also needs to figure a way to use its cash to provide a decent return. What can you buy for $40 billion?
So how do we divide up Apple? Let’s start with iPod/iTunes, it is a media business. It should focus on content distribution and the business model is a great one. With next generations of Apple TV, this is a great media play. Mobile is a high growth business and will be for 10 more years at least. The Apple iPhone and iPad platform have given them a distinct competitive advantage. Apple’s advertising business? It is unclear their strategic intent to play in the mobile ad space. Apple computers keep the software and license other to produce them.
