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Sony shares up on speculation of Apple interest

TOKYO (Reuters) – Shares of Sony Corp rose nearly 3 percent on Tuesday as traders cited media reports speculating that the Japanese electronics maker could be a potential acquisition target of Apple Inc.

via Sony shares up on speculation of Apple interest – Yahoo! Finance.

There’s a sucker born every minute. That phrase, (erroneously) attributed to a major benefactor of my Alma Mater, continues to ring true today.

Although Steve Jobs once admired Sony, the company today contains nothing of value to Apple. A disruptor is unlikely to buy the company he just disrupted. Would Sony have bought Westinghouse? Would WalMart have bought Sears? Would Microsoft have bought IBM in the 1990′s?

When considering an acquisition the chances are that the asset being purchased is going to ask a premium price. So the buyer has to answer this question: what is it about the asset that makes it worth more than the market price?

There are three (and only three) sources of value that a buyer can buy:

  1. The resources (intellectual, physical, contracts, channels or employees)
  2. The processes (the algorithm of how those resources are put to use)
  3. The business model (the way the assets and processes and applied to create profits).

A company like Sony has some resources but its processes and business model are obsolete. Should Apple pay a premium for Sony’s assets? I don’t see a reason why.

  • Iosweekly

    This makes no sense as a possible acquisition.

    The only glimmer of a possibility I see is apple looking to acquire Sonys movie studios and content back catalogue – but even that is a far fetched idea – right?

  • Donald

    Sony makes nice Bluray-players! ;-)

  • Iosweekly

    On reflection, a play for sonys media assets isn't that inconceivable.

    I think apple is giving a limited amount of time for studios and networks to jump onboard with iTunes rentals etc, but after a certain point its going to bite the bullet and start owning some content itself. The content it doesn't own it can get on it's devices through third party solutions (they have already started with netflix on appleTV etc)

    • Joe_Winfield_IL

      They'd finally get the Beatles :)

  • MattF

    FYI, this Fortune article has a list of Apple's recent acquisitions:
    http://tech.fortune.cnn.com/2010/10/25/why-apple-

  • Alan

    Thank you Horace for providing some sanity to this ridiculous rumor.

    Now the SanDisk idea that's floating around makes much better sense (to me at least).

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  • Hap

    I'm not sure Steve would ever buy a large company. Too much cultural baggage to integrate.

    As Simon Sinek put it in his TED talk, "People don't buy what you do, they buy why you do it." Finding a partner which is coming from the same place and which adds something not otherwise available would be difficult. How many corporations want to "save the world?" While Steve keeps his eye on the ball with a mission of "making great products," he is still a confessed child of the 60's. I hope that his and our President's passion for education will enable Apple to make an enduring contribution in that area.

  • dave

    I don't think Sony has nothing of value. They have the living room which Apple wants in on. Audio/Video equipment, brand name, etc. They also have movies/music.

    So Sony does have things of interest. However, I do agree Sony is too big and broken to want to bother with it. It would be too distracting and many businesses would have to be shed.

    • TomCF

      Sony does not have anything in the living room that is any different than any other company. Sony's electronics are as cluttered as everyone else's products. Apple would have to redesign most of Sony's products, and if they're going to redesign it anyway, why bother?

      Since Apple wants to make the whole widget, AT&T makes more sense. Buy a pipe, and make it the best pipe. They can't design their way into spectrum.

  • Jason

    I think what's happening here is that companies are leaking rumors of a possible Apple buyout to increase their stock price. That seems to be the secret ingredient these days, telling everyone that Apple wants to take you to the dance.

  • OpenMind

    How about a hostile takeover of Google. It has resources, algorithm, and business model. And a side benefit is elimination of a competitor.

  • Joe_Winfield_IL

    Pluses

    -Sony has a historical reputation for building slightly better products at a slightly higher price.
    -Sony is big on design.
    -They make their own stuff.
    -The acquisition wouldn't create regulatory or antitrust issues, and it wouldn't suddenly thrust Apple into competition with its current partners.
    -They have a massive library of content that Apple could make semi-exclusive, at least for streaming services.
    -PS3 would be very attractive with ATV built right in.

    Minuses

    -They have two totally different cultures
    -Sony is big and bloated
    -Sony products have much less caché than they once did.
    -A typical market cap premium for the acquisition would leave Apple with relatively little cash

    It is more intriguing than most of the suggestions being thrown about, but it still seems too out of Apple's nature at the end of the day.

    • Marcos El Malo

      Cachet is how it is written, but you spelled it like it sounds. Good word choice!

  • Yowsers

    I was hoping they would buy Adobe and re-work Photoshop (which has hit Office levels of bloatification…)

    There's more to argue against that idea than for it. It would make more sense for them to acquire a Photoshop competitor and re-do image editing (not just photo editing) like they re-imagined the office productivity apps in iWorks. Nothing radical, but a cleaner UI and touch-optimization would be an interesting challenge to Adobe.

  • Jim

    Would Apple gain from a DirecTV purchase? Seems DirecTV has access to the content and bandwidth. Is it possible to set up a cellular network using DirecTV bandwidth?

  • Gandh

    What does Sony make that Apple doesn't already make or do better than Sony? With the exception of content (music and movies), nothing. And buying a content company is what lead to Sony's decline. Besides, Steve Jobs is the largest shareholder of Disney. Who needs content when you have Mickey Mouse on your side?

    • Major Plonquer

      What does Sony make that Apple doesn't already make or do better than Sony?

      Playstation.

  • Alexkhan2000

    Nearly 60% of Apple's business is now overseas and that trend will continue as Apple has barely tapped the huge growing markets in China and India. Apple has to think global. A lot of these M&A ideas that are being brandied about are strictly focused on the US market.

    As for Sony, it just isn't going to happen. Sony may have a few businesses and assets that Apple may want to cherry-pick, but those things certainly aren't worth the huge baggage and bloat that come along with them.

    I believe Apple will think long-term – whatever that may be – and probably continue to invest in or acquire small companies we've never heard of before. It will mainly be about IP, emerging technologies, engineering talent, and strategic alliances that will integrate seamlessly with what Apple already does and add value. I just don't see any of these aforementioned names fitting in with Apple.

    • Jim

      Why do you think Steve made the commnet WRT paying dividends? I mean if it was small aquisitions that Apple intends to make, why hold on to $51B for the sake of making small aquisitions? It seems Apple has enough to purchase the small aquisitions they have made in the last 10 years ten times over. If Steve would have come out and said they were holding on to the cash in order to ride out the economic situation, then that would have made sense, but to make a huge purchase would seem more logical. What are your thoughts?

      • Alexkhan2000

        Apple could make a big acquisition or investment(s) but I just don't think all these names being mentioned make any sense or provide a good fit. That's all I'm saying. There are many companies that most people not in the tech field do not know about. Majority of large M&A's do not work out. That has proven to be the case over and over again. It would become a major distraction and drain of resources – not only the cash pile but on the focus of Apple's top leadership.

        Steve Jobs could just be bluffing for all we know. Maybe he's just buying time until Apple accumulates $100 billion. Who knows? The way things are going for Apple, it wouldn't take long to reach that point. Near-term, I think Apple's supply chain is their biggest concern as they expand into CDMA networks with the iPhone and continued growth of the iPad. Of secondary concern is additional content for Apple TV and making this "hobby" into a serious business. But neither of these issues really require any major acquisitions. If anything, a major acquisition would dilute Apple's focus in these areas that need razor sharp focus and execution.

      • unhinged

        IIRC, Steve said that the purpose of the cash was for strategic _purchases._ While most people seem to think this means buying other companies, it could also mean buying exclusive rights to the IP, services or production output (10-inch screens, Smart Metal, etc) that not only hedge against pricing fluctuations but raise the barrier for entry by competitors.

      • Jim

        $51B is allot for that purpose. I would think they could accomplish those goals with a fraction of the cash they have. Either they are going to make a big purchase or, like Alexkhan200 said, he is bluffing.

    • Major Plonquer

      60% of Apple's sales are overseas. That sums up Apple's problem perfectly. 96% of the market is overseas. And domestically Apple are only getting around 12%. In summary, Apple are a USA company.

      Their products are not well accepted in Asian markets. They have virtually zero presence in China (450 million PCs and 900 million mobile phones). This is NOT because Apple haven't tried to sell them here but because their products are not liked. iPhone, for example, makes no attempt atChinese language support. To use an iPhone a Chinese user has to learn a new language – pinyin – half English, half Chinese.

      How do you think Lenovo/IBM's products would sell in America if you had to learn Chinese to use them?

      To make matters worse, Apple do not have the technology to support complex languages or handwriting. Nor are they capable of developing it.

  • Alexkhan2000

    One more thing:

    Sony's TTM revenues is $89 billion and Apple's is now $65 billion. Sony has 172,000 employees while Apple has around 46,000. Sony's net income was a measly $270 million (0.3% net margin) for the TTM while Apple's was $14 billion (21.5%). That's nearly 52 times more earnings for Apple on far less revenues. Why in the heck would Apple want to take on this kind of grotesquely bloated dinosaur? Plus, Japan would never allow it to happen. Even minority stakes investment makes no sense. Sony's stock price is about the same as it was 5 years ago. What return will Apple get for investing in Sony?

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  • Marcos El Malo

    Sony is wounded. What if they are forced at some point to sell assets? What if they have to sell Sony BMG? That division will go to the highest bidder. It could happen to any of a number of companies that own content. Companies get broken up into component parts or sell major assets all the time.

    • asymco

      Sony's content business is very nearly worthless. You can look at the value of Warner for comparison (market cap $803 million). The biggest problem with the industry is that due to anti-trust issues it cannot be consolidated any further. There probably is only room for one or two players but the current four can't merge. They are all withering individually. The whole industry as a result is probably worth less than what Apple puts away as cash in one quarter.

  • Major Plonquer

    This rumous is NOT as ridiculous as it sounds. But forget about content. This has nothing to do with content.

    Microsoft now has a strong presence on all 3 screens – computer, phone and livingroom. X-Box has been quietly kicking butt for the past two years and there are now more X-Boxes than there are Macintoshes. WP7 will trash Apple in all of the world's larger markets, particularly in Asia where iPhone has already bombed. The volume effect of Asia and the fact that there is strong competition on WP7 will see prices fall far below what Apple can possibly offer and this will feed into even larger sales. This is precisely what happened with computers and explains why Microsoft has over 94% and Apple has 2% (globally).

    Apple is panicking about their lack of presence in the home. Apple TV is frankly, a pathetic attempt to patch this when you compare it to the power and popularity of X-Box. Besides Microsoft there are only two other companies with any meaningfull presence in the home, Sony and Nintendo. So it has LONG been an industry-insider rumour that eventually Apple will need to acquire one of these two. Or die.

    • asymco

      Extraordinary claims require extraordinary evidence. You're making extraordinary claims without any evidence.