Tuesday, May 4, 2010

Apple Steps up Startup Pace in Race with Google


Apple Inc. Chief Executive Officer Steve Jobs is accelerating the rate of acquisitions as his company vies with Google Inc. for mobile technologies and talent.

Apple said it bought two closely held companies last week, mobile-application startup Siri Inc. and semiconductor designer Intrinsity. Those deals came after January’s takeover of mobile- ad network Quattro Wireless and the December buyout of online music service LaLa Inc. Terms weren’t disclosed.

The timing of those purchases suggests Apple may be feeling pressure from Google, which has announced nine takeovers this year as it moves into new markets including mobile devices and the software and advertising that run on them. Apple got a new rival in the growing smartphone market last week when Hewlett- Packard Co. struck a deal to buy Palm Inc. for $1.2 billion.

“The pace has really picked up, there seems to be a strategic shift,” said Charlie Wolf, an analyst with Needham & Co. in New York. “It looks like there’s an acquisition frenzy going on between Google and Apple in the sense that there’s an increasing urgency on Apple’s part to stay even if not ahead of Google in the phone space and apps space.”

Apple, the maker of the iPhone, now counts Google and its Android operating system for smartphones as a rival in the rapidly growing market for mobile devices, software and ads. Worldwide smartphone shipments will jump 36 percent to 247 million units this year, researcher ISuppli Corp. estimates. The U.S. market leader is BlackBerry maker Research In Motion Ltd. with a 42 percent share, according to ComScore Inc.

Decide Now

With more than $23.1 billion in cash, Apple has plenty of money to keep purchasing small startups. To avoid publicity and possible rival bids, Apple in some cases has offered a target only a three-hour period in which to accept the terms of a sale, according to one executive with knowledge of the situation.      Patent filings may provide clues to potential targets, said Will Stofega, program manager at researcher IDC in Framingham, Massachusetts. Apple recently sought patent protection for mobile purchasing and touch-screen technology, he said.     A would-be acquisition in wireless payments is Vivotech Inc., a Santa Clara, California-based maker of technology that lets users wave their phone by a cash register to pay for items, Stofega said. Apple rival Nokia Oyj is an investor in a payment service called Obopay Inc. Vivotech CEO Michael Mullagh didn’t immediately respond to a request for comment.

‘Smaller’ Targets

Apple declined to comment on potential targets or its acquisition strategy, said Steve Dowling, a spokesman for the Cupertino, California-based company.

“Apple buys smaller technology companies from time to time, and we generally do not comment on our purpose or plans,” he said. Since returning to Apple as CEO in 1997, Jobs has made 13 acquisitions, according to Bloomberg data. Of those, five happened in the past seven months alone.

Apple rose $5.26 to $266.35 at 4 p.m. in Nasdaq Stock Market trading. The shares have jumped 26 percent this year. Google gained $4.91 to $530.60 and has declined 14 percent this year.

Another reason behind Apple’s spending spree may be that it wants to keep certain startups out of Google’s hands, Needham’s Wolf said, recalling that Apple and Google’s sparred last year over mobile-ad market leader AdMob Inc.

Jobs, speaking at a company event last month, said Apple tried to buy AdMob before Google came in and “snatched them up because they didn’t want us to have them.” Google’s $750 million takeover of AdMob is pending government approval.

‘Land Grab’

“They learned a good lesson with AdMob” because they had to settle for “second-fiddle Quattro,” said Brian Marshall, an analyst with Broadpoint AmTech in San Francisco. “They’ve got the resources. They have the team to do acquisitions now. It’s a technology land grab right now.”

Google, owner of the world’s most popular search engine, also is more acquisitive after pulling back during the financial crisis last year. Last week, the Mountain View, California-based company agreed to buy LabPixies, an Israeli developer of mini- applications such as games and calendars that Internet users can post on their personal pages. Over the weekend, Google announced the purchase of Bump Technologies Inc., a maker of 3-D software.

As for competing with Apple, Google won’t discuss other companies’ acquisition strategies, spokesman Andrew Pederson said in an e-mailed statement.

Last year, Apple hired a Goldman Sachs Group Inc. investment banker, Adrian Perica, to help the company develop deals, people close to the company said earlier this year. They say they believe Perica is the first dedicated M&A specialist on Jobs’s staff.

Risk Aversion

Even with the new attention to M&A, Jobs, 55, likely will maintain his strategy of focusing on smaller companies rather than taking on the risks of integrating large ones into Apple’s culture, Wolf said.

Counting long-term investments that the company can “liquidate in a day,” Apple had $41.7 billion in cash at the end of the last quarter, Broadpoint’s Marshall said. In comparison, Google had about $26.5 billion, he said.

Apple finance chief Peter Oppenheimer, speaking this month on a call with analysts, said the company’s investment priority continues to be “preservation of capital, which has served us well in the current environment.”

Investors said they’re happy to see Apple put some of its cash to use.

“I want them to reinvest their cash in the business,” said Michael Obuchowski, managing director at First Empire Asset Management Inc. in Hauppauge, New York, which oversees $3.8 billion in assets including Apple shares. “They are sitting on more than $30 billion in cash that is earning close to nothing.”