Apple and ARM

By Eric Jackson
RealMoney Contributor
4/22/2010 10:53 AM EDT
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There has been speculation overnight that Apple (AAPL - commentary - Trade Now) may be interested in purchasing ARM Holdings (ARMH - commentary - Trade Now) for $8 billion. ARM is the company behind much of the intellectual property for microprocessors embedded within mobile phones. ARM was up yesterday on the rumors, while Apple was flat for the day after announcing its blowout earnings on Tuesday night.

As an Apple shareholder, I would support this kind of deal. Here's why:

1) Apple gets a pass from shareholders to stockpile its cash, but any normal company would feel the heat to do something with it.

On Tuesday night, Apple told us that it had just under $42 billion in cash on its balance sheet. To put that in perspective, Microsoft (MSFT -commentary - Trade Now) has $33 billion of cash,Google (GOOG - commentary - Trade Now) has $27 billion and Berkshire Hathaway (BRK.B -commentary - Trade Now) has $31 billion. Does Apple really need 35% more cash to fund its business than Buffett?

The press likes to talk about the cult of Apple and how all the analysts on the Street worship this company. Obviously, given its performance, admiration is deserved. But all companies -- even the most successful ones -- deserve to be questioned. And someone with authority should legitimately ask Steve Jobs and Tim Cook why they don't do something with their cash.

Some value-oriented shareholders would like to see Apple dividend this cash out, either through a one-time mega-dividend (which did nothing for Microsoft a few years ago) or through an ongoing large yield. Paying a dividend goes with Valley companies as well as a three-piece suit. Therefore, I think it's highly unlikely.

What else can Jobs and company do with it? Buy something. Some shareholders worry that Apple's never been an acquisitive company and that it would foolishly spend its cash if they went after a big prize. However, may I humbly ask: what was the last stupid decision Apple made? Sure, Apple TV hasn't fully panned out (yet), but that hasn't cost shareholders. When was the last Iridium-like decision that Apple has made? Probably Newton. And when was that? Pre-Steve Jobs' return. My point is, give AAPL some credit to make a smart acquisition. And, to me, ARM sounds like a smart acquisition.

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