Apple’s acquisition spree: case study (Part II)

Apple's acquisition spree - two biggest acquisitions

Apple is known for its many products and services. But fewer people are aware of its countless deals where the company swallowed up other market “players”. Part I of this case study looked at Apple’s acquisition of Emagic in 2002. The deal took the music world by storm and paved the way for the company’s upcoming products.

Here is Part II and Apple’s two biggest acquisitions to date. The case study looks at:

a) How the deals transpired.

b) What was achieved by Apple as the result of those deals.

Let’s dive in.

Deal 1: “I’m never gonna stop music, it’s like air to me” – Dr.Dre

Apple bought Beats Electronics for a reported $3.2bn in 2014 – which was a huge deal. In fact, it has been Apple’s biggest deal so far as of 6th of April 2022.

Here is the overview of Beats Electronics at the time of acquisition and post-deal events:

  • The company was founded in 2006 by music producer & rapper Dr. Dre and executive & producer Jimmy Iovine.
Apple's acquisition of Beats Electronics
Dr. Dre (left) and Jimmy Iovine (right)
  • In 2007 the founders partnered up with Monster Inc. to create the iconic headphones. First headphone model came out in 2008.
  • Monster deal ended in 2011, and Beats Electronics partnered up with HTC instead. HTC bought 50.1% of the company for $309mln.
  • In July of 2012 Beats Electronics bought back 25% of the stake it sold to HTC previously for $150mln. (In 2013 HTC exited the company selling the remaining shares for $265mln).
  • The same summer Beats Electronics acquired a music-streaming company MOG Inc. for a reported $14mln.
  • Two years later (2014) Apple bought Beats Electronics for £3.2bn.
  • June 30th, 2015 – Apple launched Apple Music.
  • At the end of 2015 Apple sold a record 48 million iPhones in the last quarter of the year.
  • 6 months after the launch  of Apple Music, Apple had 10 million paying subscribers for the service.

Takeaways from the above

Through its acquisition of Beats Electronics Apple achieved the following:

1. The company cemented its place as the absolute reputation leader in the music electronics industry by combining its own name and Beats Electronics image.

2. Apple’s talent acquisition strategy paid off once again. Beats Electronics’ CEO, Ian Rogers joined Apple as a consequence and took charge of its iTunes Radio service.

3. As part of the deal Apple combined product propositions for different sets of clients, capturing a larger share of the market.

4. Revenue growth. 10 million paying subscribers in 6 months. iPhone sales go through the roof. Beats Electronics at the time generates a revenue of £1bn.

5. Apple affectively cemented its place not only in the streaming industry but also in musical hardware.

A huge gamble, and one that paid off for Apple.

Deal 2: “Look inside” – Intel’s catchphrase

Apple acquired Intel’s Smartphone Modem Business in July 2019 for $1bn. This was a very different acquisition compared to Beats Electronics, with different objectives.

Apple's acquisition of Smartphone Modem Business

Overview of the Smartphone Modem Business, the deal and its consequences:

  • Smartphone modem means that personal computers can access internet without the use of physical cable lines.
  • In August 2010 Intel bought a German chipmaker, Infineon Technologies for $1.4bn.
  • Apple was previously supplied modems by Infineon Technologies, however opted in for the superior Qualcomm products.
  • The business at the time of the acquisition was losing money.
  • The company is acquired by Apple in July 2019 for $1bn.
  • 2,200 Intel employees join Apple.
  • 5G-enabled modems are the name of the game in the next few years.

Based on the above it looks like Apple’s acquisition was that of a struggling modem business. Why? Well, it wasn’t for the company’s top line.

Takeaways from the above

The outcomes of this acquisition are still playing out, but here are the preliminary results:

1. Apple now holds more than 17,000 patents in wireless technology.

2. Proprietary technology. The acquisition signals the company’s intent to ramp up its 5G efforts, and capture as much of the telecommunications market as possible. 5g-enabled modems developed by the company is what Apple is interested in.

3. The acquisition reduces Apple’s reliance on Qualcomm as the sole supplier of the above devices.

4. Apple continues to expand on its “in-house” technology streamline capabilities. I.e. – it has more control over the whole process, from components’ production to the products’ release. This, in turn, means: lower costs, higher margins and better quality.

5. Talent acquisition, once again. When over 2,000 skilled personnel join a company – expect new product releases coming soon.

6. Apple avoided the scenario where their competitor buys a struggling company and makes use of its technology.

In conclusion

Two huge plays by Apple. As the result of its acquisition of Beats Electronics, Apple built on its dominance in the music industry. The Intel Modem Business deal was a purely technical play, which prepared the company for the introduction of new 5G technologies. It helped streamline Apple’s production process further and provided synergies with its existing businesses.

The last part of this case study (Part III) will look at Apple’s most recent deals and how they might play out based on its historical acquisitions.

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