Apple Has Plenty of Reasons to Take Up ARM

Word on the street is that Apple (NASDAQ: AAPL ) is preparing to purchase
semiconductor maker ARM Holdings (NASDAQ: ARMH ), the company behind the CPU
used in the custom A5 chip that runs Apples iPad and iPhone. ARM CEO Warren East
told British newspaper The Daily Telegraph that it was in no way considering
being acquired by either Apple (since the company already is a primary customer)
or other rumored suitor Intel (NASDAQ: INTC ). The latter, being one of ARMs
competitors, would be subject to massive regulatory resistance were it to
purchase ARM. Wall Street certainly took the rumors seriously. ARM shares were
up more than 6% by midday Tuesday after 4.5 million shares had been exchanged.
Apple and ARMs fates have been intertwined since ARMs inception. The company
actually began as a joint venture controlled by Apple, VLSI Technology (now a
part of Philips (NYSE: PHG ) and Acorn Computers. This also isnt the first time
its been rumored that Apple was considering picking up the company. Last summer,
The London Evening Standard claimed Apple made an $8 billion bid for the
company. Apple does have good reason to want control of ARM, and not just for
its wealth of technology patents. The sheer number of technology partners that
patronize ARM is undoubtedly attractive to Apple. Most notable among those
partners is Microsoft (NASDAQ: MSFT ). It was at the Consumer Electronics Show
in January that Microsoft first showed off ARM chip-based computers running the
new Windows 8 operating system rather than Intel chips, a massive change from
previous Windows PC designs. If Apple controlled ARM, it would have multiple
options for opening a new revenue stream. It could choose to make ARMs
technology proprietary, forcing competitors to imitate the design and leaving
themselves open to Apples aggressive litigation tactics. Apple also could choose
to let ARM continue to conduct business as it always has, operating as a
subsidiary that gives Apple access to revenue generated by its competitors even
as its own products sell at monumental rates around the world. The acquisition
wouldnt break Apples bank, either. The Nasdaq exchange lists ARMs market cap at
just above $11 billion. With $76 billion in cash reserves, Apple could afford to
pick up ARM at that price or more. It still would be a small price to pay for a
company that would allow Apple to seriously cut into Microsoft and others
businesses. The acquisition makes for a win-win scenario for Apple. Whether ARMs
Warren East is serious about ARM not considering a sale to one of two major
American technology companies remains to be seen. Apple doesnt have a long
history of hostile takeovers, its aggressive acquisitions having been kept to
smaller purchases like website iPod.com or streaming music service Lala. The
Apple of 2011 is a different beast than the Apple of the past, though. Its a
company bent on completely controlling multiple markets, from smartphones to
tablets. Would it spend billions to control one of the biggest computer chip
makers in the west? Absolutely. As of this writing, Anthony John Agnello did not
own a position in any of the stocks named here. Follow him on Twitter at