Apple Inc.’s (Nasdaq:AAPL) potential $3.2 billion acquisition of supercool headphone maker Beats Electronics shows that CEO Tim Cook is beginning to wheel and deal in a fashion that Steve Jobs, his legendary predecessor, would have found repugnant.

The Cupertino, Calif.-based company’s interest in buying Beats Electronics, which also is home to an online music service, was first reported last week.

The market on Friday hated the news, with Apple losing more than $2 billion in market capitalization. Investors believe that Apple is either paying too much for the company or it’s not a simply not a strategic or tactical fit.

Tech nerds immediately took to social media declaring their hate of an Apple deal for Beats.

Out of Ideas?

“Buying Beats Audio […] is a good sign that Apple is pretty much out of ideas & unable to come up w/an anti-Spotify strategy,” wrote Om Malik, a longtime technology writer turned investor, on Twitter. Such a comment was typical. Malik also said the Beats’ headphones were lousy and its streaming service was junk.

“I am down on this deal,” Malik wrote later in a blog. “This is a reactive move at best. Steve Jobs’ Apple would have pushed to make something better, but even he struggled to come to terms with Internet and Internet thinking. That hasn’t changed.”

The collective wisdom among the nerds is that Apple doesn’t make big splashy buys. Under Jobs, Apple’s legendary success came from building ultra-hip, revolutionary hardware: the iPod, the iPhone and the iPad. Cook became CEO in 2011, after Jobs’ death.

Build vs. Buy

Apple doesn’t buy, it builds, and the day it begins to buy it’s no longer Apple.

Beware such groupthink. Beats Electronics, with about $1.3 billion in annual sales, is a tantalizing target. It’s been reported that the headphone company saw sales grow five times from 2010 to 2012. What other tech company has grown revenues at the same pace as Beats?

Founded by old school hip hop performer and producer Dr. Dre and legendary rock producer Jimmy Iovine, Beats Electronics epitomizes cool. Trendsetting hipsters love the Beats Electronics headphones, and its streaming music app could perhaps fit nicely into the iTunes franchise, which has seen its market share of music sales sag to about 50% from 70%.

The smart money on Wall Street clearly has a shine for Beats Electronics. Indeed, legendary private equity investor The Carlyle Group paid $500 million for a little less than a half-share in Beats last September. At the time, the company was valued at about $1 billion. Beats’ value has tripled in about eight months because it dominates the market with about two-thirds of the sales for high-end headphones at $100 or more.

Apple on the Prowl

Cook sees Beat’s lead in headphone hardware as a good match for how Apple dominates consumer electronics hardware. Just this month he said that Apple “was on the prowl” for acquisitions.

A $3.2 billion price tag on Beats would make it the largest acquisition in Apple’s history.

Investors should remain calm. The potential price for Beats is a fraction of the $19 billion in cash and stock that Menlo Park, Calif.-based Facebook Inc. (Nasdaq;FB) said in February it was paying WhatsApp, a messaging service that works across different smartphones. Facebook, like Menlo Park-based Google Inc. (Nasdaq:GOOG), makes is money by getting people to use software and Internet services to generate traffic. Apple’s focus is high-end hardware. That’s why a purchase of Beats makes sense.

Huge War Chest

And even after such a deal, Apple would have about $16 billion in cash for more deal making and another $190 billion that remains parked offshore, free and clear of U.S. taxes.

What the nerds miss is that this kind of deal is not intended to transform Apple. Rather, it will put Dre’s headphones next to Jobs’ iPads and iPhones in Apple stores so kids this holiday season will have more reasons to buy Apple products.

The Bottom Line

The nerds should relax. Cook still has time to prove he can create killer hardware on his own. And buying Beats Electronics puts Apple’s engineers on notice that the boss is not afraid to go outside the company to pursue consumer electronic excellence. That’s what smart, mature companies do to stay ahead of the pack.

Related Articles
  1. Investing News

    Super Savings for Your Super Bowl Party? Bet on It

    Prices for wings, avocados and TVs are all coming down, which will make your Super Bowl 50 festivities less costly.
  2. Investing

    5 Up and Coming Social Media Startups

    Although the days of Facebook's dominance aren't close to being over, here are some new creative platforms gaining traction on the worldwide web.
  3. Investing News

    Public Vs. Private Tech Valuations: What's Driving the Divide?

    The gross valuations over the past five years are more indicative of the market than the true value of the company itself.
  4. Investing

    How Digital Payments Will Change Commerce in 2016

    The way we transfer and spend money is constantly evolving, and 2016 is poised to expand digital payments like we've never seen before.
  5. Entrepreneurship

    Digital Nomads in the Modern Economy

    Digital nomads compose a growing portion of the modern economy.
  6. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  7. Economics

    Governments Ask Tech Giants to Join War on ISIS

    In the US and Israel, governments have asked their respective nations' tech industries to help in the war against ISIS.
  8. Investing

    Drone Investments Are Flying High 

    According to a report released by Dow Jones VentureWire, venture-backed funding for drone companies is on the rise.
  9. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
  10. Investing

    Blockchain: The Backbone of Finance's Entire Future

    What is blockchain, and why is it now being used for everything from tracking loans to authenticating diamond purchases?
  1. How does Tim Cook's vision for Apple differ from that of the late Steve Jobs? (AAPL)

    Before his death in 2011, billionaire tycoon Steve Jobs handed over control of Apple to Tim Cook, then the company's Chief ... Read Full Answer >>
  2. Is Apple Pay safe and free?

    Apple Pay is a mobile payment system created by Apple to reduce the number of times shoppers and buyers have to pay for goods ... Read Full Answer >>
  3. How long does it take to execute an M&A deal?

    Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>
  4. What factors make it difficult to compare performance ratios between retail stocks?

    Companies that operate in the retail sector significantly differ in terms of their profitability and efficiency, making stock ... Read Full Answer >>
  5. What role does the OEM (original equipment manufacturer) play in the finished product?

    Original equipment manufacturers (OEMs) do not typically play much of direct role in determining the finished product. However, ... Read Full Answer >>
  6. What are some common accretive transactions?

    The term "accretive" is most often used in reference to mergers and acquisitions (M&A). It refers to a transaction that ... Read Full Answer >>
Trading Center