David Rosenthal: evaluation

Transcript context

…Yeah. You want to move on to grading it? I think so. So for me, this really is kind of is as we’re talking about, sort of a tale of two cities, a tale of two acquisitions – was the best of acquisitions, was the worst of acquisitions for Apple. On these two companies, they spent a combined $634 million and it’s been pointed out they acquired many other smaller companies in the same, also in silicon design. So let’s call it another half a billion-ish. Let’s say they spent around a billion dollars on these themes and technologies. From the time they launched the A4 in the iPhone which was with the iPhone 4 and let’s just only look at iPhone and look at the generations from iPhone 4 to iPhone 6. So not the 6S, not the most recent 7. It’s roughly four-ish years. Let’s just say as a proxy that that’s sort of the competitive advantage period granted by these acquisitions and the speed with which they were able to deploy these differentiating features versus the market. Just those generations of iPhones sold about 720 million-ish units at roughly a $600 average selling price. It’s a little higher. So that’s over $400 billion of revenue and let’s assume about a 40-ish percent gross margin, it’s actually a little higher. You’re at sort of $170 billion of gross margin generated by units during that time. And then so, trying to do the math here, like okay, how much of those sales are attributable to these differentiated features? I don’t know, 10%, 5%. Let’s take 5%. That’s still almost $10 billion in incremental sort of contribution margin from the exact position. Versus a billion dollar spent 10 to 1, that’s great. At the same time, these are as we just talked about, sustaining acquisitions. I compare them versus our benchmarks of what great acquisitions are – in Instagram and in NeXT. Those are acquisitions that generated entirely new business lines and categories for their companies. In NeXT’s case, over a trillion dollars’ worth of business. I don’t think those fall into that category. So for me, I think I give a B+/A- leaning more towards the A- side because they were incredibly executed sustaining innovation acquisitions. And had they fallen into competitors’ hands I think would have changed, impacted the trajectory of Apple’s profits versus the competition in this space. Man, this is why I love having you as a cohost.…

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