by Jonathan S. Harbour
Apple, Inc. (NASDAQ: “AAPL“) is booming with a stock price of $395 (up $5 just today). Compared with rivals Microsoft (“MSFT”) at $26, IBM (“IBM”) at $193, and Hewlett-Packard (“HPQ”) at $28, Apple is sitting at the top of the computer industry with a market capitalization of $367 billion. Who would have guessed such a feat? This has all happened within a half-decade. Hard to believe, but five years ago, no one had heard of iPhone or iPad or iOS. Apple had a compelling product in the iPod which was developed into the aforementioned devices. Brilliant engineering and brilliant marketing!
Consider this company in an ancillary industry and in a different market: Nintendo (TYO: “7974“), with a Tokyo Exchange stock price of 11,250 yen (approx $144). (1 yen = 0.0128 dollars). Compared with rivals Sony (“6758″) at 1,397 yen, Konami (“9766″) at 2,350 yen, Namco Bandai (“7832″) at 1,136, Nintendo is sitting at the top of the Japanese electronics industry with a market capitalization of 1.44 trillion yen. It’s closest rival, Sony, has a market cap of 1.41T, while Konami has 326B and Namco Bandai has 256B.
If we narrow these companies down to just those manufacturing video game systems (Microsoft, Nintendo, and Sony, makers of the Xbox 360, Wii, and PlayStation 3, respectively) and include Apple, Inc., an interesting bit of trivia is revealed:
Company Stock Price (USD) Market Cap (USD) Apple $395 $367 B Microsoft $26 $216 B Nintendo $144 $18.43 B Sony $18 $18.05 B
How do we interpret this data? The market cap represents all of the publicly traded shares of a company. So, it would be absolutely impossible for Microsoft to acquire Apple, for instance (or vice versa). It would also be impossible for either Nintendo or Sony to acquire the other. The best they could do would be a 50/50 merger since their market values are very similar.
However, even if Nintendo and Sony were to merge, they would have no hope of touching Microsoft in the video game market. Unlike either of these two Japanese companies, Microsoft is “playing” in the video game industry as a hobby of sorts, a distraction for the board and more creatively-minded executives (in my opinion). There are crossover technologies in play, such as Windows Phone 7 and Xbox 360 development via XNA Game Studio (a free SDK for developing games on these platforms in the indie market).
What I do find most interesting, however, is how easily Apple could gobble up either Nintendo or Sony (or both), assuming the Japanese government would allow it (and most likely, they would not).
The cultures of Sony and Nintendo are quite different, so if they were inclined to merge, they would need to continue to function independently. In my opinion, a top-to-bottom merger of all departments would result in a single company with greatly disrupted production, not a single company with doubled production. Due to their differences in corporate philosophy, the merger would not produce synergy, it would result in conflict, with lower net income overall than the two are achieving independently. No, that would not work.
What about Apple and Nintendo? Apple could acquire controlling share of Nintendo for roughly $12 billion (taking into account an increase of stock price once the acquisition begins, unless a fixed buyout offer is made). These two companies do seem to have a similar culture and philosophy of doing business. While cosmetic, their products even look similar with a common black or white theme and a prominent logo, not to mention rabidly loyal fans!
Microsoft and Sony customers tend to favor the products of these companies, but often do not care for the behavior of these companies–that is, the basic philosophy of Microsoft and Sony does not tend to put the customer first, as they are loyal to shareholders first, executives second, and customers somewhere at or beyond third. In comparison, both Apple and Nintendo have a markedly different approach to customer service, and customers “feel” the difference. It’s palpable the first time you turn on a device created by either Apple or Nintendo that they are in the business to please you (and count on profits to continue giving them the opportunity to do so). Contrasted with the corporate philosophy of both Microsoft and Sony, one can see why customers will declare loyalty for the company and it’s products (in the case of the former two), and only declare loyalty to a product (in the case of the latter two).
Imagine a world in which Apple were to acquire Nintendo. While maintaining Nintendo’s individualism and identity, the two companies would share technology at an intimate level. We might see Nintendo’s enviously successful products like Super Mario Kart, Super Mario Bros., and Zelda available for iOS (iPhone, iPod, and iPad). Likewise, we might see popular apps and games show up on a future Gameboy model (imagine Angry Birds running on Gameboy and Wii). Nintendo’s latest handheld model, the 3DS, has been a failure at retail, due in large part to the availability of 3D titles for the DS handheld. The large-format DS was also a failure, while the Internet-enabled DSi has been a huge success. One might presume, based on these facts, that Nintendo is now re-thinking it’s strategy for the handheld. Perhaps they will build a new handheld system with a single touchscreen in the style of a tablet. This is certainly more likely with Apple calling some of the shots.
What other ramifications might we see after such an acquisition between Apple and Nintendo? Google, Inc. (NASDAQ: “GOOG”) is trading at $625 with a market cap of $203B (4th place behind Apple, IBM, and Microsoft). Google has recently acquired the cell phone division of Motorola (called Mobility) in order to secure guaranteed hardware availability for it’s Android platform. Google is highly competitive with Apple, vying for a greater share of the smartphone market that Apple dominates. A bevy of new software franchises for the Apple hardware might compel Google to begin looking at opportunities to secure both hardware and software. Sony would look quite tasty in such a situation, given it’s hugely successful Ericcson cell phone products. If Google were to snap up Ericcson, that would greatly strengthen it’s smartphone hardware market share while also giving Google a compelling entry into video game software.
Odds are, even if these wildly speculative ideas were on the mark, it is doubtful that the Japanese government would allow the loss of two of its greatest national treasures. But in an economic decline, anything is possible.