Apple in Talks to Chip in $1 billion in SoftBank Vision Fund

SoftBank’s fund to be based out of London and will be launched in 2017

a1Technology major Apple Inc. (NASDAQ: APPL) and Japanese internet and telecommunications investment giant SoftBank Group Corp. have held talks for Apple’s investment of up to $1 billion in a $100-billion tech fund being raised by SoftBank, as reported by The Wall Street Journal on December 12th, 2016. The potential investment would connect Apple, the world’s most valuable company with market value of over $621 billion, with one of the world’s largest technology fund.

The potential deal would also signal a shift in Apple’s investment strategy, which mostly focuses on acquiring startups valued at less than $1 billion. It would also bring Apple’s cash, estimated to be $238 billion at the end of September 2016 and located mostly outside the US, into one of the world’s biggest investment funds. a2The SoftBank fund is expected to invest in emerging technologies, such as artificial intelligence and the Internet of Things. If Apple were to participate, it could gain a much-needed insight about innovations in these new categories.

SoftBank Vision Fund to launch in 2017

In our earlier coverage, we had reported that SoftBank, led by CEO Masayoshi Son, is teaming up with Saudi Arabia’s sovereign-wealth fund called the Public Investment Fund (PIF) to create a multibillion-dollar technology-investment fund. Called the SoftBank Vision Fund (SVF), the fund will be based out of London and will be headed by SoftBank’s head of strategic finance, Rajeev Misra. While the fund will be launched in 2017, SoftBank has engaged former Deutsche banker Nizar Al-Bassam and ex-Goldman partner Dalinc Ariburnu as advisors. The fund also counts Jonathan Bullock, COO of SoftBank, and Alok Sama, SoftBank’s CFO, as senior advisers.

While SoftBank plans to invest at least $25 billion over the next five years to the SVF, PIF may contribute $45 billion over the next five years as the fund’s lead partner. SoftBank has emerged into a $68 billion tech investment firm from a $50,000 start-up set up in 1981. For Softbank, the setting up of the new tech fund is a means to accelerate its global growth strategy. SoftBank is known for its large investments in tech firms such as Sprint Corp. (NYSE: S), and UK chip designer ARM Holdings PLC, which it bought for $32 billion in July 2016.

In a recent development, Mr. Son said last week after a meeting with President-elect Donald Trump that he plans to invest up to $50 billion of the SVF in the US, pledging to create about 50,000 jobs.

Source: Company's Data
Source: Company’s Data

Efforts to break reliance on iPhone

Apple’s biggest source of concern is its major dependency on its blockbuster product iPhone, which accounted for 66% of its FY15 revenue. However, tapering demand for the iPhone has emphasized the importance of new sources of revenue. During Q4 FY16, Apple’s revenue fell 9% to $46.9 billion versus $51.5 billion in the year-ago period. Despite good customer response for the iPhone 7, iPhone 7 Plus, and Apple Watch Series 2, Apple posted its third successive quarter of declining iPhone sales, reflecting concerns that Apple may have lost its tech superiority, even with the newly released iPhone 7. Overall, Apple’s net income fell to $9.01 billion, or $1.67 per share, during Q4 FY16, from $11.12 billion, or $1.96 per share, a year earlier.

Source: Bloomberg
Source: Bloomberg

Rather than invest in companies that it can integrate into its own products, Apple wants to profit from technology firms that have been successful in their own right. Keeping with this strategy, Apple invested $1 billion in popular Chinese ride-hailing firm Didi Chuxing Technology Co. in May 2016.

For Apple, the deal is seen as a lucrative investment since it could provide access to big-ticket companies in the Chinese market since Didi is backed by China’s two largest Internet companies, Alibaba Group Holding Ltd. (NYSE: BABA) and Tencent Holdings Ltd. These companies could help Apple market the Apple Pay electronic payments system and other services, as well as help the US Company foray into transportation. Incidentally, SoftBank is also an investor in Didi.

Apple’s future hinges on SoftBank deal

Apple and SoftBank have already been business partners since nearly a decade. In 2008, the companies struck a deal to make SoftBank the exclusive iPhone seller in Japan, as a result of which SoftBank emerged as Japan’s third-largest cellular carrier by 2011. SoftBank also distributes iPhones and iPads to its approximately 20,000 employees.

Mr. Son also is close to Terry Gou, the head of Taiwan’s Foxconn Technology Group, which manufactures most iPhones. In July 2016, SoftBank bought UK-based microchip manufacturer ARM Holdings PLC, a major supplier of microprocessors for the iPhone.

Faced with political pressure, declining sales, and a lack of innovative new products, Apple is hoping the deal with SoftBank’s tech fund can give the company much needed insight into emerging technology trends to get ahead of the innovation curve. It remains to be seen if Apple can rekindle its innovative spirit and again become a tech disruptor.

Stock Performance

a5Apple’s stock stood at $115.82, gaining 0.55%, at the close on Thursday, December 15th, 2016, having vacillated between an intraday high of $116.73 and a low of $115.23 during the session. The stock’s trading volume was at 46,274,986 for the day. The Company’s market cap was at $621.60 billion as of Thursday’s close.

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