Is Apple’s Next Big Move a Major Acquisition?

April 27, 2016, 4:20 PM UTC

After a rough quarter, Apple might need to make a major acquisition to reboot its business.

In a note to investors on Wednesday, Barclays analyst Mark Moskowitz argued that Apple’s best move now might be to use tens of billions of dollars of its cash hoard on one or two major acquisitions.

“We are starting to think that the allure of the annual capital allocation boost could lose its luster if the iPhone growth profile continues to slide,” Moskowitz wrote to investors. “Indeed, Apple might need to embark on larger mergers and acquisitions in the order of $50 billion or more to build a broader content and services platform to revive the growth trajectory of a large, device-centric model currently.”

In an interview with Fortune, Moskowitz said that he thought Apple (AAPL) should focus that cash on “one or two large acquisitions.” He added that its best move could come in the form of buying some enterprise-focused companies.

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“I will not opine on the percentage chance of major acquisition, but it is more likely now than before, given the iPhone growth arc is fading,” he says. “In my view, the company’s partnerships with IBM (IBM) and Cisco (CSCO) could be stepping stones to doing more in the enterprise over time. This makes sense given the Consumer device wave seems to be peaking.”

Moskowitz’s comments came a day after Apple announced that for the first time in history, year-over-year iPhone sales fell. The company said that it sold 51.2 million iPhones in its second fiscal quarter, compared to 61.2 million in the same quarter a year ago. Apple’s $50.6 billion in revenue during the period was the first drop in quarterly revenue on an annual basis since 2003.

Investors have shown some concern for the rough quarter on Wednesday, pushing Apple’s shares down to an open of $96. The company’s shares closed Tuesday at $104.35.

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Meanwhile, analysts are somewhat concerned by the company’s performance. Andrew Uerkwitz of Oppenheimer & Co. downgraded Apple’s stock to Perform, due to concerns over weak iPhone performance. Ben Schachter of Macquarie Capital added that Apple “needs new innovation…in order to drive consumer and investor excitement.”

That said, other analysts weren’t so concerned, with Anil Doradla at William & Blair saying that Apple still has “several positives.” Needham & Co.’s Laura Martin noted that Apple’s iPhone sales exceeded expectations.

Despite the disappointing quarter, Apple CEO Tim Cook said on Tuesday that he believes Apple’s future is “very bright.” Cook added that there were several bits of good news that came out of the earnings, including solid Apple Watch performance.

But Cook added another important tidbit during the company’s earnings call that shouldn’t go overlooked: a desire by Cook and his team to gobble up desirable companies.

“We’re always looking in the market about things that could complement things that we do today, become features in something we do, or allow us to accelerate entry into a category that we’re excited about,” Cook said. “And so as I said before, our test is not on the size. We would definitely buy something larger than we’ve bought thus far. It’s more about the strategic fit and whether it’s a great technology and great people. And so we continue to look and we stay very active in the M&A market.”

Cook added that in last four quarters, Apple has made 15 acquisitions “to accelerate our product and services roadmaps.”

While Cook didn’t say how much he’d spend on an acquisition, his acknowledgment that Apple is in the market and would be willing to spend more than it has in the past lends some credibility to Moskowitz’s argument that Apple could benefit from an acquisition.

But exactly how much Apple would spend, when, and on what, is unknown. Over the last several years, Apple has been relatively frugal in its spending on acquisitions, buying up startups. Its biggest acquisition in recent memory was Beats Electronics, which ultimately became the backbone for its Apple Music platform. Apple spent $3 billion in 2014 on that buy.

Could Apple actually get to $50 billion on one or two acquisitions, based on that history? It’s tough to say. But if you ask Moskowitz (and seemingly, Tim Cook), it’s possible the company could (and should) shell out billions to grow its business in ways that don’t rely on the iPhone.

Apple did not immediately respond to a request for comment.

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