Goodbye Steve Jobs, hello Jack Ma and Pony Ma

One of Silicon Valley’s top venture capitalists has seen the future and it is Chinese.

From Michael Moritz’s China is winning the global tech race in the Financial Times ($):

As 2016 dawned, the top five Chinese companies were worth one-quarter of their US counterparts. By the end of March 2018 this had risen to one-third. Right now, Facebook, the fifth most valuable US tech group, is just ahead of Alibaba, with Tencent not far behind. No wonder that Chinese youngsters looking for role models evoke the names of Jack Ma, Pony Ma, Lei Jun (founders of Alibaba, Tencent and Xiaomi) more than they do Amazon’s Jeff Bezos, Facebook’s Mark Zuckerberg, or the late Steve Jobs of Apple.

Chinese internet companies also stand out because they are purchasing stakes in many of the more interesting, younger private technology companies. It is somewhat akin to real estate companies snapping up the best beach-front property. Most Chinese activity is outside the US, with Tencent and Alibaba building vast constellations of satellites. Tencent has more than 600 investments, while Alibaba has around 400 — totals that almost make Japan’s SoftBank look like a penny-pinching slowpoke.

Critics of this approach may gripe that it is undisciplined, but the admirers argue that these investments are somewhat akin to Chinese premier Xi Jinping’s ambitious and far-reaching Belt and Road Initiative. The only US company that comes close is Google, which since the start of 2017 has made more than 100 investments, although they are heavily concentrated in the US. It has also purchased more than 80 companies outright since 2014.

Another transpacific difference involves the use of cash. Between 2015 and 2017, the five biggest US tech groups (especially Apple and Microsoft) spent $228bn on stock buybacks and dividends, Bloomberg data shows. During the same period, the top five Chinese tech companies spent just $10.7bn and ploughed the rest of their excess cash into investments that broaden their footprint and influence. It’s hard to escape the view that the Chinese groups are — like all of us — creatures of their heritage. They are using their investments as one way to help fulfil the ancient Chinese definition of the Middle Kingdom — as the centre around which all else revolves.

My take: You have to wonder about Apple’s vision for future growth when the best use it could find for a 12-figure cash windfall was to purchase its own shares.

See also: A snapshot of Apple $269 billion cash, before repatriation 


  1. Gregg Thurman said:

    Investing doesn’t necessarily mean buying something other than your own equities, especially when you feel your equity is underpriced. Nobody knows better than Apple management that AAPL is underpriced.

    June 20, 2018
    • David Drinkwater said:

      Gregg, I agree with you that nobody knows better than Apple management that AAPL is under-priced, but there is an optics issue. Doubling down on secrecy makes it very hard to share (even encouraging) information. And that may be a part of the “no good news” that the market is reacting too. I suspect that there is a very interesting story arc hidden beneath the covers at Apple, but for now, all I have to go on as an investor is the general outlook for stable $$ volumes of sales of devices and growing v$$ olumes of sales of services.

      … Well, and shrinking share count. 🙂

      June 20, 2018
  2. Ken Cheng said:

    Well, VCs love when small companies get snapped up by the giants, since that’s how they exit. Doesn’t mean every little company that gets bought becomes Instagram or Youtube. They could be Mark Cuban’s, which disappeared into the void after being bought by Yahoo!.

    For the big companies hoovering up the little ones, it’s not just about finding the next Instagram, as it also potentially avoids future disruption, similar to Microsoft’s strategy long, long ago. Anything remotely promising was bought. Facebook does it now. In the US, it potentially raises regulatory and antitrust issues. In China, not so much.

    As for the Chinese giants, they’ve benefitted from their semi-closed market, growing in the void, and aping their Western counterparts. Yes, they’ve gone further in alot of areas, but that’s largely due to lack of regulation. Whether those companies can succeed outside of China is a big question.

    June 20, 2018
  3. Fred Stein said:

    Surely we all wonder about Apple’s vision for the future since so much of it is deliberately and carefully hidden. Some aspects of Apple’s vision or strategy are clear.

    1) They do not make large acquisitions, where large means expensive and burdened with large headcount with a non-Apple culture.

    2) They aren’t building a portfolio by taking portions of pre-IPO companies, with exceptions, DidI and SoftBank. The Didi purchase may be more about learning and access to potentially the largest ride sharing market, China.

    3) For a while, Tim Cook has been talking up Health Care, which is $T’s in the US alone. Giving Apple’s commitments to privacy and security coupled with their full stack investments in wearables, Healthcare could be Apple’s next big thing. Apple can provide “over the top” products meaning products that are so inexpensive that the users will buy direct and bypass the medical establishment. And Apple can easily pay for the long expensive regulatory and approval processes.

    4) Re Apple buying AAPL: Apple starting buybacks when AAPL was trading around $75. Just based on average acquisition price vs. market price today, buybacks have returned great value to investors. The most important reason for the buybacks is for employee recruitment and retention. Employees are more important than anything else. In tech, stock incentives are required.

    June 20, 2018
    • Fred Stein said:

      Replying to self:

      Re item 4) Buying AAPL, Apple invests in their employees, a smart strategic investment.

      June 20, 2018
  4. Jonny Tilney said:

    So. Focus is out.

    Now it is throw it all at the wall and see what sticks.

    Thank you but no thank you. Stay focussed Apple, and keep buying (undervalued) stock…

    June 20, 2018

Leave a Reply