"We have not seen any dramatic product changes to suggest Apple has evolved a lot from where it was three to five years ago, but it sure feels like the company is pregnant and we will soon know a lot more," says Forrester Research analyst Frank Gillett. "If a Beats acquisition is the biggest news of the year, then it will be a bust."
Neither Apple nor Beats Electronics have commented on reports citing unnamed people who say the two companies are nearing a deal that could be announced as early as this week.
Beats Electronics, founded by hip-hop artist Dr. Dre and music executive Jimmy Iovine, would give Apple a line of trendy headphones and audio equipment that is particularly popular among young adults and teenagers. Apple also would gain a music-streaming subscription service that Beats launched earlier this year.
Apple's own streaming music service hasn't gained as much traction as the company expected and says Erick Joachimsthaler, founder and CEO of Vivaldi Partners Group: "If you look at the current music market, downloads are declining for iTunes. So Apple needed to do something."
With $150 billion in cash, Apple can easily afford to buy Beats. Still, some analysts are puzzled as to why Apple would bother buying Beats when it already owns iTunes and could easily license technology to make even better headphones on its own.
"Apple's brand is way stronger than Beats," Gillett says. "It's a head scratcher."
In last month's conference call, Cook acknowledged to being "on the prowl" for acquisitions.
"We look for companies that have great people and great technology and that fit culturally and we don't have a rule that says we can't spend a lot or whatever," he said. "We'll spend what we think is a fair price."
The Beats deal looks like a distress signal to Yukari Iwatani Kane, the author of a new book called "Haunted Empire" that explores how Apple has changed since Jobs' death.
"When companies start expanding their accessory line-up, it's a worrisome sign for innovation," Kane says. "Accessories have always been an easy way for any company to beef up their sales."
Concerns about Apple's innovation drought have been heightened by Cook's management style.
Although he has always been a highly respected executive, Cook focused on managing Apple's product inventory and component needs before he had to start filling in for Jobs during the periodic leaves he took while battling cancer in the final seven years of his life.
Cook's adroit handling of the more tedious side of Apple's business proved to be an ideal complement for the visionary Jobs, who preferred to pour his energy into conceiving new devices and then driving Apple's engineering team to build them to his exacting standards.
Cook is "the guy who liked doing everything that Steve Jobs hated to do," Enderle says. "When you make Jobs' polar opposite the CEO, it's probably not going to work out well."
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