Today: Analysts are confused by reports of a $3.2 billion acquisition of Beats Electronics, with much of the conversation turning from headphones to music delivery. Also: Tech stocks bounce back, Oracle and Google headed back to the courtroom.
The Lead: Mixed reviews of Apple's reported $3.2 billion deal for Beats
Reports late Thursday afternoon that Apple is in talks to purchase headphones maker Beats Electronics for more than $3 billion caused quite a stir, with opinions about the possible deal mixed between doubts and guesses about a justifiable reason for the purchase.
The deal, which was reported by multiple reputable news organizations based on anonymous sources, seemed to receive validation from Beats co-founder and music producer Dr. Dre, who appeared in a video with model and actor Tyrese Gibson proclaiming his status as "the first billionaire in hip hop." The growing legitimacy of the reports led to a series of analyst reports and media thinkpieces attempting to understand the Cupertino company's interest in the SoCal company.
"We are not able to see material strategic benefits for Apple and the rationale of this deal," William Blair analyst Anil Doradla wrote in a note, later adding that Apple will have some explaining to do to investors if the deal does go through.
"If the acquisition were to turn out to be true, we hope management will give a convincing rationale to the Street, as the investment community may question Apple's ability to continue innovating on its own," Doradla wrote.
"There is no obvious alignment between Beats and how it would be positioned relative to the Apple line," IDC analyst John Jackson told The Mercury News on Thursday.
Other analysts pointed out that the price could be justified based on recent reports about the financial performance of the company's headphone sales. Cowen analyst Gregg Moskowitz pointed to reports that said Beats sales doubled from about $500 million to roughly $1 billion from 2012 to 2013, giving it 70 percent of the premium headphones market.
"While this doesn't seem all that interesting to Apple on the surface, the hardware (revenues) alone provide some deal justification, particularly in light of Apple's move into wearables," Moskowitz wrote.
Most of the talk Friday was not about headphones but what typically pounds through them. Many analysts and media members believe the reported acquisition is more about growing Apple's streaming-music offering as iTunes downloads drop.
"They are buying into the future and the future is going to be streaming and subscription," Jon Irwin, the former president of streaming service Rhapsody told Bloomberg News. "Revenue from streaming and subscription is growing. Files and downloads are shrinking. Everyone has to engage in streaming and subscription."
The company introduced an iTunes Radio offering last year, but leaders in that area such as Oakland's Pandora Media have not shown much negative effects from the effort. In purchasing Beats, Apple is reported to be receiving its Beats Audio streaming service along with co-founder Jimmy Iovine, a music industry figure who could give Apple larger influence in that business as well as securing rights to stream more videos and television programs.
"If the purpose of the Beats deal is to bring Jimmy Iovine to Apple's team to lead both music and video, we believe it suggests that Apple feels that it is likely further away from creating some sort of compelling video offering that could be supported by a television," Piper Jaffray analyst Gene Munster, who has been predicting an Apple television set every year for roughly the past century, wrote Friday.
Apple stock weighed on indexes Friday, dropping 0.4 percent to $585.54 while getting tough with the government on requests for user data and reportedly planning an August launch date for the iPhone 6. Pandora gained 1.9 percent to $22.62, a rare positive move for a stock that is still down more than 44 percent from its peak price reached slightly more than two months ago.
SV150 market report: Stocks gain as Oracle-Google court fight revived
Like Pandora, tech stocks enjoyed a bounceback day after a two-month downturn that has been especially bad for Silicon Valley's youngest public companies, helping push the Dow Jones industrial average to a new record ahead of a possible reboot for the Google-Oracle legal battle.
A federal appeals court overturned a verdict that allowed Google to avoid substantial penalties for using Oracle's Java Application Programming Interfaces, or APIs, in building its Android mobile operating system. The judge in that case decided that Google did not need a license for the APIs in question, ruling that they were not covered by copyright, a decision cheered by many software engineers. That ruling was overturned by judges farther up the food chain Friday, a surprising development that sends the case back to the same judge, William Alsup, who can still rule that Google's use of the APIs fit under the legal definition of "fair use." In the meantime, Google and Oracle could settle the case if the Mountain View search giant agrees to pay licensing fees to the Redwood City software company, or they could gird for another bruising battle. Google gained 1.2 percent to $526.62 Friday while Oracle increased 0.4 percent to $41.04.
Netflix firmed up previously announced plans for an increased subscription rate for its streaming service Friday, adding $1 a month to the rate for new subscribers and giving current subscribers a two-year grace period before their bills go up; the Los Gatos video-on-demand company's shares lifted 2.1 percent to $328.55. Symantec gained 3.3 percent to $20.79 after Thursday's earnings announcement, but Nvidia suffered a post-earnings decline of 2.4 percent to $18.05. After Tesla Motors experienced a big fall Thursday following its earnings report, the Palo Alto electric car maker bounced back with a 2.1 percent gain to $182.26 Friday. Yahoo dropped 0.5 percent to $33.76 as the Wall Street Journal reported that the heat is on CEO Marissa Mayer as Alibaba's initial public offering approaches, and Gilead Sciences advanced 1.3 percent to $79.76 as the VA approved the Foster City company's new hepatitis C drug.
Up: Symantec, LinkedIn, Electronic Arts, SunPower, Netflix, Tesla, Pandora, Yelp, Workday, Gilead, Google, NetApp, Adobe, Facebook
Down: SolarCity, Nvidia, Zynga, AMD, Yahoo, Apple, Splunk, Juniper, Intel, Applied Materials
The SV150 index of Silicon Valley's largest tech companies: Up 4.25, or 0.31 percent, to 1,373.79
The tech-heavy Nasdaq composite index: Up 20.37, or 0.5 percent, to 4,071.87
The blue chip Dow Jones industrial average: Up 32.37, or 0.2 percent, to 16,583.34
And the widely watched Standard & Poor's 500 index: Up 2.85, or 0.15 percent, to 1,878.48