Analysts are making a strong case for why Apple should buy Sonos, and it highlights a major area where Apple is falling behind

• Some analysts believe acquiring speaker maker Sonos would be a wise move for Apple since it could help the smartphone giant catch up to rivals like Amazon and Google.
• Apple's Siri-enabled HomePod speaker has lagged behind alternatives, particularly Amazon's Echo speaker, which dominates the market.
• But Sonos' premium brand and emphasis on design could make it a good match for Apple, says an analyst from D.A. Davidson.
• Expanding into the smart home and audio markets is as important as ever for Apple as it seeks to continue offsetting slowing iPhone sales.
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Wall Street has plenty of thoughts about how Apple should spend the cash on its balance sheet, and one popular suggestion seems to be the acquisition of premium speaker brand Sonos.

The move could give Apple a much stronger presence in the connected home and high-end audio business, an industry in which it's lagged behind rivals like Amazon and Google.

Tom Forte, a senior research analyst at D.A. Davidson, is the latest analyst to pose this idea. In a new research note dated November 6, he made the case that Sonos would be an ideal acquisition target for Apple because the two companies share three important similarities: they both make high-quality products, both companies value design, and are both perceived as being premium brands.

"Just as Fitbit fills a void for Google when it comes to healthcare-related data, acquiring Sonos could materially advance Apple's connected home efforts (an area we believe it needs improvement and where its own product, the HomePod, was a disappointment)," the note read.

Forte isn't the first to suggest that Apple acquire Sonos. J.P Morgan's Samik Chatterjee also wrote earlier this year that Apple should consider buying Sonos because doing so would "give Apple access to high income households to play catch up with Amazon and Google in the home," as MarketWatch reported.

Barely a dent in the market

To those who have paid close attention to Apple's product launches as well as those of its rivals in recent years, the benefits that would come from acquiring Sonos are fairly obvious. Amazon's line of Echo speakers and its Alexa virtual assistant have been dominating the smart speaker market, while Apple's HomePod has barely made a dent in the market.

The online retail giant claims 70% of the market for voice-activated in the United States, according to data from Consumer Intelligence Research Partners published in August. Google came in second with 25% of the market, while Apple's HomePod only accounted for 5%.

A previous report from Voicebot.ai and Voicify published earlier in 2019 found similar results. According to that survey, Amazon's Echo devices accounted for 61.1% of the US smart speaker market share in January 2019, while Google's speakers accounted for 23.9%. The study did not break out Apple's HomePod specifically, but grouped other smart speaker makers into a category called "Other," which accounted for 15% of the market during that time.

Apple's HomePod also received lukewarm reviews when it was released in 2018, mostly due to Siri's limited functionality compared to Amazon's Alexa and the Google Assistant. When Apple launched the HomePod, it positioned the Siri-powered speaker as filling a hole in the market. While many voice-enabled smart speakers were great at responding to voice commands and controlling other smart home gadgets, they mostly offered mediocre audio quality.

Apple saw an opportunity in the market which it sought to fill with the HomePod, which adapts to match the acoustics of the room and includes an Apple-made woofer and seven tweeters. Suffice it to say Apple paid close attention to fine-tuning the audio experience when it developed the HomePod.

But the HomePod was also noticeably pricier than its competitors at $350 when it debuted, and Google and Amazon have since released speakers of their own with high-end audio. Amazon, for example, just released the $200 Echo Studio, a premium audio speaker packed with bigger tweeters and woofers that supports Dolby Atmos. That could make it even more difficult for Apple's HomePod to differentiate itself and break into the market.

Offsetting slowing iPhone sales

Expanding into new areas like audio is more important for Apple than ever as it seeks to offset slowing iPhone sales. The company's wearables, home, and accessories division - which include products like the Apple Watch, AirPods, and HomePod - had another breakout quarter in the company's fiscal fourth quarter of 2019. Revenue from that division grew to $6.5 billion, making it almost as big as Apple's Mac business. That's critical for Apple, which is trying to decrease its reliance on the iPhone.

Acquiring Sonos would bring the audio company's portfolio of popular speakers like the Sonos One under Apple's umbrella, expanding the iPhone giant's lineup in a big way and giving it a solid foundation from which to develop its own future audio products. And as Forte points out, Sonos' emphasis on hig-quality design could fit nicely within Apple, potentially giving the tech giant precisely what it needs to catch up to Amazon and Google.

Even if acquiring Sonos does seem like a smart move for Apple, doing so will likely be met with backlash given the growing antitrust concerns that have surrounded Silicon Valley in recent months. Tech firms like Apple, Google, Amazon, and Facebook have come under increased scrutiny in recent months over whether their size and influence is harming innovation, and acquiring Sonos would likely further fuel such sentiment.

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