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The tipping hand of production: How Apple foreshadows iOS volumes

Prior to the third quarter earnings report I discussed a part of Apple’s balance sheet related to tangible assets (Plant, Property and Equipment). In a series of three posts I covered the Land and Buildings (data centers and campuses), Leasehold Improvements (store investments) and Machinery, equipment (tooling and factory equipment as well as servers.)

The data shows that there is a consistent pattern of investment in pursuit of strategic goals: extending reach into distribution through stores, extending services through cloud infrastructure spending, and extending control over the supply chain. One story that still remains largely untold is how much does Apple know in advance what it will spend.

In other words, can we tell if Apple can anticipate demand and does it plan its expansion well in advance?

For an answer, the 10 K report comes in handy. Published only once a year, this document shows some data that is not present in any other public release. For example, Apple makes forecasts for capital spending.

But first, an update.

Since the last discussion on PP&E, Apple reported third calendar quarter data. The 10K offers the details on how much was spent in the last quarter. Leasehold improvements increased by 240 million, a new record high. That might have gone into the 30 new stores opened in the quarter but it also signals more openings and renovations still to come.

Land and buildings did not see any significant increase ($31 million).

Machinery and Equipment growth was explosive. Over $1.1 billion was added to the value of those assets. The previous high was $868 million in Q1, presumably getting iPad and iPhone production ramped. The total for Q3 is about half of what was spent in all of 2010. The chart below shows the three items:

The increase in M&E foreshadows increased device production so, while not very precise, it gives an idea that volumes are expected to be substantially higher in the following quarter. More about this when I make my forecast.

Now I want to focus on Apple’s ability to forecast its own production. As I mentioned, once a year, Apple predicts its CapEx. That prediction is broken down further by Retail expenditures and M&E+Real Estate. Let’s look at Retail first.

The following chart shows three bars: a previous year’s forecast (from the 10K), reported expenditure (from the next 10K) and my own running estimate based on asset value changes.

If we consider the forecast as a “budget” for the next year, what can be observed is that the spending was closely “within budget”.

Going by reported expenditure, the company was within 1% of expected budged for store spending in 2010 and 2% in 2011. It underspent for the years 2006 through 2009, though again, but modest amounts.

What this suggests to me is that store roll-outs are predictable for Apple. The costs involved are also quite predictable and things seem to be happening on schedule. The retail expansion is a steady slog.

The next chart does the same comparison but with Machinery and Equipment and Real Estate.

Here the story is different. The company has typically over-spent what it forecast.

Here are the “deficits” for this asset class by fiscal year:

  • 2006: 154%
  • 2007: 68%
  • 2008: 0%
  • 2009: -30% (surplus)
  • 2010: 47%
  • 2011: 18%

This suggests that unlike retail, production for Apple has been far less predictable and that the predictions for spending were mostly lower than actuals. It might imply that production was higher than expected as well.

What this analysis suggests overall is that although production (and spending) are increasing, the rate of increase is a bit higher than what Apple expects a year in advance. Some of that might be due to increased costs, but some may be due to changes in capacity.

Note the iOS unit production “wireframe” bar chart overlaid on the expenditure chart. As with quarterly data, the yearly (fiscal) production ramps remarkably consistently with M&E expansion.

Looking forward, the company predicts $8 billion in PP&E, exactly twice what it forecast last year. Retail expansion is forecast at $900 million an increase of 50% and “Infrastructure” (M&E) increase of 110% to $7.1 billion.

Knowing that Apple tends to over-spend on M&E, we can assume that they will at least double spending on machinery and equipment. Knowing further that increase in M&E spending correlates to iOS device production (see chart at left noting the inset scale marked with 150 million units), it implies that iOS device production is set to continue growing at the same rate it always has: 100%.

  • Luis Alejandro Masanti

    quote:
    “The next chart does the same comparison but with Machinery and Equipment and Real Estate.”

    Maybe, what “failed” was the “estimation of success” for iPhones, iPads and even Macs!
    Should it be a good idea to overlap production evolution for the products to this chart?
    (Remember the original iPhone expectations and the real ones!)

    • http://www.asymco.com Horace Dediu

      Good idea. I updated the chart to show unit shipments overlaid on expenditures.

      • Bill O’Donnell

        What’s the scale for unit shipments?

      • http://www.asymco.com Horace Dediu

        I made it a bit obscure so as not to clutter and confuse the picture. There is a number (150000) on each chart which represents iOS units scale. A line drawn horizontally from that number signifies 150 million units.

  • Senator Gronk

    Indeed, Apple seems to have laser focus on their business. Whereas their competitors have fallen back to simply focussing on “business.”

    Perhaps Apple sees margin as the benefit of tightening the loop between the production facility and the retail store where others see margin as harvesting the scraps leftover from purchasing production volume and cyclicly tweaking their products.

    I have come to greatly respect Apple as one of the few companies that focusses on production as much as their product. It’s the only to innovate and have the capacity to reproduce that innovation. Sure, there’s occasional iPhone shortages, but only because they do it so well.

  • Micromeme

    Hi Horace,
    a bit off topic but what do you think of at this chart on android support and fragmentation of the user experience:
    http://theunderstatement.com/post/11982112928/android-orphans-visualizing-a-sad-history-of-support

    • http://www.asymco.com Horace Dediu

      That is a nicely crafted piece of work. The research is painstaking and the author deserves a lot of credit.

    • Anonymous

      While we’re wandering off topic … Horace did you have any thoughts on the recent Verizon & ATT numbers showing a decline for non-iPhone? Is this evidence of Android weakness in the post-pay market or just the death of Blackberry fouling up the numbers?

      http://www.bgr.com/2011/10/24/ominous-signs-for-android-vendors-after-q3-smartphone-sales-decline-analyst-says/

      • http://www.asymco.com Horace Dediu

        I’m waiting for all the quarterly vendor data to come in and then I want to look at whether there has been a global slowdown in smartphones in the quarter. I don’t want to conclude anything about platform shifts until we can eliminate some of the system-wide effects.

      • http://twitter.com/studuncan Stu Duncan

        My forecast is that the $0 iPhone 3Gs is going to cause a real downturn for Android where free was their only sales advantage.

      • Anonymous

        Assuming they’re okay with a 160 ppi (half of Retina) 320×480 display and a slow, single core processor in a 2.5 year old phone. If they’re smart, they’ll get a modern smartphone from Amazon Wireless for the same price and not be kicking themselves for the next 2 years.

      • http://twitter.com/Marcos_El_Malo Marcos_El_Malo

        “McCourt also believes carriers will continue to experiment with lower-priced data plans to increase the adoption of smartphones.”

        Am I reading/thinking about this wrong? I thought the carriers’ goal was to gain more subscribers, who are increasingly adopting Smart Phones anyway.

        Also, shame on you Eduardo, for making me tap on a BGR link. I feel dirty now.

      • Anonymous

        I’m really sorry about that, I tried to find a different source but was in a rush. At least I didn’t make you click on the BGR homepage!

        I think carriers mostly like low priced data plans because they have a low cap, meaning they can better manage their network usage and get more money from high data consumers.

    • http://twitter.com/Marcos_El_Malo Marcos_El_Malo

      I saw this linked on Darling Furball. It made me wonder about what version of Android is running on the low cost handsets, which led me to peruse some Indian E-retailer sites.

      What was semi-mind blowing was not just that most of these current low end phones are running 2.1, 2.2 or, at best, 2.3, but that their specs make them almost unusable as smartphones. Resistive touchscreens with 2.7″ 240 x 360 screens, usable with a stylus or “nail” (I hope that refers to fingernail!). No built in memory, and they generally come stock with a 4 GB SD micro SD card. RAM anywhere from 100 Mb to 256 Mb on the upper end.

      If these are the low cost phones that are creating Android’s marketshare, it hardly seems fair to even call them smartphones if the smart features are difficult or impossible to use.

      Are the handset makers giving us data on how many of which models they are selling? Are they giving us ASPs? (I know Samsung is avoiding this.)

      • http://twitter.com/Marcos_El_Malo Marcos_El_Malo

        I forgot to mention the 3 hour battery life or the 3 hour recharge times!

        Many of the reviews describe slow or non-responsive touchscreens, shut downs, and needing to remove the battery once a day to reset the phone. I guess having a removable battery isn’t just a selling point, it’s a necessity.

      • Tatil

        Furball? On purpose or inadvertent slip? Either way, LOL…

      • Anonymous

        Deleted. My bad.

  • http://twitter.com/PatrickIgoe Patrick Igoe

    Some stats on store openings from the 10-K, for reference:

    “During 2012, the Company expects to open about 40 new retail stores, approximately three-quarters of which will be located outside of the U.S.”

    “The Company opened 40 new retail stores during 2011, 28 of which were outside the U.S., ending the year with 357 stores open compared to 317 stores at the end of 2010.”

    “The Company opened 44 new retail stores during 2010, 28 of which were outside the U.S., ending the year with 317 stores open compared to 273 stores at the end of 2009.”

    The prediction of 40 new stores for 2012 seems low given the 50% increase in the retail expansion forecast described above by Horace, doesn’t it?

    • http://twitter.com/PatrickIgoe Patrick Igoe

      Also, for reference, the 2010 10-K had this prediction for 2011:

      “During 2011, the Company expects to open 40 to 50 new stores, over half of which are expected to be located outside of the U.S.”

      They opened 40, which was at the low extreme of that prediction.

      • http://www.asymco.com Horace Dediu

        Good point. Thanks.

    • Anonymous

      Maybe there will be more “flagship stores”?

    • Z Kariv

      Perhaps, in certain markets the retail expansion will be more resellers or internet and not Apple stores

      • Guest

        India is one such market. I would love to see a few Apple stores.

    • kevin

      We should also note that more and more Apple stores are being renovated and expanded. They don’t include them in the new retail stores counts.

  • Micromeme

    Hi Horace,
    more on topic. my experience of settting up a supply chain would indicate that at each negotiation with a supplier apple gets choices of how much of the capital or NRE expenditure they pay vs how much the supplier covers (by borrowing from local sources if necessary). that would make the amount of PP&E appearing on apples books a bit more tactical than strategic. ie if a given supplier has cheap access to money that capex would not appear on apples books, but would be paid by apple in a slightly lower margin– on the other hand if apples access to money is much cheaper they might as well front fund and take the better margin at the back end. Anyway much of the message from the look at apples books might be just a result of tactical accounting rather than strategic.

    • vhs

      Yes, but why to very good correlation between expense and production in the past?

      • Micromeme

        well I don’t know, but supply chain accounting makes some of this a choice, not a requirement. I would be cautious about assuming a corelation without a mechanism will persist. That just means it doesn’t have to be accurately predictive– or interest rate movements (cost of funds) or things like that could well decouple capex from production.

    • Martin

      Could equally be strategic, however. If Apple is putting their cash up front specifically for equipment that provides a large value-add to the product, that would deny access to that equipment for their competitors. That’s what everyone is speculating is happening with all of those CNC machines, which is why other OEMs can’t build unibody laptops, and what Apple could be doing for their retina displays. I wouldn’t expect Apple to do it for equipment that doesn’t provide a market advantage with the consumer.

      • Micromeme

        I didn’t mean the expenditures were not strategic. rather I was pointing out that because a capex expenditure for a supplier to use (for a cnc machine) could appear on apples books as capex or apple could give the supplier a slightly better margined contract and the supplier could finance a purchase or agree to a lease of that cnc machine. some of these methods show up as capex on apples books and other don’t– but it could literally be the same cnc machine at the supplier cutting unibody devices. this is really about how much you can really read from a line item in the books.

        myself, I assume apple strategically leverages its large amount of cash and large volume of orders to get the best margins on the highest quality & reliability with the most diversified supply chain that it thinks it can get. This also touches on the comparison with other companies books. an identical supply chain can, in principle, show up in one’s books a lot of different ways depending on how you write the contracts and how you and your vendors finance their NRE.

    • Anonymous

      There’s a point though such as if Apple is choosing to capex almost all the hardware dedicated to its production at which such tactical considerations disappear and I think that the contention is that we’re at that point. Apple has so much cash, and thus such a low cost of capital, that it simply never makes sense for the hardware to sit on the supplier’s books, unless the hardware is intended to serve multiple clients.

      Given how high Apple’s M&E already was we have to assume that any such tactical shifts already took place years ago.

  • Anonymous

    Knowing further that increase in M&E spending correlates to iOS device production, it implies that iOS device production is set to continue growing at the same rate it always has: 100%.

    While I agree with your conclusion there is an alternative explanation to be considered, which is that Apple expects new models in 2012 to be more capital intensive than existing models. This certainly happened with the Unibody Macbook and with the iPhone-4, so it’s not out of the question.

    • Anonymous

      Smells like the display in the iPad 3

  • http://pulse.yahoo.com/_RFDPU2OMNHHHP5MNEYF7ZJDVHM Jim F

    I may have missed something in the previous articles in this area, but something is troubling me. I think I want to agree that Apple is investing in advance in support of their supplier partner’s business, but the iTunes component may be clouding the waters here. Growth in iTunes access and sales needs to also be supported by hardware and location costs. More storage space (I think I heard NetApp is a player for them here), more networking equipment, etc. I realize that iTunes was conceived as a “break even” value proposition, but I did not note where your estimates allow for expansion in this area. Very well thought out thesis and like I said I lean to this direction myself, but this one point has been left out of the equation. Keep up the good work and the excellent insight !

    • http://www.asymco.com Horace Dediu

      This was covered in the threads related to the previous posts, but to summarize, iTunes and iCloud and other infrastructure are part of the picture, but a sanity check on the scale of spending makes it unlikely that they make up the bulk.
      There is circumstantial evidence that most of the M&E spending is production oriented. There are also comments from persons familiar with the process that such spending is common. What distinguishes Apple is the scale.
      But even if there is a substantial portion spent on computing capacity it still correlates well with iOS device production which is what we are trying to pin down.

      • GJG

        Also complaints from competitors about their inability to get certain types of production equipment because Apple has purchased all of the production of these limited-production manufacturers.

  • vhs

    Horace, again great analysis with a lot of in-depth thinking, thank you very much for your great work. But I have a suggestion on your take re: spending increase for 2012:
    “Some of that [increase in production spending forecast] might be due to increased costs, but some may be due to changes in capacity.”

    With the massive bargaining power Apple can leverage against its production partners I doubt that would be a lot of increased spending due to price hikes. Surely they are able to both hedge against that as well as get guaranteed price windows a year ahead. So I think most of that increased spending is actually due to increased production.

  • vhs

    I am aware that Apple has usually sought the top end, but since Tim Cook recently stated “we are not going to cede ANY market”, I was thinking…:

    Is it possible that Apple is ramping up their production as fast as they can (about 100% per year for a while now), and use pricing to keep that up (by lowering prices when sell-through starts to suffer)? That would mean Apple will be overflowing the market until the competition is drowned. Really, is there anything that holds them back? They have incredible margins on iPhone and could certainly afford to lower the prices a lot more in order to build up a virtual monopoly in just a few years.

    Am I making any sense? Would that be a viable business strategy? (Sorry I’m a technical guy, not an MBA type)

    • http://www.asymco.com Horace Dediu

      Apple has not really played the price card. Note that the product still enjoys an inordinately high margin and in subsidized markets gets twice the operator subsidy of competing products. There is a large buffer to dip into if demand reaches equilibrium with production.
      It seems like this will be a gradual process not a big bang. For example, I expect the next iPhone (5?) to create an umbrella for the 4S to sit under comfortably.

    • Luis Alejandro Masanti

      I think that Apple will use a strategy similar to the iPod: like three levels (touch, nano, shuffle) before cutting the price of the top of the line.

      As a matter of facts, the 4S/4/3GS is, in my opinion, just that.

  • vhs

    …aaand here goes another observation:
    Apple is building a 170-acre solar park next to its data center in NC. I just checked the market prices, and a very rough estimate of the raw cost of solar panels alone (without fixtures, installation, fences, etc.) is more than 200 million US$. Add in the rest and you see a significant expense (could be around 0.4 billion) that might be contributing quite a lot to the M&E cost (unless, of course, it belongs into another “pot”, like leasehold improvement, which I don’t know).

    • http://www.asymco.com Horace Dediu

      That would be partly in Land and buildings (if the fixtures were considered structural) but a lot will depend on whether Apple buys the equipment or leases it (and same for the land.)

  • GJG

    A large ramp-up in production capacity as suggested with these numbers usually implies large-scale or expanded entry into a large market, e.g., China, and/or a whole new manufacturing facility like you get with a new product or a new component.

    IF you can implement, fast adoption of new production technologies can be a very profitable weapon when it comes to manufacturing. (I worked for a company that used it as really their only competitive weapon for years and we massacred the competitors despite several inherent locational disadvantages. Thank you Gerry, Mike, Amelio, Len & Bruce for the lessons that I learned and have used many times since then.)

    However, I wonder if in this case, it’s simply a matter of the several different product cycles and uncertain iCloud demand falling into phase. Apple has never demonstrated itself to be particularly better or worse than anyone else at demand forecasting, e.g., T Cook’s comments in the Q3 2011 analyst call. There’s only one thing worse than poor demand forecasting – meeting raw material and component demands after you get a crummy demand forecasting. Over budgeting really becomes the only solution.

  • RobDK

    Great analysis again, Horace!

    This proves your theory that Apple are supply constrained, and that they are planning for approx 100% annual growth of the iPhone and iPad lines. The next logical step is overlay this data in relation to the quarterly financial statements…

    Another interesting question, which you covered in the Critical Path, is what type of production equipment is Apple buying? Is it specialized stuff for the displays, chips (avoiding Samsung!), unibody milling, liquid metal, or just automated production? Is there anything to learn from the accounts of the firms that produce this machinery? If Apple, for example, is buying large proportions of the world’s production of CNC milling machines, and this production is growing 100% per annum, then there must be some other firms that are also growing at these astronomical rates…

    Keep it going, Horace!

  • Ajay S

    Great Analysis as always Horace.

    Could the heavy investment projected for M&E be for a entirely new product. The very much anticipated HDTV from Apple?

    Steve was confident enough to reveal its development to his biographer and even boasted as having “cracked” it. Could be yet another game changer as all Apple products have always been.

    Will also explain the hike in retail expenditure. Stores will need to be modified to showcase the TV.

  • Mbeauch

    IMO, one of your best pieces ever Horace, great job and thank you. I took a position in Jan 13 450’s today and this article reinforces what I believe in.

    • Anonymous

      Our group continues to add position. Started mid year of 2000. We are a private trading firm holding for small periods of time. Apple is the only long-term equity holding we maintain. We do not normally trade stocks, mostly financials ( interest rate products ) and indexes. We became very interested in Apples’s business model, not so much because of Steve Jobs, but mostly Tim Cook.

  • Westechm

    Maybe some of this money will pay for the one million robots Foxcomm said they were going to acquire.

  • http://jmmxtech.wordpress.com/ jmmx

    One thing to be careful about… I am sure a lot of M&E went and will go into the data center(s), which would skew things a bit. Still, an interesting relationship here on the production vs M&E.

    Always interesting at this blog. :)

    • vhs

      As Horace has pointed out in a prior post the expenses for the new data center are minuscule relative to the order of magnitude of total M&E.

  • http://ertius.org/ Rob Weir

    Is it possible that this expenditure is due to requiring some new technology rather than projecting large increases in production? Did the large build up of C&C milling equipment show up a few years ago?

  • iphoned

    So, are you forecasting 100% revenue and/or eps growth for FY12 based on this analysis?

    Q1 guidance adjusted for past track record indicates 60-70% eps growth for FY12.

  • Laurent Giroud

    Given the following variables:
    – iPhone unit sales growth
    – iPad unit sales growth
    – new iPad model production cost (relative to the iPad2)
    – hypothetical new-product production cost
    – fraction of the year during which production of hypothetical new-product hasn’t started yet
    – expected unit sales (hence unit production) of hypothetical new-product

    And assuming:
    – a new iPad model will be introduced soon enough in the year (March/April) that we can assume that its production will start in January
    – iPhone production cost per unit is unchanged

    It seems relatively doable to build a mathematical model which allows to plays with these variables and compute the resulting production expenses. It would be very interesting to see which combination of values would allow matching Apple forecasted expenses since that would permit to determine whether it’s realistic to expect a new product line to emerge this year or if the increase in expenses can simply be accounted for by current-or-nextgen existing iOS devices unit sales growth.

    Knowledge of the approximate costs of production of something like an Apple TV set and of the current TV market would obviously be of tremendous help since it would restrict the probable range of variations of these variables and thus reduce the size of the universe of possibilities covered by this model.

  • Anonymous

    I think since several years Apple has been ramping up production as much as they possibly can, in order to become less dependent on plants like Samsung and be able to serve lower price segments to compete in.
    The size of the market must + the coming of Android must have surprised Apple pretty badly, which is why a company like Samsung is able to grow so hard.

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  • http://nmuppala.wordpress.com Nalini Kumar Muppala

    Are you inherently assuming that the investments are aimed at sustaining innovations and thus a proxy to anticipated growth? If there is another disruptive product on the horizon, whose ramp and required investment are not predictable, wouldn’t that be unsettling to this theory?

    • http://www.asymco.com Horace Dediu

      Of course there might be a new product on the horizon, but again, consider that new products don’t launch with huge volumes right away. Recall the iPad and the original iPhone. Apple uses version one to learn. If there is a major new product next year, it will impact capex but then they might spend more than they expected anyway.

  • a4u

    Is the new building in Cupertino in here somewhere?

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  • http://twitter.com/ankleskater Ankle Skater

    Are M&E costs included in COGS sold (and hence accounted for in the calculation of margins)?

    • http://www.asymco.com Horace Dediu

      No. COGS includes the costs of components and consumables and labor and warranties and shipping. Anything that is attributed as a “variable” cost.
      Equipment is “capital” and is treated differently. Capital Expenditures are visible in Cash Flow statement.
      See: http://en.wikipedia.org/wiki/Capital_expenditure

  • http://twitter.com/andrewlin Andrew Lin

    i’d just like to know if you created these charts in Excel or Numbers?

    • http://www.asymco.com Horace Dediu

      I use Numbers for charts exclusively.

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  • http://twitter.com/perk Perk

    Perhaps Apple is setting up it some of its own manufacturing? That would require that size of capital expenditure.

    Alternatively, a big buildout in data centers? But that is about seven in one year.

  • Mike Sanders

    Excellent article shows in depth knowledge of apple and unusually how a 10k can be effectively used as an information provider as they only contain facts with none of the spin.
    I appreciate the comments about TC I think he was the business man who dragged Apple through its worst patch and left Steve free to do what he did best, a pretty awesome combination as the results have shown. Now with TC at the helm and the great team that hads been assembled at Apple I have no fears for the company as I am confident they will continue to lead the tech revolution for the foreseeable future.

  • http://www.intomobile.com/ Stefan Constantinescu

    So 100% growth in iOS devices = How many iPads, iPod touches, and iPhones during fiscal 2012? I know it’s really early to make such a prediction, but just ball park it! :-)

    • http://www.asymco.com Horace Dediu

      I maintain a forecast which is updated quarterly. The way it looks right now for fiscal year 2012: iPhones: 137 million, iPad 71 million, iPod touch 16 million. Total 224 million.
      [2011 numbers were: iPhones 72 million, iPad 32 million, iPod touch 23 million. Total 127 mn.]
      The implied growth in my model is only 76%. I will have to adjust it higher as the data comes in.

      • http://www.intomobile.com/ Stefan Constantinescu

        Thanks!

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  • Andy

    Along the lines of supply chain accounting, Apple has also committed $16.3 billion to suppliers for manufacturing and components ($13.9B off B/S, $2.4B on B/S in other assets). This is effectively vendor financing that isn’t all that different from capex to support future device production.

  • Anonymous

    Horace, thanks for the insight and analysis.

    I am curious about Apple being able to consider equipment located in a vendor’s factory as Apple capex. I assume that means that Apple actually owns it? This seems unusual and risky.

    It would be like you helping your employee to get to work by owning the engine in her car. And when you fire her, you have to retrieve the engine. And the car happens to be in China. Good luck with that.

    Are there such advantages to book this investment (or loan) as capex that Apple would take this risk?

    • http://www.asymco.com Horace Dediu

      This is not at all unusual. In previous comments people who work in the industry have mentioned that the practice is common among contract manufacturers.
      The reason it makes a lot of sense is that the margins on contract work are very low and contractors are not willing and often not able to procure the necessary equipment. In the case where the products are unique to the customer, it also makes no sense to take on the financial burden of capex for equipment to be used on only one product run.
      The surprise here is the scale of Apple’s spending and the way it correlates with shipments.

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  • Mike Sanders

    Tim Cook explained when questioned as to why Apple had a limited number of suppliers that they got “very deep” with their suppliers and that includes providing capital equipment and finance to make sure they never have any kind of problems that could affect the supply chain. This was something that he introduced and he is a legend in supply chain management, the supplier gets a fair margin and does not have to worry about capex or cash flow.
    This relationship built over years is very special and guarantees commitment on both sides which is why the quality of Apple products is so high and the reject or call back rate an industry low.

  • Mike Sanders

    Tim Cook explained when questioned as to why Apple had a limited number of suppliers that they got “very deep” with their suppliers and that includes providing capital equipment and finance to make sure they never have any kind of problems that could affect the supply chain. This was something that he introduced and he is a legend in supply chain management, the supplier gets a fair margin and does not have to worry about capex or cash flow.
    This relationship built over years is very special and guarantees commitment on both sides which is why the quality of Apple products is so high and the reject or call back rate an industry low.

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  • Morokoy

    I read somewhere that a production facility was being built in Brazil. Do you have any insight into that ?

    • http://www.asymco.com Horace Dediu

      The facility is operating and building iPhones.

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