Apple's 2010 capital expenditures could signal major investments

[AppleInsider]

Apple has forecast a 70 percent increase in capital expenditures for the 2010 fiscal year, which one analyst has said could be a sign the Mac maker is investing in "strategic new infrastructure."

In his latest note to investors Monday, Robert Cihra, analyst with Caris & Company, noted that Apple's most recent Form 10-K filing with the U.S. Securities and Exchange Commission has called for a major $1.9 billion in capital expenditures during the 2010 fiscal year. That's well up from the $1.1 billion the company spent in 2009.

While the number could be an example of Apple's traditionally conservative guidance given to investors, Cihra said it's also possible that the increased expenses could mean that Apple is planning for something big in the coming year.

"This year's 10K added wording for purchases of 'product tooling and manufacturing process equipment,' which could imply Apple reversing course to actually build certain products/components in-house," Cihra said. "Beyond that are signals of Apple investing in massive new data center capacity (e.g., North Carolina) that could support anything from iTunes/iPhone Apps through new 'cloud computing.'"

Earlier this year, Apple selected Maiden, N.C., as the location for its $1 billion server farm. The exact purpose of that data center has not been stated.

Cihra expects Apple to have a huge December quarter, with sales of iPhones and Macs boosted higher during the holiday season. He has upped his forecast of Mac sales for the first financial quarter of 2010 to 3.4 million. If accurate, that would exceed the record 3 million Macs sold in the September quarter. Those sales will be propelled by the new 13-inch unibody Macbook and redesigned desktop iMac.

He also expects a new record in iPhone sales at 10 million units shipped, well beyond the 7.4 million sold last quarter. After the company faced supply constraints last quarter, Apple has increased orders for iPhones by 20 percent for the holiday. In addition, the handset's recent launch in China is expected to drive sales even higher.

Caris & Company has reiterated its buy recommendation for AAPL stock with a price target of $260.

[womble2k2]

This can only be good news for the economy. Apple is investing heavily rather than just banking its income. If Apple are going to manufacture their own products again, it is because the volumes they sell now make it worthwhile. Back in the mid nineties, the volumes did not justify having in house manufacturing.

I also suspect that this will be more for early development of new products, to prevent the recent leaks that have occurred. I'm sure the volume manufacturing will remain with existing suppliers.

Phil

[DKWalsh4]

With 30+ billion in cash, it's about time they start spending it!

[tundraboy]

Originally Posted by AppleInsider

'product tooling and manufacturing process equipment,' which could imply Apple reversing course to actually build certain products/components in-house,"

That would be amazing news in this era of deindustrialization in the US. You cannot have a vibrant middle class in an economy without a strong manufacturing sector. And you cannot have a strong manufacturing sector if you stop investing in the continuous development of highly efficient manufacturing systems and just surrender without a fight to the low-wage countries. Germany and Japan fought (and continue fighting) to keep their manufacturing sectors. We did not. This is the 'gift' given to us by generations of MBAs who were taught to treat technology and know-how as just another cost item that you can keep cutting down whenever short term profits are threatened.

[teckstud]

Originally Posted by DKWalsh4

With 30+ billion in cash, it's about time they start spending it!

They could start by inventing and releasing a portable consumer device in the $500-$7000 range. I don't care if it's a Netbook, Tablet, Apple-on-a-stick, whatever. The price differential between Macs and PCs is ridiculous. Look at yesterday's Best Buy Sunday flier . Blu ray is included on Sony and Toshiba laptops for $700!!!!!! And 500 Gb of storage!

[mark2005]

Originally Posted by teckstud

They could start by inventing and releasing a portable consumer device in the $500-$7000 range. I don't care if it's a Netbook, Tablet, Apple-on-a-stick, whatever.

Pretty big range there!!! Must be all the add-ons....

[digitalclips]

My guess a lot of those $s will be in cloud based services based here in the US.

[extremeskater]

Originally Posted by teckstud

They could start by inventing and releasing a portable consumer device in the $500-$7000 range. I don't care if it's a Netbook, Tablet, Apple-on-a-stick, whatever. The price differential between Macs and PCs is ridiculous. Look at yesterday's Best Buy Sunday flier . Blu ray is included on Sony and Toshiba laptops for $700!!!!!! And 500 Gb of storage!

LOL. I would be scared to see what some of the fanbois here would do with an Apple on a stick. Could we maybe skip that?

[digitalclips]

Originally Posted by tundraboy

That would be amazing news in this era of deindustrialization in the US. You cannot have a vibrant middle class in an economy without a strong manufacturing sector. And you cannot have a strong manufacturing sector if you stop investing in the continuous development of highly efficient manufacturing systems and just surrender without a fight to the low-wage countries. Germany and Japan fought (and continue fighting) to keep their manufacturing sectors. We did not. This is the 'gift' given to us by generations of MBAs who were taught to treat technology and know-how as just another cost item that you can keep cutting down whenever short term profits are threatened.

Agreed. So fingers crossed for Apple investing in the USA.

[DanielSW]

Originally Posted by tundraboy

That would be amazing news in this era of deindustrialization in the US. You cannot have a vibrant middle class in an economy without a strong manufacturing sector. And you cannot have a strong manufacturing sector if you stop investing in the continuous development of highly efficient manufacturing systems and just surrender without a fight to the low-wage countries. Germany and Japan fought (and continue fighting) to keep their manufacturing sectors. We did not. This is the 'gift' given to us by generations of MBAs who were taught to treat technology and know-how as just another cost item that you can keep cutting down whenever short term profits are threatened.

I think we have Steve Jobs to thank for Apple's increasingly apparent insightful strategy. The respective end runs of the iPod and iPhone were sheer genius--veritable Trojan horses they were, cleverly offered as "gifts" to the unwashed masses. And Apple was prepared for them as they flocked in to Apple retail stores to drool and to "switch" in mass quantities.

Now, with plenty of cash, a sound and refined product line, and a good infrastructure, it's time for a new offensive play. Perhaps a tablet whose societal impact may prove to be at least an order of magnitude greater than the impact of the fabled "desktop publishing" revolution of the '80s.

Sounds like a great game plan to me!

[womble2k2]

Originally Posted by teckstud

The price differential between Macs and PCs is ridiculous. Look at yesterday's Best Buy Sunday flier . Blu ray is included on Sony and Toshiba laptops for $700!!!!!! And 500 Gb of storage!

The difference in resale values of 3 year old machines is also ridiculous. A three year old windows machine bought for $700 three years ago, is probably worth between $50 and $100 now. A three year old Mac bought for $1400 three years ago, is probably worth between $400 and $700 now.

Like all premium products, Mac hold their value much better.

Total cost of ownership is the purchase price plus all other expense (virus S/W, etc) minus final value divided by period of which a product is used for. Macs stay useful for far longer than PCs, and have little additional costs once purchase. Having owned many PCs over the past 15 years and sadly only moving to the Mac 5 years ago, I can wholeheartily say that my expenditure on computers has radically reduced.

Apple Macs are built to much higher levels of quality than PCs, so you pay for what you get. My employer gives us Lenovo laptops (currently T400's) which although are better than other brands, have nothing on the quality of my MacBook Pro. It's bulkier, has a battery that sticks out of the back, the ThinkLight is not as useful as the Apple backlit keyboard, etc. Don't get me started on the OS!!!

Opting to buy a Mac or a PC is a personal preference. I know what mine is..

[Quadra 610]

Very nice.

[anonymouse]

Originally Posted by DKWalsh4

With 30+ billion in cash, it's about time they start spending it!

Well, that $30B is also part of their protection against hostile takeovers, so I think they may want to hold onto some of it.

[tundraboy]

Originally Posted by anonymouse

Well, that $30B is also part of their protection against hostile takeovers, so I think they may want to hold onto some of it.

On the contrary, I think Apple is the one company that is most immune from hostile takeover because pretty much everyone who has 100 billion dollars knows that the unique corporate culture that makes Apple so successful will disintegrate the moment an outsider takes control.

[drdb]

Originally Posted by tundraboy

On the contrary, I think Apple is the one company that is most immune from hostile takeover because pretty much everyone who has 100 billion dollars knows that the unique corporate culture that makes Apple so successful will disintegrate the moment an outsider takes control.

I think you overestimate the intelligence of the corporate world

[RichyS]

Originally Posted by womble2k2

Apple Macs are built to much higher levels of quality than PCs, so you pay for what you get. My employer gives us Lenovo laptops (currently T400's) which although are better than other brands, have nothing on the quality of my MacBook Pro. It's bulkier, has a battery that sticks out of the back, the ThinkLight is not as useful as the Apple backlit keyboard, etc. Don't get me started on the OS!!!

Is the 'ThinkLight' that pointless white LED 'lamp' that sits at the top of the screen? Who knew it had a name? It's also the most pointless 'feature' I've ever seen on a laptop. I've had my work supplied X61 for a while now, and have never found a need for the ThinkLight. Mind you, I've never found a need for the ThinkVantage button either. And I wish it had a trackpad. And a battery that lasted long enough for a meeting. Still, at least it's not a Dell...

[jeffmac7101]

We've got a nice new state of the art assembly plant here in Winston-Salem NC that was just vacated by Dell that is just down the road from Apple's new server farm location in North Carolina.
We'd be happy to have a forward thinking company locate here instead of a "me too" operation!

[ascii]

Surely it is a server farm? Or they could be concerned about IP theft from having things manufactured overseas, but I doubt it.

In terms of manufacturing, I think there is a long way to go technology wise. Mass production is *supposed* to make thousands of things exactly the same, but there is still quality variance from item to item (e.g. iMac screens). And there is the whole field of molecular scale assembly which will change everything.

[Dr Millmoss]

Originally Posted by womble2k2

Apple is investing heavily rather than just banking its income.

Not really. The increase in capital spending represents less cash than Apple is currently adding to their hoard every, single month. The scale of Apple's cash reserve is hard to appreciate, but it is immense, and will continue to grow at a startling rate even after this investment. In fact they are banking the vast majority of it.

Originally Posted by anonymouse

Well, that $30B is also part of their protection against hostile takeovers, so I think they may want to hold onto some of it.

Not really. In the past, the Apple board has adopted "poison pill" rules to make hostile takeovers unpalatable. I don't know if they have them in place at this moment, but they can adopt them again at any time they wish. This assumes that any company could raised anywhere close to the amount of money which would be required to take Apple over. Even with massive leveraging, almost nobody could manage it, and not because of Apple's cash reserve, but because of their market cap, and also because the board would resist a hostile takeover.

[bhippel]

It's anybody's guess, but I think the investments will be made to step it up in the realm of delivering rich media content, perhaps even offering streaming of said media from the cloud, and to support the upcoming (albeit rumored) tablet machines they're working on. They may also step it up to deliver software as a service, and provide greater reliability and performance for existing services, such as MobileMe, which needs LOTS of work.

[brucep]

Originally Posted by teckstud

They could start by inventing and releasing a portable consumer device in the $500-$7000 range. I don't care if it's a Netbook, Tablet, Apple-on-a-stick, whatever. The price differential between Macs and PCs is ridiculous. Look at yesterday's Best Buy Sunday flier . Blu ray is included on Sony and Toshiba laptops for $700!!!!!! And 500 Gb of storage!

500 gb of storage !! and no bloatware or viruses
yay !!! oy vay !!! songs from fiddler on the roof start playing ...

i predict

Apple will become a carrier them selves and offer data service for their upcoming NANO phone's . MAYBE 3 more farms will be built !!\and obama will finance it in part . 2 of the 3

they also will break the bungie contracts and get halo and cod titles on the mac >>failing at that they will buy out right EA . and they also will declae peace with MS AND OFFER WINDOW 7 AS AN OPTION !!

this upcoming tablet will be a simple 9x6in ipod-touch will 3x the power /full OSX and full grazing right's world wide . THE TABLET WILL $799 stripped or $999 OLED screen
hey i can dream can't I


peace
9

[Robin Huber]

Originally Posted by teckstud

They could start by inventing and releasing a portable consumer device in the $500-$7000 range. I don't care if it's a Netbook, Tablet, Apple-on-a-stick, whatever. The price differential between Macs and PCs is ridiculous. Look at yesterday's Best Buy Sunday flier . Blu ray is included on Sony and Toshiba laptops for $700!!!!!! And 500 Gb of storage!

Thought you got banned? Guess you got released with credit for time served.

Anyway, I really don't want Apple to go for the low price PC market. I would be happy if they settled in at about 15-20% of the total market. They are making gobs of money providing premium products and don't need to race to the bottom to be successful. In addition, their prices have gone down considerably in recent years. The difference between a Mac and an equivalently equipped PC (software and hardware) is really not all that much anymore. When you factor in reliability, lack of need for virus subscription, etc., it is arguably about equal. I agree that they may be a little overpriced, but it's a price I'm willing to pay for the extra R&D, quality control, and support that Apple provides. FWIW I have never watched a Blu-Ray. I am not convinced that it's all that from what others have reported. Anyway, I think the future of distribution of video content is streaming, not plastic discs.

[Constable Odo]

Apple is going to have to sell every single iPhone and Mac they make just to hold the share price above $200. Whatever sales were good enough in 2007 is no longer good enough for 2009/2010. As soon as sales start to slip slightly, so will Apple's share price. It's a tough market when no matter how much you increase your revenue the company's value continues to drop. Most of those companies that lost most of their value or went bankrupt did so because they were losing money. Apple is the exact opposite with no debt, a huge cash reserve and continues to increase the amoutn of retail stores. Yet the share price doesn't seem to be able to stabilize. Amazon was able to post huge earnings gains and only slid back slightly.

Apple is going to need to sell 10 million iPhones just to hold its share price from dropping further down. So far, it doesn't seem as though the iPhone is going to take China by storm, so that boost doesn't figure in anymore. iPod sales should do better this quarter than last, but overall, most iPod sales will likely dwindle little by little unless there is some secret iPod in the works that comes with a camera and GPS.

The last hope for Apple to branch out will have to be the rumored tablet. Hopefully that will provide revenue in areas that Apple doesn't already occupy for a larger revenue base. Everything will have to be perfect to hold Apple share price at that elusive $200 mark.

[vinney57]

Originally Posted by Constable Odo

Apple is going to have to sell every single iPhone and Mac they make just to hold the share price above $200. Whatever sales were good enough in 2007 is no longer good enough for 2009/2010. As soon as sales start to slip slightly, so will Apple's share price. It's a tough market when no matter how much you increase your revenue the company's value continues to drop. Most of those companies that lost most of their value or went bankrupt did so because they were losing money. Apple is the exact opposite with no debt, a huge cash reserve and continues to increase the amoutn of retail stores. Yet the share price doesn't seem to be able to stabilize. Amazon was able to post huge earnings gains and only slid back slightly.

Apple is going to need to sell 10 million iPhones just to hold its share price from dropping further down. So far, it doesn't seem as though the iPhone is going to take China by storm, so that boost doesn't figure in anymore. iPod sales should do better this quarter than last, but overall, most iPod sales will likely dwindle little by little unless there is some secret iPod in the works that comes with a camera and GPS.

The last hope for Apple to branch out will have to be the rumored tablet. Hopefully that will provide revenue in areas that Apple doesn't already occupy for a larger revenue base. Everything will have to be perfect to hold Apple share price at that elusive $200 mark.

Uh yeah, in Bizarro world. To imagine that the stock price is dependent the sales of the existing iPhone is just nonsense and shows no understanding Apple's trajectory.

I don't think people realise just how strong the hand Apple is holding is. Share price may well fluctuate in the short term but in the five year term Apple is the most attractive tech stock in the world.

[Dr Millmoss]

Originally Posted by vinney57

Uh yeah, in Bizarro world. To imagine that the stock price is dependent the sales of the existing iPhone is just nonsense and shows no understanding Apple's trajectory.

I don't think people realise just how strong the hand Apple is holding is. Share price may well fluctuate in the short term but in the five year term Apple is the most attractive tech stock in the world.

Agreed. AAPL has always been a volatile stock -- take a look at the ten year chart, it looks like a roller-coaster. Some of us have been on it all that time and more, so we know first hand.

Originally Posted by Constable Odo

Apple is going to have to sell every single iPhone and Mac they make just to hold the share price above $200.

That's funny one, since selling the products you make is the object of the entire exercise. You can't sell what you don't make, and you don't want to make what you can't sell.

[trugoy]

Originally Posted by tundraboy

That would be amazing news in this era of deindustrialization in the US. You cannot have a vibrant middle class in an economy without a strong manufacturing sector. And you cannot have a strong manufacturing sector if you stop investing in the continuous development of highly efficient manufacturing systems and just surrender without a fight to the low-wage countries. Germany and Japan fought (and continue fighting) to keep their manufacturing sectors. We did not. This is the 'gift' given to us by generations of MBAs who were taught to treat technology and know-how as just another cost item that you can keep cutting down whenever short term profits are threatened.

this is an awesome post, tundraboy. i've thought the same thing about apple. here is a company that still represents the american spirit of innovation. if it wasn't for the IT industry, the united states would be in a lot bigger world of economic hurt right now. we've gutted our manufacturing sector of consumer products (although still manufacture many of our consumer chemical products) and have given those jobs on a silver platter to our future competitor for empire--china.

and instead of appreciating how important apple innovation has been for the american economy, they regularly get attacked by fans of the innovation copycats microsoft, and linux fanboys who want to destroy the economic growth aspect of IT by making it all free.

[anonymouse]

Originally Posted by Dr Millmoss

Not really. In the past, the Apple board has adopted "poison pill" rules to make hostile takeovers unpalatable. I don't know if they have them in place at this moment, but they can adopt them again at any time they wish. This assumes that any company could raised anywhere close to the amount of money which would be required to take Apple over. Even with massive leveraging, almost nobody could manage it, and not because of Apple's cash reserve, but because of their market cap, and also because the board would resist a hostile takeover.

Their "market cap" is variable and boards are not always successful in resisting takeovers through "poison pill rules" or other methods. Apple's $30B would be very useful in a takeover fight. So, while it isn't their only protection against hostile takeovers, it is, as I wrote, part of that protection. I agree that almost nobody could manage it, and the $30B makes it that much harder.

Of course, yes, it also let's them make capital investments when desirable and go out and secure ample supplies of components they need, so, it's a very useful thing to have around on all accounts.

[Rot'nApple]

Originally Posted by womble2k2

This can only be good news for the economy. Apple is investing heavily rather than just banking its income. If Apple are going to manufacture their own products again, it is because the volumes they sell now make it worthwhile. Back in the mid nineties, the volumes did not justify having in house manufacturing.

Good for the economy??? I thought the Obama One Trillion dollar stimulus bill he signed into law in January this year was supposed to be good for the economy by making sure unemployment doesn't go above 8%, and millions of good paying jobs would be created. Neither has happened!

New York District 23, New Jersey, and Virginia, get out and vote tomorrow November 3rd, 2009. Send Washington and "mmm, mmm, mm Barack Obama" a message.

This has been a "Public Service Announcement"!

[Dr Millmoss]

Originally Posted by anonymouse

Their "market cap" is variable and boards are not always successful in resisting takeovers through "poison pill rules" or other methods. Apple's $30B would be very useful in a takeover fight. So, while it isn't their only protection against hostile takeovers, it is, as I wrote, part of that protection. I agree that almost nobody could manage it, and the $30B makes it that much harder.

Of course, yes, it also let's them make capital investments when desirable and go out and secure ample supplies of components they need, so, it's a very useful thing to have around on all accounts.

Has any company that has adopted poison pill defenses ever been the subject of a successful hostile takeover? Not to my knowledge. Hostile takeovers are quite rare, and very, very difficult to accomplish under even the most favorable circumstances. If a board does not want to be taken over, they have many means at their disposal to resist. I'm not sure I see cash reserves being a benefit, since the company attempting the takeover is going to use it as leverage (essentially, a discount against the takeover price). They get the company, they also get the cash.

Not that I'm the least bit concerned about that. Apple's best defense against hostile takeovers is their size and their growth rate. Remember, takeovers require offering a significant premium above market value. I can't think of a single company with anything like those kind of resources. It would be the takeover fight of the century if it ever happened.

We've discussed Apple's "cash problem" many times on these boards, so I don't want to belabor the point again, but I think Apple has way too much cash on hand. The very fact that a capital spending increase that hardly even nibbles at their cash mountain gets everyone so excited, tells the tale.

[vinea]

Originally Posted by Dr Millmoss

This assumes that any company could raised anywhere close to the amount of money which would be required to take Apple over. Even with massive leveraging, almost nobody could manage it, and not because of Apple's cash reserve, but because of their market cap, and also because the board would resist a hostile takeover.

And no one is going to get massive leveraging in this market.

[vinea]

While I don't expect it I do wonder if Steve is going to take another stab at an automated factory in the US...

http://money.cnn.com/magazines/fortu...3121/index.htm

Money quote (heh)

"Says Jobs: ''I'm as proud of the factory as I am of the computer.''

Seems like we had this rumor about this time last year though.

[Dr Millmoss]

Originally Posted by vinea

And no one is going to get massive leveraging in this market.

Agreed. That environment may emerge again some day, but it's not around now.

[xwiredtva]

Originally Posted by DKWalsh4

With 30+ billion in cash, it's about time they start spending it!

If they have been saving for a rainy day... They missed it. It was POURING from March till July!

I heard there buying Microsoft. I heard they are buying FaceBook and Renaming it Assphlete. It could be simply an increase or expected increase in costs... Salary, benefits, like the part time staff getting full benefits.

Stories like this.. There just there to occupy time, right?

[fulldecent]

Originally Posted by tundraboy

On the contrary, I think Apple is the one company that is most immune from hostile takeover because pretty much everyone who has 100 billion dollars knows that the unique corporate culture that makes Apple so successful will disintegrate the moment an outsider takes control.

Except for Sandy Weill.

[GMHut]

iCar?

iPlane?

iJetpack?

iPersonalSubmarine?

iAndroid?

iRobotLoveSlave?

[hawkeyedoc]

I don't see any indication that Apple would locate new manufacturing in the USA in their statement. As an Apple shareholder I would prefer they locate manufacturing where it is most cost efficient, and where there are trained workers who can cope with the equipment. To be brutally honest, US manufacturing is probably too low tech to cope with what Apple needs. I'm sure Apple could have more than adequate security if they located such a plant in Taiwan, Korea, Japan, Israel, India. And they would have cheaper, better educated and trained employees.

And for the person who made the comment on the stimulus package (800B not 1000B BTW), NO-ONE ever said the package would prevent employment going over 8%. All that was said was that it would take the edge off the recession, and save 3-4M jobs. After 6 months 1.5M jobs have been created/saved in a 2 year program, which seems reasonable progress. When I hear statements like this trying to blame the new administration for the mess that greedy financiers, mortgage brokers, home flippers, realtors, and dishonest borrowers created, it makes me think this is just a political attack.

[801]

I think maybe Mr. Jobs might have been doing some thinking while he was hanging around the house earlier this year.

[vinney57]

I don't think this is about manufacturing per se. That ship has sailed for most western economies. I think this is about infrastructure as Apple becomes responsible for serving more and more media. I think MobileMe has been a tremendous learning experience and its clear that to provide an Apple level of service to users an ongoing investment in cloud infrastructure is required.

Make no mistake, Apple will be serving media to many times more people in next few years than at present through iPhone, iSlate and AppleTV.

[PaulMJohnson]

Originally Posted by DKWalsh4

With 30+ billion in cash, it's about time they start spending it!

I wonder if they are under any pressure from investors to do something with the cash. Given around 5% of Apple stock is held by Fidelity, that means Apple are sitting on, and apparently not doing much with, about $1.5bn of Fidelity's money.

Now whilst with the Apple performance being as good as it is, it's highly unlikely they will be under any pressure from institutions, you could see questions being raised about what they intend do with it.

Personally I'm a little surprised Apple haven't started paying out a dividend given how amazingly cash rich they are.

[Dr Millmoss]

Originally Posted by PaulMJohnson

I wonder if they are under any pressure from investors to do something with the cash. Given around 5% of Apple stock is held by Fidelity, that means Apple are sitting on, and apparently not doing much with, about $1.5bn of Fidelity's money.

Now whilst with the Apple performance being as good as it is, it's highly unlikely they will be under any pressure from institutions, you could see questions being raised about what they intend do with it.

Personally I'm a little surprised Apple haven't started paying out a dividend given how amazingly cash rich they are.

The question is raised at every stockholder's meeting, and often in earning's report conference calls and quite frequently by analysts. Predictably, Apple doesn't say what they plan to do with the money. They say the issue of dividends has been discussed by the board (how could it not?) but I think that's just a generic response, and not otherwise meaningful.

The cash hoard has become Apple's elephant in the room. They don't need that much cash as a security blanket, and they could not possibly reinvest it more than a fraction of it responsibly on growth. So why does the board think it needs to get bigger and bigger? Eventually they're going to have come clean with the stockholders.