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Apple commits $3.9 billion to secret long term component contracts

post #1 of 71
Thread Starter 
Apple's chief operations executive Tim Cook revealed that the company had entered into long term component supply contracts worth $3.9 billion over the next two years.

Cook noted that the secret deals were a "fantastic" use of the company's cash reserves, which have now grown into a $59.7 billion stockpile.

When asked what components were involved in those long term commitments, Cook answered, "I don't want to give it out, because I view it as a competitive something I don't want our competition knowing."

Cook references A4, RAM as examples

Cook added, "Let me talk in general. From our point of view on design side, we design components where we believe we can innovate beyond the market. Most recent example, A4 chip. With the A4 chip, we didn't think we had to invest in a fab [chip manufacturing facilities], so we focused on design."

"On the operational side of house," Cook stated, "we've historically entered into agreements with others to supply; largest one was with flash memory suppliers back in 2005 that totaled over a $1 billion, because flash would become increasingly import across product line and industry."

Apple is now the world's largest consumer of memory chips, in large part because it bundled large amounts of flash RAM in its iPods, and subsequently introduced the iPhone with far more memory storage than other smartphones, beginning with 4 to 8GB on the original iPhone at a time when most smartphones shipped with 256 to 512MB of storage.

"We think that was an absolutely fantastic use of Apple's cash," Cook said of the company's decision to pre-purchase a billion dollars of flash RAM, "and we constantly look for more of these. In the past several quarters, we've identified another area and come to recent agreements."

Nearly $4 billion of component strategy

Cook described the deal as "similar to flash agreement, focused in an area that we feel is very strategic," but said he would "prefer not to go into more details about what specific area it's in, but it's the same kind of thinking that led us to those deals."

Cook had earlier discussed the generally favorable pricing environment for components that had reduced the company's costs in the quarter more than expected, and noted that going forward one could "expect a favorable pricing environment for DRAM," while "some prices for raw materials such as key metals are currently increasing due to anticipated strengthening of worldwide economy. Bulk of other commodities from NAND to LCDs to batteries and most others are generally in supply/demand balance."

Components that may be considered strategic enough to warrant a $4 billion advanced commitment may include the rumored very high resolution Retina Display anticipated for iPad 2, or may relate to the custom design technology Cook discussed regarding the A4, such as component supply capacity for the coming A4 replacement, Apple's custom battery designs, or a combination of commodity parts, custom fabrication or Apple's original chip designs, and state of the art components.
post #2 of 71
Kick-ass touch screen panels, and high capacity batteries.
post #3 of 71
Black turtle necks and blue jeans...
post #4 of 71
Ahahaha!!! Apple is going to freeze out the competition on the availability of high-quality tablet displays at the ~10" form factor and maybe high-quality 3.5" displays for the iPhone and iPod touch.
post #5 of 71
Fairy dust!

The most obvious components are LCD and batteries. I see Apple putting in some work to get outstanding battery life. They even claimed to use their own chemical composition. But LCDs, I'd be somewhat surprised that Apple would be the one that's engineering the breakthroughs. They might just be securing them.

Is it possible this also alludes to their liquid metal licensing?
post #6 of 71
Nah, they bought the liquid metal company outright several months ago. They own it lock, stock, and barrel.
post #7 of 71
Well looks obvious that AAPL is ready to go forward in its customary fashion of excellence. We all wish Steve well and a quick return. Also we thank him for the great job he has done as shown by 1stQ results.
post #8 of 71
Quote:
Originally Posted by cvaldes1831 View Post

Nah, they bought the liquid metal company outright several months ago. They own it lock, stock, and barrel.

I recall they only bought the exclusive right to use it in their class of electronic devices, not the company itself. Am I wrong?

Also, I doubt this mystery investment has anything to do with something that has not even rolled out in an Apple product yet (liquid metal). Too risky. They would only front that kind of money for something that they have proven useful and proven massive sales.
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post #9 of 71
Now what do you suppose that apple uses lots of these days ...

Aluminum. The high grade kind, that can be milled accurately into MBP, MBA and iPad cases.

Aircraft. Perhaps they leased a 747 Freightliner, to move all those ipods and iphones out of China.
post #10 of 71
Quote:
Originally Posted by c-ray View Post

Now what do you suppose that apple uses lots of these days ...

Aluminum. The high grade kind, that can be milled accurately into MBP, MBA and iPad cases.

Aircraft. Perhaps they leased a 747 Freightliner, to move all those ipods and iphones out of China.

Not sure either of these are, or are likely to be, in limited supply. Or to be in limited supply based on the amounts used by Apple.
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post #11 of 71
Is it just me or do I not find the $3.9 million figure anywhere except the title of the article?
post #12 of 71
Quote:
Originally Posted by Robin Huber View Post

I recall they only bought the exclusive right to use it in their class of electronic devices, not the company itself. Am I wrong?

Also, I doubt this mystery investment has anything to do with something that has not even rolled out in an Apple product yet (liquid metal). Too risky. They would only front that kind of money for something that they have proven useful and proven massive sales.

You're right. They didn't buy the company. It's an exclusive agreement.
post #13 of 71
Quote:
Originally Posted by cvaldes1831 View Post

Nah, they bought the liquid metal company outright several months ago. They own it lock, stock, and barrel.

They certainly didn't buy the company. They have an exclusive agreement to use it in portable electronics:
http://www.appleinsider.com/articles..._11m_debt.html
post #14 of 71
Quote:
Originally Posted by OriginalG View Post

Fairy dust!

The most obvious components are LCD and batteries. I see Apple putting in some work to get outstanding battery life. They even claimed to use their own chemical composition. But LCDs, I'd be somewhat surprised that Apple would be the one that's engineering the breakthroughs. They might just be securing them.

Securing them is the key. I'd bet it's the high res LCDs that the iP4 and the iPad2 use.

Maybe if they're really smart it will also include the Qualcomm dual mode chips to allow Apple to be the only manufacturer who can easily make a phone that can be both GSM and CDMA, which could be a big market as 4G takes over and both VZ and Apple need backwards compatibility for voice.
post #15 of 71
Quote:
Originally Posted by c-ray View Post

Now what do you suppose that apple uses lots of these days ...

Aluminum. The high grade kind, that can be milled accurately into MBP, MBA and iPad cases.

Aircraft. Perhaps they leased a 747 Freightliner, to move all those ipods and iphones out of China.

No, no, no... they must have bought a 20% stake in Alcoa!

I think I am going to stick with the idea they bought screens. That was clearly what was limiting their growth, and they are consuming almost all of the current iPad-like screen production out there. I'd guess they are hedging 20% of their intended production needs.
post #16 of 71
Quote:
Originally Posted by Cubert View Post

Is it just me or do I not find the $3.9 million figure anywhere except the title of the article?

I was about to post the same question. I don't recall the $3.9 Billion figure mentioned during the call.
post #17 of 71
Quote:
Originally Posted by OriginalG View Post

They certainly didn't buy the company. They have an exclusive agreement to use it in portable electronics:
http://www.appleinsider.com/articles..._11m_debt.html

My bad, probably thinking about another M&A.
post #18 of 71
Quote:
Originally Posted by Felixer View Post

Kick-ass touch screen panels, and high capacity batteries.

I immediately thought of the screens, but I didn't think of the batteries -- I bet you're right, though. Lithium ion batteries are clearly a key component that may experience shortages over the next few years.
post #19 of 71
Quote:
Originally Posted by cameronj View Post

Securing them is the key. I'd bet it's the high res LCDs that the iP4 and the iPad2 use.

Maybe if they're really smart it will also include the Qualcomm dual mode chips to allow Apple to be the only manufacturer who can easily make a phone that can be both GSM and CDMA, which could be a big market as 4G takes over and both VZ and Apple need backwards compatibility for voice.

Now that's an idea! They couldn't make Qualcomm only sell the chips to them, but they could say "we'll take X number", X being slight more than Qualcomm can even produce according to calculations
post #20 of 71
I am guessing one of these deals is an extension of the existing deal with LG for displays. I personally believe that the previous LG deal provided funding for the R&D to create the kind of high-res display we are contemplating. Now they are tying up supply of such panels.
post #21 of 71
Carbon fiber manufacturing capability. That's my best guess. That and battery tech. They patented a process not long ago to improve the surface appearance of carbon fiber, and they are busy patenting thinner display tech. The future of Apple is lighter and thinner, so carbon is the top choice along with liquid metal components and thinner lighter batteries.
post #22 of 71
Quote:
Originally Posted by Proximityeffect View Post

Black turtle necks and blue jeans...

Don't forget New Balance sneakers.
post #23 of 71
Quote:
Originally Posted by OriginalG View Post

Now that's an idea! They couldn't make Qualcomm only sell the chips to them, but they could say "we'll take X number", X being slight more than Qualcomm can even produce according to calculations

Apple loves monopsony power.
post #24 of 71
Quote:
Originally Posted by Robin Huber View Post

I recall they only bought the exclusive right to use it in their class of electronic devices, not the company itself. Am I wrong?

Also, I doubt this mystery investment has anything to do with something that has not even rolled out in an Apple product yet (liquid metal). Too risky. They would only front that kind of money for something that they have proven useful and proven massive sales.

Correct.
post #25 of 71
Quote:
Originally Posted by Cubert View Post

Is it just me or do I not find the $3.9 million figure anywhere except the title of the article?

Billion. It was stated in the earnings call.
post #26 of 71
Quote:
Originally Posted by Blastdoor View Post

I immediately thought of the screens, but I didn't think of the batteries -- I bet you're right, though. Lithium ion batteries are clearly a key component that may experience shortages over the next few years.

Sony has an exclusive battery technology the bought several years ago. first it was used in power tools (I have one, a Bosch), then in electronics. I don't know if Apple has any exclusive agreement with them, but it's the basis for batteries Apple uses in many of its products. That's how they came out with laptops with 1,000 recharge cycles that have long battery life between charges, and are safe enough to build-in.

I provided this link the other day, but here it is again.

http://www.eetimes.com/electronics-p...er-electronics
post #27 of 71
Quote:
Originally Posted by sixfootbrit View Post

Carbon fiber manufacturing capability. That's my best guess. That and battery tech. They patented a process not long ago to improve the surface appearance of carbon fiber, and they are busy patenting thinner display tech. The future of Apple is lighter and thinner, so carbon is the top choice along with liquid metal components and thinner lighter batteries.

I don't think they need to buy up carbon fibre manufacturing capability as their process is quite different and new and most places that currently do carbon fibre work probably couldn't do it.

The whole carbon fibre thing is interesting though and I'm hoping that we might even see it in iPad 2.0. The profile of the new model suggests that it won't be aluminium since you can't really mill shapes like that with any efficiency.

I'm thinking we'll either see a plastic back of some kind this time or *maybe* get a glimpse at the fruition of all those crazy carbon fibre patents. The 3D knitting one was filed rather recently though so maybe not.
post #28 of 71
Quote:
Originally Posted by Prof. Peabody View Post

I don't think they need to buy up carbon fibre manufacturing capability as their process is quite different and new and most places that currently do carbon fibre work probably couldn't do it.

The whole carbon fibre thing is interesting though and I'm hoping that we might even see it in iPad 2.0. The profile of the new model suggests that it won't be aluminium since you can't really mill shapes like that with any efficiency.

I'm thinking we'll either see a plastic back of some kind this time or *maybe* get a glimpse at the fruition of all those crazy carbon fibre patents. The 3D knitting one was filed rather recently though so maybe not.

You can mill any shape with CNC, it doesn't care.

If they use plastic or carbon fiber for the case, they better use a good magnesium frame, because it will flex. Carbon fiber, no matter how it's constructed, will flex more than a machined aluminum part.

In addition, when talking about strength of carbon fiber composites, it's good to know that this is a comparison made by weight. Aluminum will still be thinner.
post #29 of 71
Quote:
Originally Posted by cvaldes1831 View Post

Ahahaha!!! Apple is going to freeze out the competition on the availability of high-quality tablet displays at the ~10" form factor

Not a problem as no one wants a "gigantic" 10" screen. Everyone only requires 7" screen.
post #30 of 71
And I was one of the holdouts wishing for a 7" iPad 2. In November I caved in and bought my iPad. After a couple of weeks of use, I understood what Steve was talking about. You interact with the device differently because of its size. You would not interact with a 7" iPad the same way.

Steve was right. That's why Apple pays him a dollar a year.

Anyhow, I'm looking forward to the iPad 2. I'm going to buy it and gift my original iPad to a family member. Until then, I will happily use it.
post #31 of 71
Quote:
Originally Posted by Proximityeffect View Post

Black turtle necks and blue jeans...

White iPhone4 back covers.....
post #32 of 71
Quote:
Originally Posted by cameronj View Post

Apple loves monopsony power.

Heh-heh. Was that an intentional spelling - making a portmanteau word out of "monopoly" and "sony?" Monopsony - I do like the word but not the concept behind it.
post #33 of 71
Quote:
Originally Posted by Ecphorizer View Post

Heh-heh. Was that an intentional spelling - making a portmanteau word out of "monopoly" and "sony?" Monopsony - I do like the word but not the concept behind it.

It's a real economic term - a market where there is a single buyer.
post #34 of 71
Quote:
Originally Posted by Cubert View Post

Is it just me or do I not find the $3.9 million figure anywhere except the title of the article?


It's just you. The number ($3.9 billion) is in the title and in the first sentence of the story. The number was spoken by CFO Peter Oppenheimer:

During the September and December quarters, we executed long-term supply agreements with three vendors through which we expect to spend a total of approximately $3.9 billion in inventory component prepayments and capital expenditures over a two-year period.

We made approximately $650 million in payments under these agreements in the December quarter, and anticipate making $1.05 billion in payments in the March quarter.
post #35 of 71
Quote:
Originally Posted by penchanted View Post

It's a real economic term - a market where there is a single buyer.

Well I'll be damned - you're absolutely right. I just looked it up for myself - thanks for making me put on my thinking cap.
post #36 of 71
Bigger and better solid state drives, as in the new Macbook Airs, but rolled out across other product lines.
post #37 of 71
deleted
post #38 of 71
One thing I realized is that if they're signing longterm LCD contracts, we probably won't be seeing any kind of OLED-based technology for the next two years. True?
post #39 of 71
Quote:
Originally Posted by OriginalG View Post

One thing I realized is that if they're signing longterm LCD contracts, we probably won't be seeing any kind of OLED-based technology for the next two years. True?

True, and thank God.
post #40 of 71
uhm, question...

I thought carbon fiber was very unfriendly when it comes to recyclability, renewability, and carbon footprint...

I think all the carbon fiber patents are quite dated from the apple labs... perhaps something they were considering prior to adopting aluminum across the lineup...therefore probably shouldnt be taken into consideration.

I dunno.. could be wrong.. but... just seems as though something apple wouldnt do unless they knew this stuff would still get them the green certification they want backing their products. hehe...
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