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Apple makes record $11B in purchase commitments, earns its highest margins in Asia

post #1 of 15
Thread Starter 
Apple's 10-Q form filing with the U.S. Securities and Exchange Commission has revealed the largest sequential increase in purchase commitments for a March quarter to $11 billion, as iPad 2 production ramps up.

$11B in purchases planned as iPad 2 ramps up, iPhone 5 rumors heat up

The "10-Q Tidbits" were highlighted this week by analyst Katy Huberty with Morgan Stanley. The financial document shows that Apple's purchase commitments increased 39 percent quarter over quarter by the end of the March quarter.

Apple plans to spend $11 billion on components and other purchases in the March quarter, up from $7.9 billion at the end of 2010. That sequential increase is a record for a March quarter.

"We believe the increase is attributable to procurement ahead of a tight supply environment and expected shipment increases in June (iPad) and September (iPad + iPhone)," Huberty wrote in a note to investors.

Apple's purchase commitments cover requirements in the immediate future. Typically, these expenses cover a period ranging from 30 days to 150 days.

Beyond that, Apple also has long-term supply agreements with component suppliers that extend out as far as the year 2022. The company revealed in its 10-Q that these supply agreements total about $2 billion.

Apple drew attention in the previous quarter when the company revealed it had committed $3.9 billion to secret long-term component contracts. The company declined to reveal what components it had secured supply of, citing competition.



Apple's margins show even more success in Asia

Apple also revealed in its 10-Q that its operating margins in the Asia/Pacific region were 43.1 percent in the March quarter. That represented the highest region in the world for the company, besting the 42.3 percent margins in Europe and 40.3 percent in America.

Huberty said the highest margins in Asia were likely driven by a higher mix of iPhone sales compared to other products.

"We think Apple has the opportunity to replicate its success in China and other emerging markets and the potential introduction of a lower priced iPhone in 2012 should help accelerate growth in emerging markets," she said.

Apple's success in Asia, particularly China, has been a major part of the company's growth story. Last quarter, the company's revenue from the Asia/Pacific region rose 151 percent, representing 25 percent of the company's total revenue growth.

Mac sales were also healthy last quarter in Asia, increasing 76 percent, the company boasted during its quarterly earnings conference call. Apple Chief Operating Officer Tim Cook referred to his company's success in China as a "sea change."
post #2 of 15
That's a lot of "walking around money".
post #3 of 15
Quote:
Originally Posted by AppleInsider View Post

Apple also revealed in its 10-Q that its operating margins in the Asia/Pacific region were 43.1 percent in the March quarter.

Operating margins would be Operating Income divided by Net Sales. You're referring to Gross Profit Margin, which is Gross profit (sales minus cost of sales) divided by net sales. It's the GPM that is of most interest to analysts and is what is most often referred to when discussing apple's healthy margins.

http://sec.gov/Archives/edgar/data/3...04388/d10q.htm
post #4 of 15
Quote:
Originally Posted by AppleStud View Post

Operating margins would be Operating Income divided by Net Sales. You're referring to Gross Profit Margin, which is Gross profit (sales minus cost of sales) divided by net sales. It's the GPM that is of most interest to analysts and is what is most often referred to when discussing apple's healthy margins.

http://sec.gov/Archives/edgar/data/3...04388/d10q.htm

Nice filing. It's all done on an iPad with Numbers too!
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Been using Apples since 1978 and Macs since 1984
Long on AAPL so biased. Strong advocate for separation of technology and politics on AI.
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Use duckduckgo.com with Safari, not Google Search
Been using Apples since 1978 and Macs since 1984
Long on AAPL so biased. Strong advocate for separation of technology and politics on AI.
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post #5 of 15
Quote:
Originally Posted by Sevenfeet View Post

That's a lot of "walking around money".

Actually since these are purchase commitments (the term contract is more commonly used for this type of agreement) and not prepayments, Apple will be paying for these purchases out of revenue from operations, not from the pile of cash. If Apple had zero in the bank they could still sign these types of deals, as the components are going into devices that are highly profitable and thus provide extra cash.
post #6 of 15
the article reports
Quote:
its operating margins in the Asia/Pacific region were 43.1 percent in the March quarter. That represented the highest region in the world for the company, besting the 42.3 percent margins in Europe and 40.3 percent in America.

but that while Asia is the highest region, the other two major regions are not that far behind - which presents a very balanced picture.
If you are going to insist on being an ass, at least demonstrate the intelligence to be a smart one
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If you are going to insist on being an ass, at least demonstrate the intelligence to be a smart one
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post #7 of 15
Come India, Darling!
Same Apple. Same Mac. Different Take. Different Place. http://Applemacness.com
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Same Apple. Same Mac. Different Take. Different Place. http://Applemacness.com
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post #8 of 15
$11 billion in the US economy would have been nice...
post #9 of 15
Quote:
Originally Posted by Mike Fix View Post

$11 billion in the US economy would have been nice...

You should probably start a company that makes these components and beat out the suppliers who Apple chose to supply, in that case.

At this point in our history, American companies tend to choose to make higher profit items than the ones you are drooling over. If you'd rather we made cheap low margin components instead of the high profit items we produce, you're free to do that. Something tells me you wouldn't be willing to make that little though.

The collected entrepreneurs of the world's largest economy decided they couldn't make money doing it. What makes you think you could?
post #10 of 15
Good for Apple. Apple needs to leverage that cash hoard. Wall Street is unhappy about Apple only earning less than 1%, so if Apple can cut component deals that might shave off about 10% of costs, then that amounts to a lot more than normal interest. It also keeps components at higher cost and in tighter supply for the rest of the computer/tablet industry. It also assures component suppliers that they'll get their money and sell every component they make. It's a win-win for Apple and component suppliers. No one can ask for more than that. That's highly efficient business practice when you can sell every product you can make.

I don't understand why Wall Street doesn't understand that. In Apple's case it doesn't help shareholders at all since the share price doesn''t move but it will keep Apple as a company very solid and that is good for Apple employees. All Apple can do is make lots of revenue every quarter and consistently build up it's cash reserve. If investors don't want to buy Apple stock, that's up to them. Apple has done its part.
post #11 of 15
Quote:
Originally Posted by AppleInsider View Post

Apple plans to spend $11 billion on components and other purchases in the March quarter, up from $7.9 billion at the end of 2010. That sequential increase is a record for a March quarter.

First, I'm guessing that the margins are best in Asia, due to exchange rates.

Second, I suppose now I'll have to look at Apple's 10Q to see what Huberty was talking about, since in the conference call, I got the notion that nothing had changed. This is what Oppenheimer said:

"We expect to spend in our fiscal '11 about $5.7 billion in capital expenditures. That's unchanged from what we told you last quarter."

That's FY11, not just the March quarter he's referring to.

Then about component prepayments he adds:

"We talked about on the last call arrangements we had done with 3 suppliers. We expect to spend about $3.5 billion during fiscal '11 and fiscal '12 with those 3 suppliers on those deals in the form of prepayments and capital expenditures. And as I said in my prepared comments, we expected $900 million of that in the March quarter, and we expect to spend the remainder across fiscal '11 and fiscal '12."

So, only $900M was spent in the March quarter. I'm not seeing the $3.1B increase Huberty is referring to.
post #12 of 15
Quote:
Originally Posted by Constable Odo View Post

I don't understand why Wall Street doesn't understand that. In Apple's case it doesn't help shareholders at all since the share price doesn''t move but it will keep Apple as a company very solid and that is good for Apple employees. All Apple can do is make lots of revenue every quarter and consistently build up it's cash reserve. If investors don't want to buy Apple stock, that's up to them. Apple has done its part.

In case you haven't noticed, Apple is one of the most valuable companies in the world. "Wall Street" (as if that was a single entity) has certainly rewarded Apple with an extraordinary market value in exchange for its extraordinary performance. I'm sorry, Apple is not worth 2 trillion in market value, no matter how much you think it is.
post #13 of 15
Quote:
Originally Posted by KenC View Post

First, I'm guessing that the margins are best in Asia, due to exchange rates.

Second, I suppose now I'll have to look at Apple's 10Q to see what Huberty was talking about, since in the conference call, I got the notion that nothing had changed. This is what Oppenheimer said:

"We expect to spend in our fiscal '11 about $5.7 billion in capital expenditures. That's unchanged from what we told you last quarter."

That's FY11, not just the March quarter he's referring to.

Not sure you understand what capital expenditures are.

Quote:
Then about component prepayments he adds:

"We talked about on the last call arrangements we had done with 3 suppliers. We expect to spend about $3.5 billion during fiscal '11 and fiscal '12 with those 3 suppliers on those deals in the form of prepayments and capital expenditures. And as I said in my prepared comments, we expected $900 million of that in the March quarter, and we expect to spend the remainder across fiscal '11 and fiscal '12."

So, only $900M was spent in the March quarter. I'm not seeing the $3.1B increase Huberty is referring to.

Capital expenditures and prepayments are very different from purchase agreements.
post #14 of 15
Quote:
Originally Posted by cameronj View Post

Not sure you understand what capital expenditures are.



Capital expenditures and prepayments are very different from purchase agreements.

I know the difference, I put those quotes in quickly, because I was wondering if perhaps Katy was confusing them.
post #15 of 15
Since then, I had a chance to look at Apple's 10Q, and this is what I concluded:

First, the $11B has nothing to do with Apples prebuy program. The long-term prebuy program has committed $2.4B, with an additional $2.0B so far unallocated.

The $11B is Apples normal contracted component buy for the next 5 months. It increases every year, preceding the growth in sales:
2009Q4 $4.6B
2010Q1 $3.7B
2010Q2 $4.9B
2010Q3 $6.2B
2010Q4 $8.2B
2011Q1 $7.9B
2011Q2- $11.0B

As you can see, the contracted component amount increases from Q1 thru Q4.

If you graph this contracted component total against Lagged COGS, (lagged by 3 months), you find that this component buy total is roughly 50% of COGS 3 months later.

Here it is, component buy of $4.6B in 2009Q4 results in COGS of $9.3B in 2010Q1. If you continue, you get:
$3.7B becomes $7.9B
$4.9B becomes $9.6B
$6.2B becomes $12.8B
$8.2B becomes $16.4B
$7.9B becomes $14.4B

This quarters $11B implies a COGS for next quarter of about $22B. Of course, with COGS, one could get a rough estimate of next quarters sales!
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