Apple spending on manufacturing & parts sees biggest increase since 2007 launch of first iPhone

Posted:
in Future Apple Hardware edited July 2014
The data in Apple's recently released 10-Q filing reveals the company has invested heavily in manufacturing and component purchases as it gears up for a series of highly anticipated major product launches this fall, including a next-generation iPhone and anticipated "iWatch."




The document filed with the U.S. Securities and Exchange Commission this week discloses that Apple's commitments for third-party manufacturing and components grew 22 percent quarter over quarter to $15.4 billion at the end of June. The increase was highlighted on Friday by analyst Katy Huberty of Morgan Stanley, who noted that the off-balance sheet commitments are a sign of "major product ramps" in the coming months.

In addition, Huberty highlighted that Apple has committed to $5.6 billion toward product tooling and manufacturing process equipment, advertising, research and development, and Internet and telecommunications services. That represents an increase of 100 percent sequentially.

Total commitments of $21 billion grew 46 percent year over year, as well as 36 percent from the previous quarter. She noted that's the highest sequential growth of any June quarter since Apple started selling the first iPhone in 2007.

In Huberty's eyes, there are likely two reasons for this major increase. First, she believes that Apple is planning to build more iPhones than ever for a record setting launch this fall -- information consistent with recent supply chain rumors which have pegged the company building between 70 million and 80 million "iPhone 6" units before the end of this year.




Huberty also believes the significant spending increases could signal that Apple is planning to enter a new product category that would debut this year. The company is widely expected to launch a so-called "iWatch" this fall.

In addition, AppleInsider noted earlier this week that Apple spent a record $1.6 billion on research and development last quarter, a 36 percent year-over-year increase of $425 million. To date, Apple has spent $4.36 billion on R&D thus far in fiscal 2014, and that spending has been accelerating each quarter.

Apple's major investments come as the company is heavily rumored to launch not only an "iWatch," but a next-generation iPhone with two screen sizes of 4.7 inches and 5.5 inches, and a redesigned MacBook Air with Retina display.. Other products expected to be refreshed this fall include the Apple TV and iPad.
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Comments

  • Reply 1 of 34
    gatorguygatorguy Posts: 17,837member
    The BusinessInsider article explains the relationship between "off-balance sheet" commitments mentioned by Huberty and future revenue.

    http://www.businessinsider.com/chart-the-clearest-sign-that-apple-revenue-is-about-to-explode-2014-7
  • Reply 2 of 34
    SpamSandwichSpamSandwich Posts: 28,371member
    We have all become Macbeth:

    She should have died hereafter;
    There would have been a time for such a word.
    To-morrow, and to-morrow, and to-morrow,
    Creeps in this petty pace from day to day
    To the last syllable of recorded time,
    And all our yesterdays have lighted fools
    The way to dusty death. Out, out, brief candle!
    Life's but a walking shadow, a poor player
    That struts and frets his hour upon the stage
    And then is heard no more: it is a tale
    Told by an idiot, full of sound and fury,
    Signifying nothing.
  • Reply 3 of 34
    SpamSandwichSpamSandwich Posts: 28,371member
    gatorguy wrote: »
    The BusinessInsider article explains the relationship between "off-balance sheet" commitments mentioned by Huberty and future revenue.

    http://www.businessinsider.com/chart-the-clearest-sign-that-apple-revenue-is-about-to-explode-2014-7

    Apropos of nothing, take a gander at AMZN this morning. They are really getting walloped.
  • Reply 4 of 34
    malaxmalax Posts: 1,598member
    Quote:

    Originally Posted by SpamSandwich View Post



    We have all become Macbeth:



    She should have died hereafter;

    There would have been a time for such a word.

    To-morrow, and to-morrow, and to-morrow,

    Creeps in this petty pace from day to day

    To the last syllable of recorded time,

    And all our yesterdays have lighted fools

    The way to dusty death. Out, out, brief candle!

    Life's but a walking shadow, a poor player

    That struts and frets his hour upon the stage

    And then is heard no more: it is a tale

    Told by an idiot, full of sound and fury,

    Signifying nothing.

     

    Are you implying that measures of financial performance literally signify nothing?

  • Reply 5 of 34
    philboogiephilboogie Posts: 7,377member
    [quote]In Huberty's eyes, there are likely two reasons for this major increase. First, she believes that Apple is planning to build more iPhones than ever for a record setting launch this fall -- information consistent with recent supply chain rumors which have pegged the company building between 70 million and 80 million "iPhone 6" units before the end of this year.

    Huberty also believes the significant spending increases could signal that Apple is planning to enter a new product category that would debut this year. The company is widely expected to launch a so-called "iWatch" this fall.[/quote]

    But R&D is manufacturing, is it? If they need to pay for supplies for a much larger number of iPhones than before, ok, but that is manufacturing, not research, right?

    That she thinks they are spending on an iWatch I can understand, and that would be research.
  • Reply 6 of 34
    allenbfallenbf Posts: 993member
    The final paragraph of the Business Insider article:

    "All of that said... You don't really need a chart or a peek at off-balance sheet commitments to figure revenue is ready to spike. All reports point to a big iPhone release this fall, an iWatch, maybe a new Mac, and possibly something in the payments space. Those things are naturally going to generate record levels of revenue for Apple."

    This.

    I completely believe that Apple will roll out something in the payments space. This along with iPhone 6, opening up the APIs for Siri/Homekit/TouchID/etc, my opinion is this will be the most exciting release of an iPhone since the original. I can't F'ing wait.

    And that's saying nothing of an iWatch or Mac or even something with Apple TV. All of the Tim Cook haters should be eating their words in just a few months.
  • Reply 7 of 34
    malaxmalax Posts: 1,598member
    Quote:

    Originally Posted by SpamSandwich View Post





    Apropos of nothing, take a gander at AMZN this morning. They are really getting walloped.

    Aw, so sad.  Couldn't happen to a nicer bunch of folks.

  • Reply 8 of 34
    vaporlandvaporland Posts: 358member
    malax wrote: »
    Apropos of nothing, take a gander at AMZN this morning. They are really getting walloped.
    Aw, so sad.  Couldn't happen to a nicer bunch of folks.

    DED post in 3, 2, 1...

    I bet AMZN shareholders start to think, "what is the value-add if we spin off AWS?"
  • Reply 9 of 34
    Quote:
    Originally Posted by SpamSandwich View Post



    We have all become Macbeth:



    She should have died hereafter;

    There would have been a time for such a word.

    To-morrow, and to-morrow, and to-morrow,

    Creeps in this petty pace from day to day

    To the last syllable of recorded time,

    And all our yesterdays have lighted fools

    The way to dusty death. Out, out, brief candle!

    Life's but a walking shadow, a poor player

    That struts and frets his hour upon the stage

    And then is heard no more: it is a tale

    Told by an idiot, full of sound and fury,

    Signifying nothing.



     


    Definitely appreciate seeing this great passage pop up on this thread but not sure why. Username suddenly appropriate. :)
  • Reply 10 of 34
    mjtomlinmjtomlin Posts: 1,669member
    Quote:

    Originally Posted by PhilBoogie View Post





    But R&D is manufacturing, is it? If they need to pay for supplies for a much larger number of iPhones than before, ok, but that is manufacturing, not research, right?



    That she thinks they are spending on an iWatch I can understand, and that would be research.

     

    Manufacturing is the physical production of goods, which includes tooling/equipment/facilties. This cost is under Capital Expenditures, I believe, not R&D.

     

    There is such a thing a manufacturing R&D which Apple is also doing. Developing (designing and testing) manufacturing processes, methods, lines, etc., for the production of products or even materials. LiquidMetal and sapphire are the two biggest materials that come to mind.

  • Reply 11 of 34
    rogifanrogifan Posts: 10,669member
    Here's what Jony Ive told the NY Times earlier this year:

    http://bits.blogs.nytimes.com/2014/06/16/jonathan-ive-on-apples-design-process-and-product-philosophy/?_php=true&_type=blogs&_r=0
    I’ve worked for the last 15 or 20 years on the most challenging, creative parts of what we do. I would love to talk about future stuff – they’re materials we haven’t worked in before. I’ve been working on this stuff for a few years now. Tim is fundamentally involved in pushing into these new areas and into these materials.

    I'm assuming he's referring to sapphire but he says he's been working on this stuff for several years so perhaps we'll see a big use of liquidmetal? Or is there some other material that none of us are thinking about?
  • Reply 12 of 34
    SpamSandwichSpamSandwich Posts: 28,371member
    rogifan wrote: »
    Here's what Jony Ive told the NY Times earlier this year:

    http://bits.blogs.nytimes.com/2014/06/16/jonathan-ive-on-apples-design-process-and-product-philosophy/?_php=true&_type=blogs&_r=0
    I'm assuming he's referring to sapphire but he says he's been working on this stuff for several years so perhaps we'll see a big use of liquidmetal? Or is there some other material that none of us are thinking about?

    "Magictanium"
  • Reply 13 of 34
    solipsismxsolipsismx Posts: 19,566member
    "Magictanium"

    Jobsium? Jobsanthium? Stevium? Boomanthium? Onemorethingium?
  • Reply 14 of 34
    Quote:

    Originally Posted by PhilBoogie View Post

     
    Quote:


     In Huberty's eyes, there are likely two reasons for this major increase. First, she believes that Apple is planning to build more iPhones than ever for a record setting launch this fall -- information consistent with recent supply chain rumors which have pegged the company building between 70 million and 80 million "iPhone 6" units before the end of this year.



    Huberty also believes the significant spending increases could signal that Apple is planning to enter a new product category that would debut this year. The company is widely expected to launch a so-called "iWatch" this fall.





    But R&D is manufacturing, is it? If they need to pay for supplies for a much larger number of iPhones than before, ok, but that is manufacturing, not research, right?



    That she thinks they are spending on an iWatch I can understand, and that would be research.

    no.

    my guess is that the initial manufacturing setup expense (CapEx) is higher due to either a more capacity needed (more SqFt + more production assembly tools) and/or more expensive tools (FoxBots).   Those are up front costs that amortize several quarters after purchase... 

     

     

    'development' is typically classified as going from prototype to product candidate, which is the cost of 'designing the manufacturing process'

     

     

    Manufacturing Setup(CapEx) and Parts are not part of product development, they are part of production.

     

    Determine a product (research) [Will this Sell?]

     

    Design a product (Development)  [Is this perfect balance of cost to manufacture, Usability, function-feature, performance]

     

    Build manufacturing/Distribution capacity for product (CapEx)  [buy/build/lease tools and facilities based expected demand curve]

     

    Train labor on build/distribute process

     

    Build up inventories of components to make/package/sell product (supplies)

     

    Build Product for X= parts+labor-per-hour/hour-to-make+[if piece count>TotalExpectedRun, then $0,  else (R&DCosts+Capex-to-make-product)/(total expected run of product)]+royalties-on-IP-of-Product-per piece

     

    Cost of Product  for X+CostOfSales(shipping+channelcosts)+expected_year_1_support_costs(infant mortality)/perUnit

    GrossProfit% = (1-Cost_of_Product/ASP)*100

  • Reply 15 of 34
    fracfrac Posts: 476member
    solipsismx wrote: »
    "Magictanium"

    Jobsium? Jobsanthium? Stevium? Boomanthium? Onemorethingium?

    Thermonuclium?
  • Reply 16 of 34
    Quote:
    Originally Posted by SolipsismX View Post





    Jobsium? Jobsanthium? Stevium? Boomanthium? Onemorethingium?

    Di-Lithium-Licksoxide  the colloquial term for: 2(5)6 dilithium 2(:)l diallosilicate 1:9:1 heptoferranide

     

    The rare substance that powered Steve those last years (it wasn't a just liver transplant,  a small plasma engine was installed, generating the necessary energy to supplement his vegan diet with adding meat or dairy).

     

    Normally found in crystal form,  it's the basic catalyst of all trans warp space travel in the future.  

     

    The Apple Campus 2 is really an NCC starship.

  • Reply 17 of 34
    flaneurflaneur Posts: 4,432member
    We have all become Macbeth:

    She should have died hereafter;
    There would have been a time for such a word.
    To-morrow, and to-morrow, and to-morrow,
    Creeps in this petty pace from day to day
    To the last syllable of recorded time,
    And all our yesterdays have lighted fools
    The way to dusty death. Out, out, brief candle!
    Life's but a walking shadow, a poor player
    That struts and frets his hour upon the stage
    And then is heard no more: it is a tale
    Told by an idiot, full of sound and fury,
    Signifying nothing.

    "We have all become Macbeth." —Speak for yourself. These (in the play) are the words of a man who overstepped the natural bonds of his people by killing their good leader, usurping his crown, all because of ambition and listening to his even more ambitious wife. He is desperate, tortured with guilt, trapped, and his soliloquy is a denial of Time in all its aspects: present, past and future, and then denial of life itself.

    Is that you? Certainly isn't me. Sorry, this is one of my favorite passages, and it has a specific moral lesson in it about respect for established order, and what happens if it's violated. I wish the neocons who conned the US into Iraq would have been familiar with the lesson, for example. Out of place here.
  • Reply 18 of 34
    SpamSandwichSpamSandwich Posts: 28,371member
    Quote:
    Originally Posted by Flaneur View Post





    "We have all become Macbeth." —Speak for yourself. These (in the play) are the words of a man who overstepped the natural bonds of his people by killing their good leader, usurping his crown, all because of ambition and listening to his even more ambitious wife. He is desperate, tortured with guilt, trapped, and his soliloquy is a denial of Time in all its aspects: present, past and future, and then denial of life itself.



    Is that you? Certainly isn't me. Sorry, this is one of my favorite passages, and it has a specific moral lesson in it about respect for established order, and what happens if it's violated. I wish the neocons who conned the US into Iraq would have been familiar with the lesson, for example. Out of place here.

     

    Out of context, it fits the Huberty situation to a "T".

  • Reply 19 of 34
    mdriftmeyermdriftmeyer Posts: 7,094member
    mjtomlin wrote: »
    Manufacturing is the physical production of goods, which includes tooling/equipment/facilties. This cost is under Capital Expenditures, I believe, not R&D.

    There is such a thing a manufacturing R&D which Apple is also doing. Developing (designing and testing) manufacturing processes, methods, lines, etc., for the production of products or even materials. LiquidMetal and sapphire are the two biggest materials that come to mind.

    More clearly stated, Apple's R&D is centered around the design and development of new products for current and future market segments, in parallel with designing, developing and creating new tools, machining processes, assembly, forms, control systems, etc., that they Patent and actually create specifically for large scale productions of current and future products.

    They are refining and evolving the how products are manufactured, then deploying them around the globe, solely for their products.
  • Reply 20 of 34
    philboogiephilboogie Posts: 7,377member
    philboogie wrote: »
    no.
    my guess is that the initial manufacturing setup expense (CapEx) is higher due to either a more capacity needed (more SqFt + more production assembly tools) and/or more expensive tools (FoxBots).   Those are up front costs that amortize several quarters after purchase... 


    'development' is typically classified as going from prototype to product candidate, which is the cost of 'designing the manufacturing process'


    Manufacturing Setup(CapEx) and Parts are not part of product development, they are part of production.

    Determine a product (research) [Will this Sell?]

    Design a product (Development)  [Is this perfect balance of cost to manufacture, Usability, function-feature, performance]

    Build manufacturing/Distribution capacity for product (CapEx)  [buy/build/lease tools and facilities based expected demand curve]

    Train labor on build/distribute process

    Build up inventories of components to make/package/sell product (supplies)

    Build Product for X= parts+labor-per-hour/hour-to-make+[if piece count>TotalExpectedRun, then $0,  else (R&DCosts+Capex-to-make-product)/(total expected run of product)]+royalties-on-IP-of-Product-per piece

    Cost of Product  for X+CostOfSales(shipping+channelcosts)+expected_year_1_support_costs(infant mortality)/perUnit
    <span style="line-height:1.4em;">GrossProfit% = (1-Cost_of_Product/ASP)*100</span>

    mjtomlin wrote: »
    Manufacturing is the physical production of goods, which includes tooling/equipment/facilties. This cost is under Capital Expenditures, I believe, not R&D.

    There is such a thing a manufacturing R&D which Apple is also doing. Developing (designing and testing) manufacturing processes, methods, lines, etc., for the production of products or even materials. LiquidMetal and sapphire are the two biggest materials that come to mind.

    More clearly stated, Apple's R&D is centered around the design and development of new products for current and future market segments, in parallel with designing, developing and creating new tools, machining processes, assembly, forms, control systems, etc., that they Patent and actually create specifically for large scale productions of current and future products.

    They are refining and evolving the how products are manufactured, then deploying them around the globe, solely for their products.

    Thank you both for your kind and detailed explanation.
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