Apple commits $3.9 billion to secret long term component contracts

Posted:
in Future Apple Hardware edited January 2014
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.
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Comments

  • Reply 1 of 70
    Kick-ass touch screen panels, and high capacity batteries.
  • Reply 2 of 70
    Black turtle necks and blue jeans...
  • Reply 3 of 70
    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.
  • Reply 4 of 70
    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?
  • Reply 5 of 70
    Nah, they bought the liquid metal company outright several months ago. They own it lock, stock, and barrel.
  • Reply 6 of 70
    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.
  • Reply 7 of 70
    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.
  • Reply 8 of 70
    c-rayc-ray Posts: 40member
    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.
  • Reply 9 of 70
    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.
  • Reply 10 of 70
    cubertcubert Posts: 728member
    Is it just me or do I not find the $3.9 million figure anywhere except the title of the article?
  • Reply 11 of 70
    cubertcubert Posts: 728member
    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.
  • Reply 12 of 70
    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
  • Reply 13 of 70
    cameronjcameronj Posts: 2,357member
    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.
  • Reply 14 of 70
    aaarrrggghaaarrrgggh Posts: 1,608member
    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.
  • Reply 15 of 70
    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.
  • Reply 16 of 70
    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.
  • Reply 17 of 70
    blastdoorblastdoor Posts: 2,646member
    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.
  • Reply 18 of 70
    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
  • Reply 19 of 70
    penchantedpenchanted Posts: 1,070member
    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.
  • Reply 20 of 70
    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.
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