Apple's investments in infrastructure, tooling, retail to jump to $15 billion in 2016

Posted:
in AAPL Investors edited November 2015
After spending $11.2 billion across fiscal 2015 on capital expenditures, Apple anticipates that it will ramp up its investments in manufacturing, data centers, facility and retail infrastructure to $15 billion over the next year.


Apple Infinite Loop Campus


That huge increase in Capex spending is indicative of new projects and planned growth in production and sales. Capex describes long term investments expected to deliver future benefits, as opposed to Opex (operational expenses), which refers to ongoing spending in the course of running a business.

In its 10K filing, Apple specifically describes its Capex as involving "product tooling and manufacturing process equipment; data centers; corporate facilities and infrastructure, including information systems hardware, software and enhancements; and retail store facilities."

The $3.8 billion increase in planned Capex over the fiscal year that just ended in September represents 33 percent year over year growth. It is particularly noteworthy because Apple has historically been very conservative with its spending.

Last October, Apple reported that it expected to spend $12.4 billion on Capex for the fiscal year that just ended, later noting that would spend over a billion less than it had planned due to more efficient spending on equipment and facilities (rather than cuts to product pipeline spending).

Apple's massive growth comes from massive investment, not a short term fluke of popularity

Just five years ago, Apple was only spending just over $2 billion on annual Capex in total, outlining the vast increase in the infrastructure--including manufacturing capacity--that Apple is investing in on a global scale.

In 2013, Apple's then-chief financial officer Peter Oppenheimer noted that with its Capex, "we're buying equipment that we will own that we will put in our partners facilities. Our primary motivation there is for a supply, but we get other benefits as well.""Apple's enormous capital spending is reshaping the global supply chain for the industry" - Horace Dediu

Later that year, Asymco analyst Horace Dediu astutely noted that Apple's rapidly increasing capital expenditures "has followed very closely their production of iOS devices," after having earlier detailed "how Apple's enormous capital spending is reshaping the global supply chain for the industry."

Apple's liberal amounts of conservatively spent Capex have directly translated into not only capacity gains, but also directly into revenue. Katy Huberty of Morgan Stanley observed in 2012 that "Apple's revenue and Capex ex-retail stores have been 97 percent correlated over the past seven years and the acceleration in Capex growth signals a similar acceleration in revenue growth, in our view."

Valued like lessor firms, Apple would be $200 or $300

In contrast, Google spent a similar $11.1 billion in Capex over its last reported fiscal year, as its revenues increased by $6.1 billion, or 10.2 percent, and its earnings increased by $1.7 billion or 14 percent.

Apple's fiscal year reported an increase in revenues by $51.37 billion, or 28 percent, and its reported earnings increased by $13.88 billion or 35 percent. Particularly since July, Apple's superior performance has not been reflected in its share price.

Over the past three months, Apple has taken advantage of this irrational dip--largely stoked by a misunderstanding of the market in China--to buy back an astounding $14 billion of its own stock.




While Apple and Google have very different businesses, Apple's infrastructure investments are translating into increased growth, both in absolute dollars and in relative growth despite Apple's much greater "large numbers." Even so, investors are currently valuing Apple at a price to earnings ratio of 12.99, compared to 33.35 for Google or Microsoft's 35.37.If Apple's shares were to increase to a valuation like Google's, the share price would currently be over $300

The P/E of the Standard & Poor 500 is just under 22. Were Apple given a share value similar to its peers (which Apple is outperforming), its share price would be over $200, an increase of more than 69 percent.

If Apple's shares were to increase to a valuation like Google's--a company with greater exposure to a single business segment, effectively zero potential in China, and which pays no dividends--the share price of world's most profitable public company would currently be over $300.
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Comments

  • Reply 1 of 79
    Time those Wall Street investors got off their collective asses, understand AAPL, and made it happen.
  • Reply 2 of 79
    wizard69wizard69 Posts: 12,860member
    This is good news to an extend but I do hope that some of that production capacity is heading for the USA.
  • Reply 3 of 79
    rogifanrogifan Posts: 10,669member
    It jumped $4B from 2013 to 2014 too.
  • Reply 4 of 79
    Quote:

    Originally Posted by wizard69 View Post



    This is good news to an extend but I do hope that some of that production capacity is heading for the USA.



    you would think watches (relatively low volume and huge margin compared to labor) could be assembled in the USA.

  • Reply 5 of 79
    I don't know the timeline for new campus completion, but maybe this increase has something to do with that. New office, new kit....
  • Reply 6 of 79
    wizard69 wrote: »
    This is good news to an extend but I do hope that some of that production capacity is heading for the USA.

    Only if robots would handle the "labor". US wages are cost prohibitive compared to China or elsewhere.
  • Reply 7 of 79
    asciiascii Posts: 5,941member
    It's hard to comprehend those kind of numbers. When you read that they spent $15b on capex you wonder if they're building their own factories somewhere, intending to one day end the outsourcing.
  • Reply 8 of 79
    rogifanrogifan Posts: 10,669member
    Only if robots would handle the "labor". US wages are cost prohibitive compared to China or elsewhere.

    But foreign car manufacturers have plants in the United States. I think if Apple is working on an electric vehicle it will be manufactured in the United States.
  • Reply 9 of 79
    blazarblazar Posts: 270member
    I cant wait to see have apple share as $200+ which what they "could" be now if compared to others. The share repurchases do give me confidence since it makes sense to apple to invest in themselves vs other investment vehicles. Since around 2007 i continue to buy and hold. During the flash crash recently i bought in at $95/share for one lot. I have continued to buy under $116 per share. Timing the market is pretty much useless and technicals are just about useless too in the long run.
  • Reply 10 of 79

    It takes a lot of money to build a car factory. ;) 

  • Reply 11 of 79
    asciiascii Posts: 5,941member
    Quote:

    Originally Posted by Rogifan View Post





    But foreign car manufacturers have plants in the United States. I think if Apple is working on an electric vehicle it will be manufactured in the United States.



    Yep. Cars are so big it doesn't make sense to manufacture them overseas, even given wage level differentials. The transport cost is just too much.

  • Reply 12 of 79
    rogifan wrote: »
    But foreign car manufacturers have plants in the United States. I think if Apple is working on an electric vehicle it will be manufactured in the United States.

    Car assembly is exceedingly complex. I wonder if they might be looking into more sophisticated use of automation or toward radically different design processes, which could simplify the number of components.
  • Reply 13 of 79
    Your comments are right on Daniel. The market will eventually value Google, Microsoft, and Apple in accordance with their actual results. Right now science fiction sells for higher value than science. Those buying Microsoft seem to believe the decline in Windows profitability is not happening. That MSFT will somehow transform into a super growth machine and take over cloud computing. GOOGL buyers believe that Google will find the fountain of youth and sell its water in the future. It is how primates react to things. There is no sense to it except to the people that believe it, and today those people have the money to buy. It will take some time, but when the hoped for results never materialize there will be a reckoning. Google will fall 50% one quarter when people realize that advertising is the first thing cut in economic downturns and that the fountain of youth still does not exist. Microsoft investors will get over the "Ballmer is gone" honeymoon and realize that maybe Ballmer actually did a decent job maintaining the profitability of the windows franchise for over a decade. Eventually, and thankfully for humanity, this thing called reason always comes into play. It may take some time, but it is how we have survived this long. Oh, and APPL will reach a 25 PE someday in the next three years as investors come to grips with the reality of the company's actual performance under Cook and the unstoppable 10X culture Steve Jobs left behind.
  • Reply 14 of 79
    canukstormcanukstorm Posts: 1,961member
    Quote:

    Originally Posted by SpamSandwich View Post





    Car assembly is exceedingly complex. I wonder if they might be looking into more sophisticated use of automation or toward radically different design processes, which could simplify the number of components.

    I read somewhere that Apple is using the BMW i3 as an inspiration for how to manufacture their alleged car;

     

    http://www.automotivemanufacturingsolutions.com/focus/how-an-i3-is-born

  • Reply 15 of 79
    canukstormcanukstorm Posts: 1,961member
    Quote:

    Originally Posted by Ruggedchess View Post



    Your comments are right on Daniel. The market will eventually value Google, Microsoft, and Apple in accordance with their actual results. Right now science fiction sells for higher value than science. Those buying Microsoft seem to believe the decline in Windows profitability is not happening. That MSFT will somehow transform into a super growth machine and take over cloud computing. GOOGL buyers believe that Google will find the fountain of youth and sell its water in the future. It is how primates react to things. There is no sense to it except to the people that believe it, and today those people have the money to buy. It will take some time, but when the hoped for results never materialize there will be a reckoning. Google will fall 50% one quarter when people realize that advertising is the first thing cut in economic downturns and that the fountain of youth still does not exist. Microsoft investors will get over the "Ballmer is gone" honeymoon and realize that maybe Ballmer actually did a decent job maintaining the profitability of the windows franchise for over a decade. Eventually, and thankfully for humanity, this thing called reason always comes into play. It may take some time, but it is how we have survived this long. Oh, and APPL will reach a 25 PE someday in the next three years as investors come to grips with the reality of the company's actual performance under Cook and the unstoppable 10X culture Steve Jobs left behind.

    "Those buying Microsoft seem to believe the decline in Windows profitability is not happening. That MSFT will somehow transform into a super growth machine and take over cloud computing. "

     

    Well, when it comes to cloud computing, or enterprise-level cloud computing, the two biggest players right now are Amazon and MS. MS is doing a great job of growing their cloud business.  It's their Windows client division that's taking a beating.

  • Reply 16 of 79
    Quote:

    Originally Posted by SpamSandwich View Post





    Car assembly is exceedingly complex. I wonder if they might be looking into more sophisticated use of automation or toward radically different design processes, which could simplify the number of components.

    The BBC did two 1.5 hour live shows recently from the Mini factory in Oxford. I'm sure that they are in the internet somewhere. Take a look at how they get a Mini to drive off the line every 85 seconds (or thereabouts).

    Only the body is made in the plant. Just about everything else is sourced from external suppliers. Some components have deliveries almost every hour. Just in time at work. The only bad point was that it was fronted by James May.

  • Reply 17 of 79
    wizard69 wrote: »
    This is good news to an extend but I do hope that some of that production capacity is heading for the USA.

    If US tax laws were changed to become more modern and more compatible with what's happening around the world, hundreds of billions of dollars would flow back to this country to get reinvested.

    We're our own worst enemies in this regard.
  • Reply 18 of 79
    woodbine wrote: »
    I don't know the timeline for new campus completion, but maybe this increase has something to do with that. New office, new kit....

    The completion of the building is quite likely some of it, but surely there is a car experiment in the offing.
  • Reply 19 of 79
    If US tax laws were changed to become more modern and more compatible with what's happening around the world, hundreds of billions of dollars would flow back to this country to get reinvested.

    We're our own worst enemies in this regard.

    I like the FairTax ( www.FairTax.org ). I'd like zero taxes better, but that is a wholly unrealistic scenario.
  • Reply 20 of 79
    The BBC did two 1.5 hour live shows recently from the Mini factory in Oxford. I'm sure that they are in the internet somewhere. Take a look at how they get a Mini to drive off the line every 85 seconds (or thereabouts).
    Only the body is made in the plant. Just about everything else is sourced from external suppliers. Some components have deliveries almost every hour. Just in time at work. The only bad point was that it was fronted by James May.

    Why is that a 'bad point'? I LOVE the guy (as do many millions of people).
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