“The most surprising revelation found in Apple’s recent 10-Q and 10-K filings is related to capital expenditures (capex),” Neil Cybart writes for Above Avalon. “For the first time in 16 years, Apple expects its capex to decline during the current fiscal year.”

“Declining capex is made that much more intriguing for Apple considering how Amazon, Alphabet, Microsoft, and Facebook are each experiencing significant increases in capex,” Cybart writes. “Analyzing Apple’s capex and the potential reasons for its decline provides a look at how the company is being managed and how Apple is unique when compared to other Wall Street giants.”

“What may be behind Apple’s expectation for capex to decline by nearly 30% in FY2019?” Cybart writes. “There are a number of plausible theories.”

1. Apple is buying less tooling and manufacturing machinery
2. Apple cut back the pace of retail store openings
3. Capex headwind from elevated spend on facilities is winding down
4. Apple’s initial expectations will end up being proven wrong

“When taking the preceding theories into consideration, two (#1 and #3) stand out as being the most logical,” Cybart writes. “Despite the surge in wearables sales, the overall number of devices manufactured has remained roughly the same due to the decline in iPhone sales. This would suggest no major growth in capex due to additional tooling and machinery. In addition, Apple is coming off of a massive investment cycle for iPhone related to OLED and Face ID. Management was not exaggerating when saying the iPhone X marked a turning point for the iPhone business. This dynamic likely resulted in elevated capex in recent years which is now cooling down a bit in 2019.”

Read more in the full article here.

MacDailyNews Take: As Neil poitns out in his full article, a YOY decline in capex does not necessarily reflect an underinvestment in the business. Instead, “such declines result from Apple leveraging its existing fixed assets to generate robust free cash flow.”