Apple’s secret plan for its mountain of cash: Buying up its own supply chain

“Apple has $100 billion of cash and a lot of ways to spend it. Add more retail stores? Check. Set up more server farms to support its iCloud service? Check. Build a second campus in Cupertino, Calif. to house its burgeoning staff? Check. Acquire companies and expand R&D? Check. Pay dividends and do stock repurchases? Check, check,” Connie Guglielmo reports for Forbes.

“How about buying up its own supply chain?” Guglielmo asks. “A lot of high-tech manufacturers on The Global 2000 dream about controlling what they pay for components and gaining the assurance that crucial parts will flow as needed. Apple is one of very few firms with the financial wherewithal to make that come true, specifically by buying production equipment to outfit new and existing factories in Asia that other people will run.”

Guglielmo reports, “Apple is already deploying its cash toward this very goal, say people who follow the company closely. It’s a strategy that will likely continue the disruption in the consumer electronics field that Apple has led to date. The iPhone maker has $64 billion or so of its cash sitting overseas, taxed at an attractively low 5% rate but also earning little to no interest. Any cash Apple chooses to bring back to the States would get hit at the 35% U.S. tax rate, not a pleasant prospect. Spending that money on expanding offshore production is far more compelling.”

Much more in the full article here.

[Thanks to MacDailyNews Readers “David E.” and “Arline M.” for the heads up.]

82 Comments

  1. It is criminal for anyone (yes, even Apple) to have cash holdings that ae taxed at only 5%. There is something wrong with the tax code. And you right wing lower taxes idiots will watch as the infrastructure we all depend on crumbles into nothing. As Marc Cuban says; “make a lot of money. Pay a lot of taxes. Happily.

      1. But it does. Apple has ALREADY set aside US corporate taxes on about $40B of that amount. The remainder is to be used as foreign working capital and will not likely be repatriated.

    1. I’m offshore as well, avoiding taxes completely. Not one dime to the US system. Dump the Kenyan, and his lapdogs including Pelosi and Reed and that moron fsckup Attorney General, lower taxes, and I might, just might, repatriate and pay some. Otherwise, eat cake baby.

      1. And the criminals, George Bush, Dick “if I nobly had a heart” Cheney, Paul Ryan, Mitt Romney et.al. UThe Kenyan is an American born and bred. You are a scoundrel and every time you open your mouth, plumes of shit emerge.

        1. The Kenyan is gone in November, and his entourage of fskups. I know its painful for you to contemplate, but it is what it is. With any luck, a marine detail we be on hand, cattle prod in hand, to ensure the process gets done on time.

            1. You are a sad case for a human being. Maobama has completely lied about every time he’s opened his mouth and you have the gall to stick up for him. What does that make you, you moron? TheThirdCommie is a better name for you jack ass!

      2. That’s OK – it sounds like we’re better off without you.

        The country was forged and re-made more than once through hard times by coming together – a sense of community. One of those took a civil war to keep the nation from spinning into independent states.

        If all we care about is “getting mine and forget everyone else”, the country will fall. The true weapon against any form of totalitarianism coming in and taking over is a people united in some common purposes – e.g. actually caring about our fellow citizens (the nation – too often an abstract concept – but it just means the people we are bound together with under the Constitution). All other issues: the tax rate, etc… all pale next to this. If we truly only care for ourselves, if that is what the American way has become – may God help us – literally.

        1. Well that’s ironic, since President Obama and the other Democrats in power are selling “getting mine and forget everyone else” to get reelected. What do you think Obama-care is? What do you think “tax the rich” is all about? Its all about redistribution of wealth from those who earn a lot of money to those who don’t care if they work a day in their life. Put us all into a welfare state where everyone is dependent on the government. The only people who buy into such a plan are those who want to “get mine and forget everyone else”.

            1. Romney is not perfect but the alternative is horrific! Illegal alien, Kenyan, with false papers across the board. Complete liar and scum. He will lose in a landslide.

              He is a racist-hater just like all of you DemoTards!

        2. Other way around .. I’m better off without you. A lot better off. You pay for ObamaCare, you pay for food stamps, you pay for birth control to law school students, you pay for Las Vegas parties for the GSA, you pay for the list of taxes that starts next year. I DON’T PAY. YOU PAY. Laughing my ass off.

      3. “dump the Kenyan”

        You rallies that everytime one of you bozos makes a commenting that, a few more pints are shaved off the already low opinion people have of the so called US conservatives?

        If you don’t want to be per overs as backwards racist buffoons, stop acting like backwards racist buffoons.

        1. Don’t play the racist card, Dump The Kenyan is not a racial slur, its to show that he is NOT an American citizen. Even if he were an American citizen, then the fraud he committed going to college as a foreign exchange student, and taking the money and tuition breaks should land him in jail, NOT the White House. Simple as that. One way or the other, he is a clueless, lying, fsckup idiot. OK, to be fait that same statement can be applied to 98% of all polititians, regardless of their party affiliation.

    2. Perhaps you’d like the US government to invade those countries where Apple haveb their money in order to ‘repatriate’ it?
      Heaven forbid the United States would start a war for monetary gain…

    3. Whats better – Apple investing the cash to create new products/technology or for the The Romper Room (Kid Obama and his Administration) to spend the money – i.e. Solyndra, EPA, GSA Parties, etc. ?

      It’s a no brainer my friend. Taxes should be LOWER for everyone. As low as possible. The government wastes too much and lines the pockets of too many special interests.

      1. I agree that taxes should be “as low as possible,” John, as long as the country is not running a deficit and accumulating a massive long-term debt. Unfortunately, that is the situation in which we find ourselves…

        Certainly we need to reduce federal spending. But it is folly to cut taxes until we begin approaching a balanced budget. Tax cut and spend did not work, and tax cut and spending cut is not an option until we get out debt under control. Spending cuts have to come first!

        What we need to do is spending cut and modestly increase taxes. It is our responsibility as a country to sacrifice for our profligacy. If you do not believe that, then you are not a real conservative in my book. You are just a freeloader planning to pass the burden on to the next generation while hoping that the system does not crash down around you before you have cashed out.

        I do believe in tax reform. The system is too complex with too many loopholes. But the net tax revenue needs to grow, not shrink, until we reach fiscal stability.

        1. You are clueless Queen Smell. Lower taxes and more taxes come in through much greater economic activity. Shrink the size of the LibTARD damaged government to the minimum. Ban unions. Obey the constitution and good times will be here again. Won’t happen until the Kenyan raised in Indonesia gets voted out in a landslide this November!

        2. Tax revenue DOES increase substantially when tax rates are lowered, kingmel. I’m sure you know that. But you also probably know that the government never wants to reduce taxes once they’ve increased them. (At least not without a HUGE fight.) You said it, spending cuts have to come first… then see what happens before we even think about raising taxes.

      2. You get your News from the Fox opinion machine. You don’t understand Economics, trade, politics or civics. You’re too busy wiping your ass with your own brain. Your talking points are meaningless.

        1. T-Drone – you are a complete, brainless idiot. You follow your marching orders from PMSNBC, Rachel Madcow, and god only knows where else. Get out of your mommy’s basement and do something productive with your life sonny boy.

        2. Roughly three-quarters of the Federal budget goes to transfer payments (Medicare, Medicaid, Social Security) and interest on the debt. None of that is investment – it’s all consumption. And their portions of the budget is growing. Simpson-Bowles tried to address that issue, but the Administration took their report and its recommendations and put them on the shelf.

          This President has made clear his ideological commitment to “fairness” trumps activities that might spur investments that would result in *higher* revenues. So it is he and his cohorts that don’t understand how economies work.

    4. Apple has a fiduciary duty to their shareholders to keep their costs (including taxes) as low as they can. Pay a lot of taxes “Happily”? What the hell is wrong with you? Every dollar Apple keeps out of the government’s grasping hands is a dollar that doesn’t get used to cause bloody mayhem all over the world.

      -jcr

    5. Apple has stores all over the world. This $64 billion was made overseas. Why is it a crime that they only be taxed over seas in the country it was made in? This isn’t a tax loophole, they paid taxes in the place the money was made and it’s staying in those countries (so they don’t have to pay double taxes). I think it’s a crime the US govt. want to double tax Apple for money it made elsewhere that was already taxed elsewhere.

      If the current administration was smart, they’d give Apple a tax break on that money (say only 10%, still a double tax but not 35%) to bring that money to the US. Then maybe Apple would invest in assembly here in the US.

    6. tbone – Get a clue. This is not a right/left debate at all. Apple’s overseas cash has already been taxed locally by the governments of the countries where they sold their products. Why should the US Government be able to tax any of it again? No other industrialized country does this to their own companies.

      When BP makes $20B in the American market they pay taxes on that cash to the US Government. But they do not have to pay the UK government taxes on that $20B when they repatriate it to the UK since that money was earned in the US. BP only pays taxes to the UK government on profits that were earned in the UK.

    7. @tbone

      “It is criminal for anyone (yes, even Apple) to have cash holdings that ae taxed at only 5%. There is something wrong with the tax code.”

      I think you’re confused. That 5% is highly misleading. It should read, “As low as 5%” and it’s as high as 38.01% in some places.

      When/if that money is brought into the US, it’s taxed at the US rate minus whatever taxes were paid in the originating country. In the US, the tax rate is 39.2%, so Apple would be taxed at 34.2% to bring money in from a country where it was taxed at 5%.

      “There is something wrong with the tax code.”

      Well, if you think high taxes are good, then there’s nothing wrong with *our* tax code (for corporations). Our corporate tax rate of 39.2% is the highest in the world, And significantly so. Japan is close, but it drops off fast.

      Here are the top 10 corporate tax rates by country:
      United States – 39.2 percent
      Japan – 38.01
      France – 34.4
      Belgium – 34
      Germany – 30.2
      Mexico – 30
      Spain – 30
      Australia – 30
      Luxembourg – 28.8
      Norway – 28
      New Zealand -28

    8. First, it’s not “criminal”. Second, the notion is that you pay taxes where you earn it, or where you reside. Apple does both.

      Apple pays taxes where it earns it. AND, Apple sets aside taxes for where it resides, i.e., Apple has accounted for taxes it “might” have to pay someday to the US Treasury if it were to repatriate those funds. That’s why Apple’s tax rate when you average US taxes with foreign taxes is 24 to 25%.

      My understanding is that Apple pays about 31% on its US income. Since Apple only earns about 1/3rd of its global income in the US, that implies that Apple is paying about 21% on its foreign earned income. However, about 1/3rd of that foreign-earned income will not be repatriated, as it will be used for working capital, so Apple has not set aside US taxes on that amount.

      When you do the math, you’ll realize that Apple is paying or setting aside US taxes on 7/9ths of its global income, and paying only foreign taxes on 2/9ths that it does not plan to bring back. The net result is a tax rate of about 24 to 25%.

    9. Maybe our over-reaching government who wants to spend us into eternal bankruptcy should changes it’s ways, and help our country be more competitive in the world marketplace instead of trying to bankrupt us.

  2. As much as I hope obama is out on skid row in November, lets focus on Apple’s world domination.

    If they supply the production equipment and own a larger part of the production chain, they will get the preferential lowest cost, but can they take a bite out of the other end by charging and profiting from other manufacturers who use their facilities? Or will 100% of the production go directly to Apple to supply the iDevices?

  3. from 1789 until 1913, the United States had no income tax..the average year to year growth rate was 10%. During this period the federal government was financed mainly through tariffs on foreign imports, this pay-rolled the federal government and protected American jobs and output.

    1. Income tax- started by republicans
      Tariffs- declared by Republicans to be anti-trade
      Growth of the american economy between the years you specify was based on cheap labor, deplorable social conditions, and which crime and recidivism rates. In the years following WWII American growth was the best in its history with an Average tax rate of 32% and a scaled tax code that gave no special treatment to the rich. Cutting taxes has caused a deficit. The last time the american economy grew was under a Democrat.

      If you’d like to compare your Phd to mine, I’ll gladly do it.

      1. If you have a PhD, you know that having one doesn’t make you right. There are plenty of PhDs around who can’t agree to anything.

        Why does every discussion have to be the grounds for a political argument?!!?!?!

      2. Cutting taxes DID NOT cause a deficit….. excessive spending caused the deficit.

        like the cute folksy wisdom saying goes, if your outgo exceeds your income, your upkeep will be your downfall.

        If the US government, (and don’t blame it on a single party or ideal, cause that is just false,) didn’t overspend, and were required to stay within a budget like the little people they are supposed to represent, we wouldn’t be in this mess.

        Simply put, if I overdraw my checking account by $1, I could rackup $50 in fees…. Nice incentive to keep close tabs and not overdraw. Too bad the government isn’t kept on a similar tight unforgiving leash. Instead they just print more money.

        KingMel is right, we cannot quit taxing and hope to pay down the defecit, BUT the powers that be can’t (or at least shouldn’t) think they can just waltz in and rape us to make up for their irresponsible actions.

        Too bad the Government doesn’t have the balls to quit trying to steal Apple’s cash, and instead quit spending and start their own cashpile. And lets not even go there about moving social security into the general fund

        1. You can blame it squarely on Democrat presidents and Democrat controlled congresses. They are the biggest spending and rights abusers of any group out there!

      3. Take your ire out on Wikipedia then:
        In order to help pay for its war effort in the American Civil War, Congress imposed its first personal income tax in 1861.[17] It was part of the Revenue Act of 1861 (3% of all incomes over US $800).[18] This tax was repealed and replaced by another income tax in 1862.[19]
        In 1894, Democrats in Congress passed the Wilson-Gorman tariff, which imposed the first peacetime income tax. The rate was 2% on income over $4000, which meant fewer than 10% of households would pay any. The purpose of the income tax was to make up for revenue that would be lost by tariff reductions.[20]
        http://en.wikipedia.org/wiki/Income_tax_in_the_United_States

  4. The iPhone maker has $64 billion or so of its cash sitting overseas, taxed at an attractively low 5% rate but also earning little to no interest.

    Has anyone fact-checked this statement? Why would any company with $64B let it sit around earning “little to no interest”? That assertion is so ridiculous that I simply cannot believe it. There are two many ways for a major investor (and $64B places you in truly elite investor status) to earn a decent return to lend any credibility to this statement. And this is Forbes!

    1. Actually, it’s true.

      Apple’s investing goal is capital preservation, so they invest in high-quality instruments like Treasuries, which we know returns only a nominal amount. Given what happened in the last few years, “capital preservation” is a pretty good goal. Apple’s job is not to be the biggest VC or hedge fund.

  5. Never going happen. Apple has been doing quite well without having the headaches of manufacturing. With Technology moving so quickly, why should they pour money at a moving target that comes and goes at the blink of an eye?

    I could see them buying more patents relating to manufacturing and poring money into the research and development of new manufacturing technologies, but not spending money in the actual day to day process of the supply chain.

    1. The author doesn’t say that Apple will or should set up their *own* manufacturing, just investing in equipment and whatever else necessary to assure that Apple has ample supply of the critical components. But I believe Apple is already doing that anyway. I agree that Apple shouldn’t get into setting up their own manufacturing. It’s just not worth the hassle.

    2. If you read Asymco.com like Gugliemo has, you’d know that Apple has been spending billions on PP&E, essentially investing in its supply chain, by buying the equipment for its suppliers. For example, Apple may have bought those 1000 Fanuc machine tools to mill those unibody cases a few years ago for Foxconn. There is even a story, which may have triggered this report that Apple is about to put $10B into Foxconn.

      1. Thailand, where US is one of our top list trade partners. We follow your trade and economic system and yet Apple mac’s harddrives are manufactured here with cheap labours (relatively to your labours of course). Same like in China where labours are even more cheaper. They are mostly poorer than you americans, they let you pollute their country so they reduce the tax in exchange for bringing the jobs there so they can make some livings. China does it better with your own capitalism way and you are discontent and blame the tax rate there?

        1. Now I see why your English is so bad. Well the workers with those jobs are very happy to have them. Capitalism will bring the standard of living up if your governments would get out of the way. And create US style constitutions that are even harder to trample on.

          The Democrat-Communist party in the US is doing everything in their power to try to bring our standard of living down as low as possible. We won’t let them though and will vote them out this November. The majority of the US is hopping mad about what the Democrat-Communists are doing.

          1. Well, I just feel funny when some americans complain about this and that when someone else does it better with their own tools.

            You invented nuclear and yet you try to prevent others from utilising it. That’s another irony. I do not take side with chinese people I just said what I noticed.

            I do not mind if you can correct my ‘bad’ english.

            1. The only reason they try to prevent other folks from using it is because of their ties to terrorism. That and how well their safety procedures would be is what they are worried about.

  6. The mean and nasty things some of the above writers write is disturbing to me. To attack people viciously because of their political preferences without knowing anything else about them is just WRONG.

    That’s the problem with anonymous web posts. I know that I’ve written some pretty mean things anonymously in the past that I’d never have said in person, and I don’t feel good about it.

    I’ve started posting here with my real name to take responsibility for what I say and to remember that if I’m nice to others, maybe the idea will spread and make this country a little nicer for all of us.

    So…. would anyone just like to talk about APPLE, and leave the politics to Drudge and HuffPo?

    1. Rick,

      Don’t click on the political ones. You’re acting like a censorship loving, Libtard. I’m sure you’re a nice guy and all but don’t worry so much about arguing. It’s healthy.

  7. MDN should really moderate these comments or force them not to be anonymous. Every time I try to get tech news here (and possibly comment on it), I run into ignorant diatribes (from both right and left) that have no place on a tech news site. It’s pitiful to read. Back to MacNN for good this time (along with my eyeballs, page views and advertising dollars)

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