Adam Lashinsky: What Apple’s earnings really mean, and what’s that $9 billion in ‘equipment’ for?

“First, the bad news: Apple’s profits aren’t growing much. We pretty much know why. The iPad Mini accounts for about half of Apple’s iPad sales—and the Mini is a less profitable product than the Maxi,” Adam Lashinsky writes for Fortune. “The other strain on Apple’s profits is its capital expenditures, a forecasted $10 billion this year, up from $8 billion the year before.”

“[Plus], Apple’s quarter was a week shorter than in the year-earlier quarter,” Lashinsky writes. “Now for the good news: The iPad Mini’s success is a sign that no matter what CEO Tim Cook implies about not being concerned about market share—he answered a direct question on the subject by saying Apple is focused on building great products, not growing revenues—Apple is fighting to keep its share of the tablet market. He dismissed a question about Apple’s interest in producing multiple sizes of iPhones. All that means is that Apple hasn’t yet introduced multiple sizes of iPhones.”

Lashinsky writes, “If ever a company can afford to invest in its future by insuring that it brings in new customers it is Apple. It ended its quarter with $137 billion in cash. Another hopeful sign is that same capital-expenditure figure. Apple says it is spending about 10% of the $10 billion on new retail stores. The rest is for equipment. Those who question Apple’s ability to profit from its massive investments in new equipment to build category-defining products are betting against a juggernaut.”

Read more in the full article here.

MacDailyNews Take: All of that CAPEX. $9 billion for “equipment.” Is Apple’s Liquidmetal deal finally about to bear fruit?

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    1. You should go, you don’t have a clue what you are talking about.

      No technology company on earth is doing the business Apple is doing.

      Apple had more PROFIT than Google had revenue, furthermore they saw GROWTH, GET THAT?

      If that is disappointing, you have unrealistic expectations or are a fool.

        1. Oh I understand, I’m an investor. I keep up with Apple to the max. It would be a tremendous plus for the stock. But it’s been a long time coming and from what we read if it does come it’s not coming anytime soon. But hopefully that’s wrong. Because the stock needs all the help it can get. Hell, give them more bribe money. Whatever it takes.

    1. If I sell 100 widgets in 2000 and 200 in 2001 my sales grew by 100%.

      If I sold 375 widgets in 2002 my increase in greater than my total sales in 2000, but my sales only grew by 87½%.

      If I sold 675 widgets in 2003 my increase in greater than my total sales in 2000 or 2001, but my sales only grew by 80%.

      If I sold 1,150 widgets in 2004 my increase in greater than my total sales in 2000-2, but my sales only grew by 70%.

      If I sold 1,900 widgets in 2005 my increase in greater than my total sales in 2000-3, but my sales only grew by 65%.

      If I sold 3,100 widgets in 2006 my increase in greater than my total sales in 2000-4, but my sales only grew by 63%.

      If I sold 5,001 widgets in 2007 my increase in greater than my total sales in 2000-5, but my sales only grew by 61%.

      If I sold 7,800 widgets in 2008 my increase in greater than my total sales in 2000-5, but my sales only grew by 56%.

      If I sold 11,700 widgets in 2009 my increase in greater than my total sales in 2000-6, but my sales only grew by 50%.

      If I sold 16,380 widgets in 2010 my increase in greater than my total sales in 2000-6, but my sales only grew by 40%.

      If I sold 21,294 widgets in 2011 my increase in greater than my total sales in 2000-7, but my sales only grew by 30%.

      If I sold 25,500 widgets in 2012 my sales are still setting new records, but my they’re only growing by 20%.

      If I project to sell only 28,050 widgets in 2013 I will set another record for sales (and profit as my cost to make widgets goes down the more I make), but my sales will only grow by 10% and Wall Street will batter my stock because even though I’m setting sales, revenue, and profit records they see the deceleration trend on growth and lose sight of basic fundamentals.

      Lack of basic math, economics, and physics education is killing this country.

      1. I sure hope that helps people “get it”. Pretty smart of you to keep the selling price and the profit out of the widgets game. A little dab of biology doesn’t hurt either. What most ECOnomist aim for is exponential growth, whereas most ECOlogist will point out that exponential growth is not sustainable for a population.

        I always enjoyed the chess and grain story:

        Hmmm I like the ending, the total amount of grain (rice for the example) would weigh 461,168,602,000 metric tons, which would be a heap of rice larger than Mount Everest.

        Thanks for your post, I hope others “get it”.

        1. Ethics? we are talking about Wall Street, there is no such creature that could live in that environment. The Ethics have been wiped out by the marauding Greeds, which ARE multiplying exponentially!!!!

  1. I would argue that once you reach a certain level of profitability, you need to lower the average selling price of a product or product range in order to sell more of it and in doing so sacrifice profit margins.

    Looking at it holistically Apple is happy that it generated the biggest corporate profit ever in the history of the world but to extend the reach of its products, it must necessarily sell at lower prices.

    The iPad mini’s rapid rate of adoption must be seen in this light. That Apple had to make a strategic decision to strike at the heart of Android mini tablets to take them out of the equation once and for all and consequently priced the mini at an affordable level.

    I look upon it as one of Apple’s nuclear strikes, apart from resorting to the law courts.

    1. My guess with the iPad mini:

      The next version of iPad mini will have a retina display at the current price of $329. The current non-retina version will still be sold for $269. (329 x 399 / 499 = $263.06813627254509)

    2. Wrong answer. Lower the cost of a product that they can’t even make fast enough to keep up with the demand? Apple is about quality and this has made them successful. Bln doesn’t have a clue about running a business. I would argue that the most profitable company on earth does. 54.5 billion last quarter and they need to lower the price of their products? Can’t you give more ignorant advice?

  2. Anyone thinking about the billion dollar server farms that Apple is building around the world? Even the one in Oregon and the one in China were not talked about.

    Apple invests in their manufacturing sources to get more product out of them. Not good? Why? Microsoft funds some of Dell going private and that is good. Why? Is anyone going to buy a new Dell Windows 8 PC because Dell isn’t a publicly traded company?

    What drugs are these clueless idiots on anyway?

    1. The $9 billion probably has very little to do with liquid metal. But to acknowledge what it is really about – Apple investing in production equipment that it then lends/leases to its supply partners for making everything from memory to ARM chips to display screens to enclosures – would mean that MDN would have to acknowledge that Apple, indeed, is spending part of its cash horde on weaning itself from Samsung. The fact is you can find these capital expenditures in the annual report and other SEC filings going back several years; they are now reaching numbers that are so large they must be explicitly identified.

  3. Capital expenditures presage profits. Enough!

    Chip factories for immense volumes of new cpus & other chips means whole new facilities must be built, in addition to the large expansion of data centers to support a half billion customers.

  4. @MDN: not necessarily. Apple had increased CapEx by 25% for this year, but it still were billions of dollars prior to that.

    Apple owns display manufacturing equipment, drilling machines, battery manufacturing machines and other machinery that is needed to produce the goods. There is a lot of equipment to upgrade on regular basis, as well as buy new one for expanding production to new subcontractors (which basically sell only their workforce, rather than components).

  5. History lesson: During the “dot com bubble burst” years Apple invested heavily. Upon exiting the economic downturn Apple shot out of the gate and grew to be the world’s biggest company in terms of market capitalization.

    Today, they’re back to investing during the downturn.

    The future could be mighty profitable for Apple and the average consumer!

  6. Uh huh, and I remember Steve Jobs talking about expanding R&D (Research and Development) where everyone else was cutting back.

    It is pretty deja vu when I read posts at MDN about how the Amazon, Google etc. stocks are doing right now compared to Apple. It wasn’t much different when Boo, Geocities, Pets, The Learning Company, MicroStrategy and others.

    Apple got covered with crap and death knells, not unlike what is happening now. Just another Wall Street Storm, a tempest in a teapot.

    Apple still has their act together, and the next big thing doesn’t have to come from the computer field.

  7. Apple’s cap ex is for ensuring component supply. I think they are effectively buying component companies by the back door. As this develops they will use Samsung less and less.

    This is a bit like Apple capturing 80% of the flash memory market in the hey day of the iPod. Now it is more complex because it is memory, chips, display and battery that they need to control and from multiple vendors due to the massive scale.

  8. I wonder if anyone has looked at what %age of APPL stock is being traded by the high frequency traders? Their algorithms could have a significant effect on the price. It is interesting to note that 70% of ALL trades on the NYSE are now HFT. No human intervention. Also, the bigger and more liquid the stock, the more profitable for HF traders…

    The Dr.

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