Isn’t this old stuff about Apple and its cash hoarde?

moneyby Images_of_Money

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

“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.”


Businessweek talked about this kind of stuff last year – Apple bought up all the necessary lasers to allow the green light on laptops to be seen. It has its own term to describe – monopsony.

Here is another example:

To manufacture the iPad 2, Apple bought so many high-end drills to make the device’s internal casing that other companies’ wait time for the machines stretched from six weeks to six months, according to a manager at the drillmaker.

Earlier last year, Fortune magazine mentioned this.

When new component technologies (touchscreens, chips, LED displays) first come out, they are very expensive to produce, and building a factory that can produce them in mass quantities is even more expensive. Oftentimes, the upfront capital expenditure can be so huge and the margins are small enough (and shrink over time as the component is rapidly commoditized) that the companies who would build these factories cannot raise sufficient investment capital to cover the costs.What Apple does is use its cash hoard to pay for the construction cost (or a significant fraction of it) of the factory in exchange for exclusive rights to the output production of the factory for a set period of time (maybe 6 – 36 months), and then for a discounted rate afterwards.

I discussed this. Tim Cook discussed this a year ago:

One thing he talked about was the $3.9 billion dollars worth of agreements Apple signed over the summer and fall with three unnamed companies in its supply chain. The money came in the form of prepayments and capital expenditures for process equipment and tooling — for building factories, in other words — for components he declined to specify but which most observers suspect are touchscreens like those used in the iPad.

So buying up the supply chanin is something it has been doing and discussing for at least a year if not longer yet Forbes just now discovered this.

Am I missing something or is Fortune kicking Forbes’ butt on this topic?