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back to article Apple component lock-ups jump 40%

Apple has made commitments to spend $11bn in manufacturing and component expenditures, a new record for the company and a sign that Cupertino is working to lock up components in an increasingly competitive market. "As of March 26, 2011," reads Apple's 10-Q filing to the US Securities and Exchange Commssion, "the Company had …

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Happy

So....

Any of these lock-in's with Samsung ?

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Bad news for wannabe tablet competitors

Difficult to compete when you can't buy the bits. At least Apple is finally using some of it's cash reserves for something other than peace of mind.

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Jobs Halo

Impressive

Now THAT is a good use of money in the bank. Large commitments means cheap components, which means larger margins.

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@ratfox

>Now THAT is a good use of money in the bank.

Absolutely, move it from Apple's bank account into Samsung's......superlative business move and all Apple's idea of course.

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Jobs Halo

And...

...we pass the savings on to you!

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Didn't Apple in the early days help push Just In Time production

Given many many years ago I recall reading about how Apple help push the Just In Time production cycle I can't help but find this funny on many levels. Don;t get me wrong, it's a wise move from Apple, escpecialy as the rest of the industry now role with a JIT production pholosaphy then the buffer margins out there on components has shortened to the stage that Apple now need to increase there component buying lead time to keep there Just In Time production lines producing.

In a way they help create the problem there now Addressing and others will only follow, albiet they will probably get burned surfing the tail-end of the wave.

Wonder who in a year or two falls foul and ends up being Osbourne computers MK2 :).

Fun times.

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Dear god

Oh for feck's sake. Apple aren't buying and stockpiling the components, they've just paid cash (a lot of cash) up front to a) get a better price, b) hedge against price increases, and c) to guarantee first dips.

There isn't a fecking big warehouse with $11bn of kit in it. We had these sort of idiotic comments the last time Apple announced this sort of thing.

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Dear Science

Oh my, your missing the point, it don't matter if you have a warehouse of all the components or they are held at the compenent manufactures warehouses. its about how much you have to tie up ahead of production. Sure they get assured first dib's over the rest of the dips(sic). But it still amounts to tieing up resources ahead of actual usage/capitalisation.

Nobody said anything about stockpiling in a big warehouse 11bn of compnents, that was you that was. What was said is that they are tieing up 11bn ahead of production for resources. Given there shortage on some launches and avents in Japan and the knock on effect it only makes alot of sence for them on many levels.

What will be interesting is the effect upon others. Sure it's a gamble, but its pretty good odd's for Apple. Others maybe not so.

As for idiotic comments last time, you were there so I'll take your words on that as proof enough.

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@RichyS

The end result is the same as if they did buy the parts and stock them in a warehouse.

It's interesting that not even Apple can rely on the market lifetime of components and have to make this sort of up front commitment to secure a supply. Nintendo ran in to the same problem with the Wii in the early days. Because the sales were way in excess of predictions they wanted to expand production but couldn't because the component manufacturers themselves couldn't keep up.

Component obsolesence is an increasingly major issue for everyone, and I know some small manufactureres who now routinely make lifetime buys of everything needed to make a product, (maybe not the passives like resistors, etc). For small-ish production runs it's simpler to have bonded stores of every unique component no matter how unlikely it is to go out of production. Warehouse space can be a lot cheaper than a redesign to deal with obsolesence. It's just-in-time delivery, but with a coarser timescale. It also gives you some control over when your re-design for obsolesence takes place, rather than it being sprung on you as a surprise just because some chip suddenly become unavailable.

Of course, Apple are big enough that they can probably get any component that's ever been sold remanufactured. But it wouldn't be as cheap.

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Not quite

They haven't paid any cash. They have just signed contracts to pay cash in future when the parts arrive, or at some point, probably 30 days after they arrive. It means they have to accept delivery and pay for the parts whether they have any use for them or not, but they haven't received them yet, and legal liability to pay for them only happens when they do, so that is why it is off balance sheet.

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Articticle missing the obvious!

The obvious question to me is, how many months worth of component purchases is that?

Quoting the companies turnover would be a good way of estimating that.

Yes I could find that out myself, but that would not be very efficient.

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Obvious...

--- Steve Jobs stand-in Tim Cook said: "The iPad has the mother of all backlogs, but we're working very, hard to get [it] out to customers as quickly as we can."

Tim Cook did not even need to state this.

Right now, lack of supply is hurting Apple. Paying cash to "guarantee" supply is critical to their financials.

Apple had traditionally been a victim of lack-of-supply, for as long as I can remember.

It is nice for them to have the cash to try to mitigate these issues, now.

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It's subtler, but simpler than most seem to understand

Apple is covering the supplier's downside risk when investing for growth, and guaranteeing preferential supply.

There's a huge, competitive industry making components, which are bought for every kind of electronic device. Apple doesn't just want a huge supply of generic components, it wants very particular novel components, which often require brand new production facilities. Billion dollar investments in a cutthroat market are risky. Typically a novel device used to take nine months from first private showing to free availability. Apple wants huge, guaranteed supply of novel components switched on just a couple of months before free availability. They want no-one to see the product until they can buy it. It gives them a huge competitive advantage.

The purpose of Apple's up front prepayments to suppliers is to cover supplier cash flow to set up new production facilities, to commit to taking enough product to eventually pay those costs, and to ensure preferential supply when everyone else has copied Apple's product, and the component becomes mainstream.

This whole situation is one reason why Apple can never control the majority of the market as Microsoft did while it continues to innovate. Apple has no use for the bulk of the industry's production facilities. The exact opposite of Dell in its tin box glory days, when any old components could be bought at rock bottom price after customers had ordered their computer.

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