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, California, to house its burgeoning staff? Check. Acquire companies and expand R&D? Check. Pay dividends and do stock repurchases? Check, check.
How about buying up its own supply chain? 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. 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 percent rate but also earning little to no interest. Any cash Apple chooses to bring back to the States would get hit at the 35 percent US tax rate, not a pleasant prospect. Spending that money on expanding offshore production is far more compelling. Apple keeps the depreciation expense while keeping production costs down. It also means the company will be ready to continue pumping up the volume to feed the seemingly insatiable appetite for iPhones and iPads in the near term and rumoured new category-busting products like an interactive TV in the long term.
When asked about the supply chain plan, Apple referred back to its public statements about its cap-ex spending. In a March 19 conference call about how the company was going to use some of its $100 billion in cash, Cook was sure to include “capital expenditures in our supply chain” among the list of his other spending items.
(This story appears in the 08 June, 2012 issue of Forbes India. To visit our Archives, click here.)