Analyst: Apple went on a CapEx spending spree last quarter

The bump in expected capital expenditures during the second half of Apple’s fiscal 2018 is as yet unexplained.

Fcapital expendituresrom a note to clients by Wells Fargo’s Aaron Rakers that landed in my inbox last week: 

  • Apple’s F3Q18 10-Q discloses that the company expects to spend ~$17.0 billion on capital expenditures during F2018. This is an increase from the company’s prior ~$16.0 billion guide.
  • Apple reported that it spent ~$11.1 billion on capital expenditures for the first three quarters of F2018 (implying ~$5.3 billion spent during F3Q18).
  • Apple’s Machinery, Equipment, & Internal Use Software balance increased by ~$4.28 billion in F3Q18 – a q/q increase that is 55% higher than the avg. F3Q q/q increase seen over the past five years
  • Apple’s Land & Buildings balance within PP&E grew to $15.4 billion exiting F3Q18, up 23% from the year ago balance and up ~154% from two years ago as we believe this reflects Apple’s cloud data center investments.

My take: What’s got me scratching my head is the height of the golden bar in Raker’s chart below. CapEx includes spending on product tooling, manufacturing process equipment and infrastructure. What’s Apple gearing up for?capital expenditures
Click to enlarge.

8 Comments

  1. David Kettle said:
    Very interesting. Could be one big thing or a few smaller items:
    1. Medical for the Apple Watch.
    2. Larger investment in maps.
    3. Virtual reality.
    4. Investment in screen manufacturing.
    5. The elusive car could be back.

    Or, One More Thing…

    1
    August 5, 2018
  2. Michael Thompson said:
    One thing that can be discerned from the chart is that increased CAPEX spending has been followed by increased revenue and vice versa.

    Apple knows that FY 2019 will be a record breaking revenue, net profit and EPS year again.

    “Apple’s Best Days are behind it”. Only from the contrived viewpoint of the corrupt. With Apple we’re in the 2nd inning of an extra inning game. Apple can be purchased at all-time highs by long-term investors because the stock will be hundreds of dollars per share higher in the coming years.

    1
    August 5, 2018
  3. George Row said:
    OK bear with me on a little Sunday morning coffee fuelled brainstorming and dreaming …

    Lets look at a few bits of input data:
    1. For some time now Apple have been showing off Augmented Reality features of their devices and software.

    2. When they toured a select few commentators around their MacPro development they showed off the in-house creative media developers.

    3. They have been hiring TV executives and creatives.

    4. They have been buying the rights to various old movies and TV shows.

    5. People with a good track record in their analysis of Apple, such as Neil Cybart, are convinced that they are going to launch some sort of AR glasses.

    6. They recently showed off their multi-participant video-conferencing system.

    7. On the quarterly results conference call Tim Cook teased that they had something exciting and big in the pipeline. He seemed genuinely excited “… but I can’t talk to you about that” he said.

    What it’s not:
    – Apple release new phones every autumn … would that have Tim Cook especially excited?

    – If Apple were about to remake some 1980s or 90s TV classic would Tim Cook be almost incapable of containing his excitement? I don’t think so. I don’t think those TV creatives have been brought in to simply re-make old-style TV programmes for screens with more dots.

    What it might be:
    – A new product category? That might get Tim a BIT excited …
    – A new product category that created a new medium.
    – New product(s) that launched with their own accompanying new media?
    I can see Tim starting to fidget in his seat with excitement.

    Could those TV and movie creatives be creating genuinely immersive movies?
    Could Apple be about to launch a range of products that allow the consumer not just to watch a remake of “Friends” or “Sex and the City” but to be sitting on the sofa or in the coffee shop with them?
    Could there be TV dramas where you talk to the characters? Where there are alternative narratives and you, the viewer, help to choose which way the narrative flows?

    This would need great sound … home pod anyone? It would need voice recognition … Siri. It would need AR software – that can go beyond table top games. It would need technology that would facilitate creating an animated model of the inserted character – animoji.

    They have been showing us the components for the last few years maybe the expenditure on those media folk is not an effort to turn Apple into a dreary iCloud-based-cable-TV company but is to bring all that technology together to create a new medium.

    There would be a new service, new products for the consumer and ultimately a whole new medium and new platform for the media- creation industry. There would be the equivalents of Swift, Xcode and the app-store for the media creatives.

    Whether you wear the new AR glasses with AirPods or have a HomePod and a new sense-surround immersive screen you could experience the new medium. Of course in order to fully participate you would need a top-of-the-range iPhone with depth sensor cameras. Having created the version with you participating you could share it with your friends, colleagues and family watching on conventional flat screens via Apple iCloud.

    That sense-surround immersive screen could be on the insides of the windows of a self-driving vehicle where it could be used for a mundane thing such as a fully participative video conference as you travel to work.

    All these thing may not be about to launch in September but they could be on the road to $10T.. 🙂

    6
    August 5, 2018
    • I like the way you think. It’s DIFFERENT.

      BTW, With no prior thoughts on any of this I agree with you, Apple has, on several occasions, introduced elements of the next big thing, without giving away what that thing was going to be.

      Very good work George. I’d enjoy a free range caffeine charged conversation with you.

      2
      August 5, 2018
  4. In looking at the degree of capex it struck me that there isn’t any firm out there doing the integrated R&D that Apple is doing. Oh, there may be someone working on a whiz bang new thing, but that thing will incorporate a lot of off the shelf (generic) technology, and WILL NOT slide seamlessly into a unified fully intregrated ecosystem consisting of computers, handsets, tablets, set top boxes, smart speakers, wireless earbuds and online stores.

    Any competing whiz bang will have to be glommed together with components from various manufacturers, none of which collaborated to make a seamless integration with all of the above, cheaper yes, but certainly not better.

    THAT is the true value of the Apple brand.

    0
    August 5, 2018

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