Toni Sacconaghi: How Apple generated an extra $6B in free cash flow

From Max Cherney's "Apple Has Cut $5 Billion From Its Spending. What That Means for the Stock" ($) posted Monday in Barron's:

The company (ticker: AAPL) has been reducing outlays on manufacturing equipment for its suppliers in China, where it has historically invested in gear, effectively financing third-party operations in exchange for secure production capacity for hardware components, according to a Tuesday note from Bernstein analyst Toni Sacconaghi. The analyst calculated that a decline in capital expenditures had generated an additional $6 billion in non-GAAP free cash flow over the past two years.

In the note, Sacconaghi wrote that about 75% of the company’s capital spending has typically gone into machinery, equipment, and internal-use software. Data centers and tooling and machinery for its suppliers are the two biggest drivers of such spending, he said.

Sacconaghi said that after several conversations with Apple, his team concluded that capital spending isn’t likely to return to prior historical levels in the near future.

Apple said to the analyst that its reduced expenditures were related to its environmental, social and corporate governance initiatives. Sacconaghi said that his team suspects that the main reason for the reduced spending is that Apple is now more confident it can source components for its various pieces of hardware, and no longer needs to finance its manufacturing partners.

Maintains Market Perform rating and soggy $100 price target. 

My take: His team's explanation sounds reasonable to me.


  1. David Emery said:
    I wonder how much the M1 chip saves in component costs and assembly costs for the new Macs.

    November 17, 2020
    • Bart Yee said:
      @David Well, we do know that the integrated graphics saves on one outboard slot and separate graphic board or chipset plus memory. As for DDR-RAM, it’s also integrated on the SOC so eliminates 1-2 chip sockets or solder points plus the external memory bus. The Secure Enclave chips and power controller were also separate chips. The above reduces board density or size plus automated assembly time.

      I had read where the A12X should now be regarded as M0, a preceding proof of concept.

      November 18, 2020
  2. Michael Goldfeder said:
    Sacconaghi knows more than the Apple teams. He knows more than his own teams. Just ask him!

    November 17, 2020
    • Fred Stein said:
      Nice sarcasm and well deserved.

      I’d also prefer Toni avoid the word, ‘spend’, when applied to capex or for lending to suppliers.

      November 17, 2020
    • Jerry Doyle said:
      @Michael Goldfeder: That’s funny 🙂
      I always seek daily at least one deep chuckle and you provided today’s’. Thanks!

      November 17, 2020
      • Michael Goldfeder said:
        Happy to provide amusement and giggles to anyone’s day. I really appreciate the insightful analysis from everyone on this site and the various links to other articles and pertinent information.

        I’m very fortunate I found this site as it’s extremely beneficial on so many levels. Keep up the great work everyone. Also, PED, your artwork and other renderings are outstanding!

        November 17, 2020
  3. John Konopka said:
    It would seem that if Apple fronted the money for the machines that they would get it back in lower parts prices. If they don’t buy the machines then they would pay slightly higher parts prices. Seems like it would be a wash to me.

    November 17, 2020
  4. Fred Stein said:
    While $5B sounds like a lot of money, it is far less significant if it was used essentially as loans to suppliers. And especially since cost of borrowing has hit record lows. I’d bet Apple’s suppliers are now more robust. Hence access to Apple’s loans matters less.

    Apple buys (invests in) high value IP like Intel’s 5G assets or AI startups. Those uses of cash matter to investors.

    November 17, 2020
  5. Tommo_UK said:
    More insipid commentary from a guy who has been more Wong Way Wu than any analyst since Shaw Wu – barring Rod Hall.

    November 17, 2020
  6. Gregg Thurman said:
    and no longer needs to finance its manufacturing partners.

    Apple has just eliminated several manufactured components from its products with the M1. Production capacity is now limited by only a few components that are produced by well financed firms (the sole exception being Japan Display).

    Apple continues to support Japan Display, essentially rescuing it from bankruptcy several times. I think Apple is way smarter than throwing good money after bad, so it must have plans for Japan’s displays we are unaware of.

    November 18, 2020

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