Evidence Suggests Apple Spent $2 Billion to Support Sharp

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Horace Dediu of Asymco fame, has taken a serious look at Apple’s 2012 captital expenditures and has found that Apple has spent more money than they had previously let on. Specifically, Dediu found that Apple spent $2.3 billion more than they had originally forecasted on “product tooling, manufacturing process equipment and infrastructure.”

Apple didn’t pay in cash for the increase in capital expenditures, but rather spent that money on vendor financing. Dediu then speculates that Apple used this sum of money to bail out Sharp, which in recent months has hit financial problems. Here is the pertinent section of Dediu’s report:

Circumstantial evidence points to the asset being production equipment (or even a whole plant) previously owned by Sharp. Sharp is a key supplier of screens to Apple but is also in financial distress. Sharp has also been the object of an intended investment by Foxconn [Hon Hai]. That deal fell through as Sharp’s finances deteriorated. My guess is that these attempts to shore up Sharp are directed by Apple to ensure both continuity of supply and a balanced supplier base (offsetting Samsung, another supplier.) If Sharp were to enter into some form of bankruptcy, the key plant(s) used in producing screens for Apple might be “up for grabs” by creditors and they might be taken off-line, jeopardizing Apple’s production capacity, irrespective of contractual obligations. I believe that Apple’s late and unprecedented expenditure was to secure this asset. I further believe that the financing for this deal was done through a swap of “pre-orders”. 

This is fascinating to me on several fronts. First, Apple so desperately wants to maintain control over the components that they put in their products, that they are willing to spend $2 billion to bail out another company in order to do so. Secondly, this move also allows Apple to continue to move away from, and cut all dependencies on, Samsung. Lastly, why doesn’t Apple just outright buy Sharp and fold them into the company? Suddenly Apple would have production expertise on hand. Maybe this is coming, but I seem to doubt it.

This is an interesting development and one that shows that Apple will do whatever they believe is necessary to maintain an edge- even if that means bailing out another company.

That Horace Dediu is a sharp cookie. Report courtesy of Asymco.

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