APPLE Spending $11 Billion To Control Its Own Destiny Even More That It Has Already. Bullish!

[ 1 ] April 26, 2011 |

Apple’s parts grab


Last Updated: 1:22 AM, April 26, 2011

Posted: 1:04 AM, April 26, 2011

Apple CEO Steve Jobs is cracking his $66 billion piggybank to ensure he has enough parts to meet demand for his popular gadgets.

The world’s No. 1 tech company has committed $11 billion of its enormous cash pile to protect the supply chains for Macs, iPhones, iPads and other gadgets, according to a regulatory filing yesterday.

That represents about a 40 percent increase over the previous quarter allocated to locking up its global supply chain of high-tech components for its devices.

The aggressive move puts Apple in a position of even greater strength compared to rivals as they all struggle for limited electronics resources.

The global economic slowdown combined with the disasters in Japan have led to some supply shortages and fears of widespread disruptions.

“Apple is using its balance sheet as a source of competitive strength,” said Colin Gillis, an analyst with BGC Partners.

The Cupertino, Calif.-based company is currying favor with component manufacturers and negotiating more favorable deals to help keep the price of their products down, analysts said.

The opportunity to lock in the prices of its components is considered a smart use of the cash reserves and hedges against any future price increases from potential shortages.

“Eleven billion dollars is certainly a grand sum,” said Dan Hays, an analyst with PRTM, “but it may be a small price to pay for Apple to ensure control of its supply chain.”

While that figure seems like a lot, investors are wondering if Apple will ever make a serious dent in its mountain of cash. The company doesn’t issue a dividend to shareholders and has said it needs the dough to seize opportunities as they arise.

In its quarterly earnings report last week, Apple said there haven’t been any Japan-related supply disruptions, but warned there could be in the months ahead.

The company has been facing increased demand for products ranging from computers to phones to tablets. Apple said during its earnings call that it was building as many iPad 2s as it could sell.

A number of manufacturers also are trying to squeeze parts out of suppliers — everything from NAND memory to touchscreens.

In the face of potential supply constraints out of Japan, “We expect to see a lot more companies making moves like Apple, locking up supplies in the months ahead,” Hays said.



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Category: Markets and Trading, Technology