Did Apple Spend $2 Billion to Bail Out Sharp?

[MacRumors]

Apple analyst Horace Dediu has dug deep into Apple's 2012 capital expenditures and found some spending, above and beyond what Apple had previously disclosed. He discovered that Apple spent $2.3 billion more than it had forecast on "product tooling, manufacturing process equipment and infrastructure".

However, Apple didn't actually shell out cash for its increase in CapEx, but instead is booking vendor financing. Dediu believes it may have been to bail out Sharp, which was in dire financial straits earlier this year.

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".

Dediu has much more on the spending and his analysis at Asymco.

Article Link: Did Apple Spend $2 Billion to Bail Out Sharp?

[gmanist1000]

Makes sense if they want to move away from Samsung displays.

[abhishake]

Why not just buy Sharp at a steep discount?

[NT1440]

Originally Posted by abhishake

Why not just buy Sharp at a steep discount?

Because its not up for sale....yet

If apple tried a takeover you get an inflated bidding process costing way more than a company is worth. It's great for the stockholders whom bail immediately afterwords but you leave the company in far more debt than it had before.

[paul4339]

Originally Posted by abhishake

Why not just buy Sharp at a steep discount?

because they don't want the headaches owning & running a company, especially one that is currently a liability.

.

[JayRedliner]

Originally Posted by abhishake

Why not just buy Sharp at a steep discount?

Sharp likely has significant amount of debt that Apple couldn't assume. IE: They have debt greater than their perceived worth, making them impossible to purchase.

[joesegh]

Originally Posted by abhishake

Why not just buy Sharp at a steep discount?

Because they're hemorrhaging money?

[Ramchi]

Originally Posted by abhishake

Why not just buy Sharp at a steep discount?

And to pay all its steep debts and liabilities?

[rnizlek]

Interesting, but I wonder why Apple wouldn't just buy the production factory outright and have Sharp operate it. That way, if anything happened to them, the plant would not be at risk of shutting down.

[Navdakilla]

take that samsung!

[lilo777]

Originally Posted by Navdakilla

take that samsung!

They will. Apple winning $1 billion by suing Samsung and loosing $2 billion because it had to prop Sharp to get the components they could easily get from Samsung. That makes perfect economic sense (and APPL trend proves it).

[TMay]

Originally Posted by lilo777

They will. Apple winning $1 billion by suing Samsung and loosing $2 billion because it had to prop Sharp to get the components they could easily get from Samsung. That makes perfect economic sense (and APPL trend proves it).

You are "loosing" your ability to read. Apple is prepaying for product that Samsung doesn't produce, IGZO displays.

[Thunderhawks]

Originally Posted by lilo777

They will. Apple winning $1 billion by suing Samsung and loosing $2 billion because it had to prop Sharp to get the components they could easily get from Samsung. That makes perfect economic sense (and APPL trend proves it).

Yes,it does, because you need to look a little bit further than just how much money was spent and where it went.

Apple is clearly trying to get away from SAMSUNG and it isn't exactly new that SAMSUNG copies whatever others do (Not only Apple stuff)

So, this is most likely a long term investment!

[peterdevries]

Originally Posted by lilo777

They will. Apple winning $1 billion by suing Samsung and loosing $2 billion because it had to prop Sharp to get the components they could easily get from Samsung. That makes perfect economic sense (and APPL trend proves it).

nonono, it makes perfect sense, because this investment if it is indeed true enables Apple to dictate the pricing of the screens they get from Sharp and increase margins on their products while keeping the sales price equal.

Apple will not invest 2 Billion of the shareholders funds into a business for charity. They need a return, as it is an investment. Since Apple has some really top-notch finance capability, I'm sure the ROI will be very favorable.

[jctevere]

Originally Posted by lilo777

They will. Apple winning $1 billion by suing Samsung and loosing $2 billion because it had to prop Sharp to get the components they could easily get from Samsung. That makes perfect economic sense (and APPL trend proves it).

My guess is that you have an elementary/rudimentary economic/financial background. The two events are unrelated; furthermore, Apple didn't lose (which is the proper word, not loose) $2 billion. It is an investment for which Sharp will pay back with interest, or perhaps Apple is planning a buyout and is already a partial stakeholder in the company with the transaction.

It makes perfect economical sense because Sharp doesn't compete with Apple in the mobile, smartphone, tablet, iPod, etc (any market), where as Samsung does. I think its only logical that Apple try to keep afloat arguably the ONLY non-competitor screen manufacturer for Apple. Not to mention that the Sharp LCD used in the iPhone 5 is considered the best LCD screen for any smartphone to date.

[iZac]

Originally Posted by lilo777

They will. Apple winning $1 billion by suing Samsung and loosing $2 billion because it had to prop Sharp to get the components they could easily get from Samsung. That makes perfect economic sense (and APPL trend proves it).

Very true, one step forwards two back. But at least it give's Apple far more muscle in the future supply of components. It can much more effectively dictate quality control, features of new components, prioritise it's own supply over other companies etc.

I know Sharp needed bailing out, but it's kind of similar to when Apple tied up a huge chunk of Samsungs Flash supply years ago with a few billion upfront payment?

[PaulChowHK]

Originally Posted by lilo777

They will. Apple winning $1 billion by suing Samsung and loosing $2 billion because it had to prop Sharp to get the components they could easily get from Samsung. That makes perfect economic sense (and APPL trend proves it).

They never collecting 2 billion from Samsung. In this world over time Apple bad days coming. We still not seeing the best, soon new inventions coming to market and everything changing.

[vvswarup]

Originally Posted by lilo777

They will. Apple winning $1 billion by suing Samsung and loosing $2 billion because it had to prop Sharp to get the components they could easily get from Samsung. That makes perfect economic sense (and APPL trend proves it).

It also makes perfect economic sense for Apple, with $121 billion in the bank, to sit there and let Sharp fail, removing competition for Samsung, a major supplier of parts, allowing Samsung to take Apple to the cleaners in the future.

It makes even more sense to let manufacturing capacity get wiped out of the industry, especially when Apple frequently struggles to have enough product on hand to meet demand.

[WannaGoMac]

Originally Posted by rnizlek

Interesting, but I wonder why Apple wouldn't just buy the production factory outright and have Sharp operate it. That way, if anything happened to them, the plant would not be at risk of shutting down.

This way if labor practices turn out bad, it's not Apple's fault. Just like it does with Foxconn...

[macchiato2009]

Apple should buy Sharp... and expand the company

[pearvsapple]

Originally Posted by macchiato2009

Apple should buy Sharp... and expand the company

$4000 TVs minimum.

[extricated]

Slightly off-topic, but yet another thing that illustrates people shouldn't assume items (like the iPad Mini) are overpriced just because the components are relatively inexpensive.
Expenditures like this have to be absorbed into their products as a cost of doing business.

Otherwise, Apple wouldn't be profitable (and Eddie Cue couldn't have his Ferrari).

[xofruitcake]

Originally Posted by rnizlek

Interesting, but I wonder why Apple wouldn't just buy the production factory outright and have Sharp operate it. That way, if anything happened to them, the plant would not be at risk of shutting down.

Because the ROI will look terrible for the investment. also Apple has no interest in owning a production facility. as of now, they can move to a different vendor if their technology is ahead of Sharp down the road. But once you own that facility, Apple is stuck with the technology, good or bad. IGZO is hot today but the industry can easily move to something else next year. Apple is a serial dater and never make any commitment to it's vendor more than a year or two..

[ladeer]

Originally Posted by rnizlek

Interesting, but I wonder why Apple wouldn't just buy the production factory outright and have Sharp operate it. That way, if anything happened to them, the plant would not be at risk of shutting down.

because a factory doesn't know how to design, innovate, qa, the next generation screen. because a factory can only make what its tools are designed to make which is the screen for phones today, not tomorrow. for sharp to continue designing and making better screen for apple, so apple doesn't have to rely on samsung's technology roadmap for its business, apple needs more than one display maker.

[iChrist]

Originally Posted by gmanist1000

Makes sense if they want to move away from Samsung displays.

Makes sense if they want to move away from LG screens.


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