It's still a risk to Apple if they paid earlier than expected; if nothing else, a loss of interest from holding it in their own accounts.
Not. First the risk is only if they don't get the screens they paid for. If the money alloted is enough to pay for the screens then that risk is minimal. It is in the range of some Tsunami coming along and destroying the plant and/or materials. That is a background risk that Apple would have been taking signing a screen supplier anyway.
Second the return is probably higher than interest. Highly low risk bonds ( e.g. ,US Treasuries ) pay like 1-2%. If paying in advance Apple gets an additional 3% discount that is already a higher return that the low risk bonds. If they get an additional 1-2% discount then the return is the exactly the same.
Even if Sharp filed for bankruptcy the process would take many months. In those months Apple would get the screens it paid for. The bigger the bankrupcy the longer, more protrated the process usally is. Again the risk here is extremely minimum and no way substantively different than the normal risks of doing business.
Found a news story that Sharp has a massive amount of bonds coming due next year, over $2b. (to pay back) Timing of cash can be very useful.
It is useful in composing the narrative about why some investment bank should do another $2b bond deal to "roll over" that maturing $2b bond. That's what is most likely going to happen. Practically none if any of Apple's money is going to go into rolling over that debt.
It does present that Sharp has some happy customers and if they continue to deliver and not shoot themselves in the foot, then they probably can pay off the rolled over debt in the future. That's all it really does. There is no "investment" aspects to this.
But it's not like a restricted donation to a non-profit, where they absolutely cannot touch that cash except for the stated purpose.
B.S. They can't if they are respectable, professional business follks. Apple's prepayment likely comes as a contract. They have to deliver the goods. If Apple is buying screens over a multi-year basis then maybe they could pay "fast and loose" with the fraction that didn't need to be outlay for a relatively very long time, but I doubt Apple's pre-payment goes for that long.
Sharp is so weak that their suppliers aren't going to give them components on credit. Ship now pay later. So they have cash on delivery or cash before delivery issues with their suppliers. There is no reasonable way to run off and spend the money Apple gave them on something else hoping that someway, somehow something else hits to lotto to re-pay that. (e.g., anything substantive to paying down that $2b in bonds and backfill on phone sales profits. )
Second, it may not be totally in the form of pre-payment for the screens. There may be capital equipment Sharp needs to make the screens. Apple buys it and then lend-lease the equipment to Sharp. If Sharp tanks Apple still owns the equipment. It isn't an assest that will be trapped in bankruptcy. This is same issue as Sharp not having good supplier issues. Apple does the payments with the suppliers. Sharp pays Apple back by using supplies & equipment to make screens.
Frankly, if any bankers/investors finds out that Sharp is using Apple's money as a "Rob Peter to pay Paul" scheme Sharp's chance to roll over their bond debt is dismal. The first thing their auditors are going to look at in their books is whether Apple's money is earnmarked to deliver on Apple's goods. [ That is if their auditors had any brains..... Gotta wonder what brainless clods HP hired to look at Automony's books. ]
I hope IGZO is really the future and SHARP can be saved. They have great displays and I would love to see one of them in the MacBooks.
