Business Week takes a look at how Apple uses its cash and massive volume requirements to get big discounts on parts, manufacturing capacity, and air freight.
Apple wields a big weapon: More than $80 billion in cash and investments. The company says it plans to nearly double capital expenditures on its supply chain in the next year, to $7.1 billion, while committing another $2.4 billion in prepayments to key suppliers. The tactic ensures availability and low prices for Apple-and sometimes limits the options for everyone else. Before the release of the iPhone 4 in June 2010, rivals such as HTC couldn't buy as many screens as they needed because manufacturers were busy filling Apple orders, according to a former manager at HTC. To manufacture the iPad 2, Apple bought so many high-end drills to make the device's internal casing that other companies' wait time for the machines stretched from six weeks to six months, according to a manager at the drillmaker.
Apple has confirmed these tactics with now CEO Tim Cook saying, "On the operational side of house, we've historically entered into agreements with others to supply; largest one was with flash memory suppliers back in 2005 that totaled over a $1 billion, because flash would become increasingly import across product line and industry."
"We think that was an absolutely fantastic use of Apple's cash and we constantly look for more of these. In the past several quarters, we've identified another area and come to recent agreements."
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Apple wields a big weapon: More than $80 billion in cash and investments. The company says it plans to nearly double capital expenditures on its supply chain in the next year, to $7.1 billion, while committing another $2.4 billion in prepayments to key suppliers. The tactic ensures availability and low prices for Apple-and sometimes limits the options for everyone else. Before the release of the iPhone 4 in June 2010, rivals such as HTC couldn't buy as many screens as they needed because manufacturers were busy filling Apple orders, according to a former manager at HTC. To manufacture the iPad 2, Apple bought so many high-end drills to make the device's internal casing that other companies' wait time for the machines stretched from six weeks to six months, according to a manager at the drillmaker.
Apple has confirmed these tactics with now CEO Tim Cook saying, "On the operational side of house, we've historically entered into agreements with others to supply; largest one was with flash memory suppliers back in 2005 that totaled over a $1 billion, because flash would become increasingly import across product line and industry."
"We think that was an absolutely fantastic use of Apple's cash and we constantly look for more of these. In the past several quarters, we've identified another area and come to recent agreements."
Read More