updated 08:38 pm EDT, Mon August 25, 2014
Costs are up 18.5 percent year-over-year, signaling additional products
An analyst with RBC Capital Markets has told investors that a strong increase in Apple's manufacturing costs means that the company is gearing up for more than just refreshes of existing products. Amit Daryanani has noted that Apple's component and manufacturing costs are up 18.5 percent despite generally-falling component prices, suggesting both Apple's raised expectations about the success of the iPhone 6 (which may or may not comprised two new models) and the alleged "iWatch."
Apple is spending an additional $5.6 billion on other factors involved in new product introduction (such as advertising and capital assets), an increase of 300 percent year-over-year, notes AppleInsider. This is on top of a spike in research & development of $425 million last quarter, for a new record R&D total of $1.6 billion, along with a rise in "tooling" (new manufacturing) commitments. All told, Apple's manufacturing expenses topped $15.4 billion last quarter.
Daryanani feels sure that some of the extra spending is devoted to the new product he thinks is most likely to debut in the near future, the iWatch fitness device. Such a device -- presumably along with an updated iPad -- is expected to be unveiled to the public some time after the rumored September 9 iPhone event, presumably in October. He believes that Apple will sell as many as 56 million units of the new iPhone (or iPhones) in the December quarter alone.
He also noted that despite vastly increased spending on thing such as dividends and stock repurchases, the company continues to manage to grow its cash pile -- though an ever-increasing percentage of it is being held overseas due to it being foreign-based revenue. Thanks to Apple's slowly-increasing success in foreign markets and its own plundering of US cash reserves to pay for things like dividends, the company has $164 billion in cash as of the end of June, a 12 percent increase year-over-year -- though the bulk of it ($137.7 billion) was held by its foreign divisions.
Apple has already told investors and analysts that it plans to further increase spending this year, but Daryanani's estimates are backed up by recent SEC filings. In all, Apple plans to spend $11 billion in capital expenditures this quarter, with some of that money going to build or remodel some 35 stores. RBC is maintaining its $110 price target for AAPL, and Daryanani noted that given Apple's P/E ratio and cash reserves, the stock in his view continues to be undervalued, despite reaching another record high on Monday.