What Did Apple Do With This Secret Expense?
Apple (NASDAQ:AAPL) may have quietly invested more than $2 billion in display maker Sharp, the struggling Japanese company that is a component rival to Samsung. While Apple also receives display supplies for its products from Samsung, the iPhone maker and the Korean company have been in an increasingly uneasy relationship because of their rivalry in the smartphone market.
Apple’s annual capital expenditures for the full fiscal year were $2.3 billion higher than anticipated, which has led Asymco analyst Horace Dediu to believe that the company gave the same amount to Sharp. In an analysis made on Wednesday, Dediu said Apple spent one-third more than it expected in capital expenditures in the 2012 fiscal year. While it had forecast in October of 2011 that it would spend about $8 billion, the final number came in at $10.3 billion. Nearly all of the over-spending related to “product tooling, manufacturing process equipment, and infrastructure,” Dediu noted.
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“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),” Dediu wrote. “If Sharp were to enter 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.”
According to the analyst, the deal may have included pre-orders for new components for Apple products. Apple also reportedly sources displays from LG Display (NYSE:LPL).
Financially struggling Sharp was set to receive a $1 billion investment from Apple manufacturer Foxconn earlier this year in order to build a new LCD plant and boost production for Apple products. However, the deal fell through. Sharp executives admitted at the end of last month that the company may not recover from its $5.6 billion loss.