I am not sure of the writer's intent, but this is a very strange way idea that, as written, suggests that Apple is spending in an inefficient way:
"In the twelve months ended June, Apple will have spent $2.9 billion in M&E to manufacture 118 million iOS devices. To put that in perspective, Nokia, which manufacturers a large (if not majority) of the 340 million phones it sells, expects full year 2011 capital expenditures of $1.1 billion.
Correcting for amortization and depreciation and deducting some spending on Mac M&E, it’s very likely that Apple spent twice as much as Nokia on the instruments of production for one third the number of devices."
There is another, better interpretation that can be given to the facts: Apple's level of investment is high because it believes it will experience dramatic growth in the near future, and Nokia's level of investment is low because it does not expect dramatic growth in the near future.
This bit is an especially odd bit of reasoning:
"it’s very likely that Apple spent twice as much as Nokia on the instruments of production for one third the number of devices."
Investment in production facilities are investments that are aimed at the future, whereas how many units you've sold so far is a reflection of what you've done in the past. What Apple is investing in the future says nothing about what it has paid so far to produce its iPhones and iPads. Building up production facilities is more expensive than maintaining them.
Imagine you have 2 companies, A and B. Imagine A has a great decade where it dominates its industry, but then in the next decade is falls into decline, and starts to lose market share. Imagine B sleeps through the first decade but then takes off and has stellar growth during the second decade. What sort of investment patterns would you expect to see in that second decade? Clearly, you would expect investment from A to be declining, and investment from B to be rising. But A probably built up some impressive production facilities back when it was doing well, and it can coast on those production facilities for awhile. It can continue to produce large amounts of units, without investing a lot more in new facilities.
My point is, one has to be careful when drawing a relationship between present levels of investment and how many units a company can build. Past investments in production can allow a company to coast a long time. Building up production facilities is more expensive than maintaining them.
I agree with your analysis but Apple may also be motivated by a desire to delay or diminish a competitor's ability to leverage a supplier's excess manufacturing capability.
This strategy assumes more risk by taking ownership of the capital equipment but it strengthens their negotiating position with the supplier considerably. The supplier is only leasing labor and would be more effectively barred from running a second or third shift in the same facility to create competitive products. For example, ownership of the capital equipment would allow for considerably more visibility into factory operations by virtue of maintenance and product test activities.
Apple is investing in helping its oversea partners to build these facilities in exchange of ridiculously low prices and few months of exclusive on all those shiny things they produce. That's how Apple's margin are the double of a device with a similar price (e.g. the tables)
Given that the author likes to point out that Nokia is failing I don’t think it’s his intention to claim that Apple is spending inefficiently. Take it for what it is, it’s a paragraph to “put that in perspective”.
Apple must have one of the biggest fleets of cnc machines in the world to mill all their aluminum MacBooks, iMacs, remotes, keyboards... And the steel bands on the IPhone. I remember reading they bought 1000 Fanuk CNC's when they came first came out with the MacBook unibody in 2008, and they have grown a lot since then.
I seem to remember an Apple earnings call, around the time of the iPad launch, where they disclosed that they were spending $1 Billion+ on some undisclosed manufacturing facilities in China.
At the time it seemed to me that they were investing in touch-display capability to ensure their production demands for the iPad display.
All that cash Apple has in the bank... I wonder if it's primarily there to make sure Apple can comfortably ride out another global financial crisis (and then clean up as the competition drop like flies).
Actually, Apple could stop selling all of their products and they could keep their operations running until 2018, probably already 2019 after the next quarterly results are in.
I wonder about the implications this has with regards to human rights issues: Apple has always dismissed allegations of human rights violations with the argument that it's basically not their direct responsibility and that it's their suppliers' duty to adher to their supplier code of conduct.
Now if they own their suppliers, that argument suddenly wouldn't really be persuasive.
The human rights story comes to mind because I read this piece the other day and the description of the "man whose right hand was permanently curled into a claw from being smashed in a metal press at Foxconn" has remained vividly in my imagination: :-(
"Apple has always dismissed allegations of human rights violations with the argument that it's basically not their direct responsibility and that it's their suppliers' duty to adher to their supplier code of conduct"
Apple actively monitors their suppliers to ensure compliance with their code conduct, and if violations are found they make the supplier fix them, compensate the workers for the abuse, and in some cases have dropped the supplier if they thought it wasn't acting fast enough or sincerely enough.
You're right about apple's PR response but they do have a well documented history of enabling worker abuse that suggests that this policy is either ineffective at best or total bs at worst
The linked article alleges pollution not worker abuse. I'm not saying that (a) hazardous waste is ok or (b) that all of Apple's subcontractors behave perfectly, but this seems like a case of shifting ground to score points.
In general, Apple gets a lot of flak from environmental groups simply because it's the target that will make news. This means that Apple has to be especially careful. Would anyone care or be surprised if Dell were polluting an estuary?
I accidentally linked to the wrong article. Although that same report talked about there did actually pertain to workers' rights, it's not highlighted in that article.
Here are a couple others that come up in a quick search:
His contention is that they own the equipment and they rent labor from their suppliers. The supplier remains the employer responsible for working conditions. This approach, if true, would give Apple control of supplier without owning them.
"In the twelve months ended June, Apple will have spent $2.9 billion in M&E to manufacture 118 million iOS devices. To put that in perspective, Nokia, which manufacturers a large (if not majority) of the 340 million phones it sells, expects full year 2011 capital expenditures of $1.1 billion. Correcting for amortization and depreciation and deducting some spending on Mac M&E, it’s very likely that Apple spent twice as much as Nokia on the instruments of production for one third the number of devices."
There is another, better interpretation that can be given to the facts: Apple's level of investment is high because it believes it will experience dramatic growth in the near future, and Nokia's level of investment is low because it does not expect dramatic growth in the near future.
This bit is an especially odd bit of reasoning:
"it’s very likely that Apple spent twice as much as Nokia on the instruments of production for one third the number of devices."
Investment in production facilities are investments that are aimed at the future, whereas how many units you've sold so far is a reflection of what you've done in the past. What Apple is investing in the future says nothing about what it has paid so far to produce its iPhones and iPads. Building up production facilities is more expensive than maintaining them.
Imagine you have 2 companies, A and B. Imagine A has a great decade where it dominates its industry, but then in the next decade is falls into decline, and starts to lose market share. Imagine B sleeps through the first decade but then takes off and has stellar growth during the second decade. What sort of investment patterns would you expect to see in that second decade? Clearly, you would expect investment from A to be declining, and investment from B to be rising. But A probably built up some impressive production facilities back when it was doing well, and it can coast on those production facilities for awhile. It can continue to produce large amounts of units, without investing a lot more in new facilities.
My point is, one has to be careful when drawing a relationship between present levels of investment and how many units a company can build. Past investments in production can allow a company to coast a long time. Building up production facilities is more expensive than maintaining them.