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Apple Inc. Expects to Spend an Incredible $15 Billion in Capital Expenditures This Fiscal Year

By Evan Niu, CFA - Oct 29, 2015 at 11:00AM

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As much as Apple has been spending on capital expenditures lately, it's about to spend a whole lot more.

Mac Pro being manufactured in the U.S. Image source: Apple.

Over the past half decade or so, Apple's (AAPL 1.62%) capital spending has utterly skyrocketed. We're talking about unprecedented levels of investment by the Mac maker, predominantly in manufacturing process equipment, product tooling, and other infrastructure required to make products.

After releasing earnings on Tuesday, the company has now filed its 10-K annual report with the SEC. Here's what Apple says in the filing about how much it expects to spend on capital expenditures in fiscal 2016:

The Company's capital expenditures were $11.2 billion during 2015. The Company anticipates utilizing approximately $15.0 billion for capital expenditures during 2016, which includes product tooling and manufacturing process equipment; data centers; corporate facilities and infrastructure, including information systems hardware, software and enhancements; and retail store facilities.

That's an unreal figure for a company that makes consumer electronics.

Hey, big spender
For some added perspective, here's how Apple's actual capital expenditures have been over the past few years compared to its guidance.

Source: SEC filings. Fiscal years shown.

The biggest jump was from 2011 to 2012 when capital spending jumped to above $10 billion, which was a fair amount more than the $8 billion that Apple had expected to spend. It was a slight reprieve when 2013 spending came in $3 billion less than forecast, though. But the trend is clear; Apple is committed to ongoing advances in manufacturing technologies that push the envelope. This often differentiates Apple's products and allows the iPhone maker to go where the vast majority of rivals can't follow -- because they simply can't afford to.

Samsung (NASDAQOTH: SSNLF) is perhaps the only company that has the scale to even consider it. Samsung has an immense capital spending budget as well, but the South Korean conglomerate needs to allocate most of this toward its semiconductor manufacturing operations. That being said, Samsung just announced that it would boost capital expenditures related to phones after mobile profits failed to meet expectations last quarter. After losing high-end smartphone share to Apple, the company is desperately trying to win some back by investing in higher-quality devices. Samsung now expects full-year capital expenditures to be $24 billion.

What's next?
Much (digital) ink has been spilled over Apple's foreign cash reserves. But even though all that money is effectively locked overseas by high repatriation taxes doesn't mean it can't be put to good use. Since most of Apple's contract manufacturing partners are located abroad and it installs its manufacturing equipment within their facilities, Apple gets to tap its foreign reserves for this purpose.

In fact, the technical criteria that a company must make to keep earnings abroad is that the funds are "intended to be indefinitely reinvested." Sure, that's a technicality and it amounts to a judgment call by management, since Apple doesn't actually need nearly $187 billion in foreign cash for this reason in practice, but it's allowed the discretion.

Just think about how capital expenditures might skyrocket even further in the years to come if Apple Car becomes a reality. Even if it outsources some of the manufacturing process, Apple will still probably purchase and own the equipment if it uses a similar manufacturing model. Quite literally, Apple uses rocket science to implement aerospace-grade techniques on desktop computers.

What kind of stuff do you think it would put into a self-driving electric car? More importantly, how much will it cost?

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