Apple's Fifth Avenue retail store. Source: Apple.
Apple (NASDAQ:AAPL) invests very heavily in capital expenditures to support its business. The company's capital expenses go toward, according to the company's most recent 10-K filing with the SEC:
- Product tooling and manufacturing process equipment
- Data centers
- Corporate facilities and infrastructure (i.e., computers, software, and retail store facilities)
Over the years, as the company's business has expanded, so too have its capital expenditures. Let's take a look at how the company's capital expenditures have trended over the last several years, and what it might mean for the company's future business outlook.
The capex story so far
In the table below, I have included Apple's capital expenditures by year beginning in 2011:
|
Year |
Capex ($billion) |
Capex Ex-Retail ($billion) |
|---|---|---|
|
2011 |
4.6 |
4 |
|
2012 |
10.5 |
9.5 |
|
2013 |
7.0 |
6.5 |
|
2014 |
11.0 |
10.5 |
|
2015 |
11.2 |
N/A |
|
2016 (projected) |
15.0 |
N/A |
Source: Apple SEC filings.
Apple saw a pretty substantial boost in capital expenditures beginning in 2012, followed by a decline in 2013, followed by two years of capital expenditures in excess of $11 billion. The company is also projecting a nearly $4 billion year-over-year boost in capital expenditures for 2016.
What could this capex boost mean?
Given that the majority of Apple's capital expenditures go toward product tooling and manufacturing process equipment, the big step up in capex for 2016 suggests the company plans to spend significantly more on the equipment used to build its products.
Keep in mind that there is typically a "lag" between when capex is spent, and when those assets actually become productive. So, for example, capex spent in a given year is most likely in support of the demand that the company expects to service in the following year.
It's also worth pointing out that there probably isn't a 1-to-1 correlation between the amount of capex spent and the number of units capex can support. This is because newer products are often more complex to build, meaning the amount of capex required on a per-unit basis goes up.
Also keep in mind that Apple has continued to boost the number of products in its lineup, with perhaps the most high-profile of these introductions being the Apple Watch. Given that the Apple Watch seems to be off to a solid start, and given that management seems bullish on the future of this product, it wouldn't be surprising if the company were putting in significant incremental Apple Watch production capacity to support the demand it expects to see in 2017.
At any rate, I believe the big boost in 2016 capex is indicative of the following:
- Increased per-unit capital intensity for the products Apple expects to ship during the majority of 2017.
- A significant increase in overall unit shipments in 2017.
Apple seems to be bullish on its future, but remember that capex isn't set in stone
Apple's current 2016 capital expenditure forecast signals that the company is bullish on its near-term future, but keep in mind that this is just a forecast, not a number that's set in stone. Based on the demand Apple sees throughout the year, the company may adjust its capital expenditures either upwards or downwards.
I'll be keeping an eye out for any revisions to this forecast over the coming quarters, which the company will disclose in its quarterly filings with the SEC.
