Apple Inc. (NASDAQ:AAPL), earlier this year revealed a list of approximately 150 direct suppliers that are actively involved each and every time the tech giant launches a product. RBC Capital has conducted an in-depth research on transactions between Apple and its vendors over the last couple of years,and including 2012 going forward. According to their findings, Apple has been making prepayments to these vendors, which are classified as off-balance sheet commitments. The company’s analysis on off-balance sheet commitments exhibit that Apple Inc. (NASDAQ:AAPL) has a healthy supply chain, which should be key in fulfilling its sales projections within the next few years.
Apple Inc. (NASDAQ:AAPL), boasts an incredible $13.6 billion manufacturing and component purchase commitments as of June 30th 2012, representing approximately 24% year over year growth, from the previous period figure of $11 billion. An assessment of the trend indicates that every third quarter, the company has increased this value significantly, thereby begging the question of how much we should expect when September Quarter results are out. These also do coincide with Apple’s launch of new products to the market, just as we expect within the next two days.
Apple’s inventory component prepayments increased by $1.2 billion quarter on quarter to $4.5 billion, during the June 30th 2012 quarter, an indication of the advance payments made in readiness for the launch of the new devices, that is, iPhone 5, and the rumored iPad mini, among others.
This was nearly double the figure recorded for June 30th 2011 quarter, that is , $2.4 billion, which is approximately 87.5% growth. This is once again a clear indication of the company’s anticipated growth in sales, which then prompted the prepayments for guaranteed supply of the required materials. Some of the materials prepaid for include NAND, and the iPhone memory chip, which Apple outsources from the Asian markets.
Among its suppliers are Intel Corporation (NASDAQ:INTC), and its fierce rival Samsung Electronics Co., Ltd. (LON:BC94), among others. However, according to one of our recent posts, Apple is already planning to dislodge Samsung from its list of manufacturers, after it sliced it out of its vendor list for iPhone 5 memory chips, among other components.
The manufacturing components commitments have exhibited a direct relationship with quarterly outputs in terms of units, which indicate that the increased level of commitments should result in increment in output units, if the trend is sustained, thereby signaling growth in output units.
For instance, manufacturing component commitments of $8 billion, would result in approximately 30 billion units of out put in a quarter, as compared to $14 billion worth of manufacturing component commitments, which would produce nearly 50 billion units.
However, this metric excludes iPod production, which accounts for less than 1% of the overall output in Apple Inc. (NASDAQ:AAPL) sales.The level of output realized in terms of revenue follows the same channel, as increased manufacturing component commitments results in increased revenues, as per the metric above.
When $6 billion is committed to manufacturing components , approximately $10 billion worth of revenue is collected, while $14 billion worth of commitments will result in nearly $40 billion in revenues.
This is a clear indication of how effective the company is at turning its commitments to manufacturing components into revenues. This therefore implies a near perfect prediction on revenues for the amount committed to manufacturing components.
The report by RBC capital also notes that only $1.3 billion in inventory prepayments is for the near term, or current inventory pre-payments, while the remaining bit of the $4.5 billion, or more than $3 billion, was for long-term prepayments, again signaling the long term growth prospects of the company.
According to the correlation coefficient of 0.95, nearly 100% correlation between the manufacturing component commitments and quarterly output in terms of units and revenue, it is therefore nearly perfect to say that, if apple doubles its manufacturing component commitments, then revenues are likely to double. Also with the guaranteed supply of the required materials, this leaves only customer demand as the only factor to round up a perfect prediction model.
As at the time of this writing, Apple Inc. (NASDAQ:AAPL) was trading at $672.36 per share , down $8.08, or 1.19% from the previous close, to open the week on a low, despite the anxiously expected announcement within the next two days.