Apple Inc. (NASDAQ:AAPL) reported earnings this week, beating EPS estimates but missing on revenue. Investors generally seem to be looking forward to whatever the next quarter holds, and Apple itself seems to be doing to same—at least if its off-balance sheet commitments and record high research and development spending are any indication.
Apple plans big
Morgan Stanley analyst Katy Huberty examined Apple’s most recent quarterly filing with the Securities and Exchange Commission. She believes the company’s big-time off-balance sheet commitments mean it is planning big for product releases later this year.
Off-balance sheet commitments are those reserved for manufacturers, purchases of components and capital expenditures like equipment or tooling for the manufacturing process of a company’s products. According to the filing, Apple reported $15.4 billion in purchases for components and commitments to manufacturers at the end of the June quarter. That’s a 22% quarter over quarter increase.
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She notes that Apple listed $5.6 billion for research and development, advertising, product or manufacturing tooling and equipment and internet and telecommunications. That’s a 100% sequential increase, making the grand total $21 billion. That’s the highest amount since right before the launch of the iPhone 5 and may even be the highest for the June quarter since the iPhone launch in 2007.
Apple expects iPhone 6, iWatch to be big
According to Huberty, Apple must be ramping up its commitments because the iPhone 6 is going to a big success and also because it is planning to launch the rumored iWatch. She thinks the iWatch must be coming because Apple is plunking down a lot of cash to outfit its manufacturers with the right equipment.
It’s pretty clear that there’s usually a big correlation with growth in revenue. In fact, it’s about 97%. Apple is increasing off-balance sheet commitments earlier than it usually does, which is another reason Huberty thinks the iWatch is coming soon.
There have been other reports indicating that Apple may be planning big on the iPhone 6. Some have said that the company has placed orders for up to 80 million units. We’ve also heard that Foxconn Technology Co., Ltd (TPE:2354) (OTCMKTS:FXFCOF) has hired 100,000 additional workers for this year’s version.