Analysts have long been expecting Apple Inc. (NASDAQ:AAPL) to release not only the iPhone 6 but also at least one new product this year. Now the company’s latest 10Q filing with the Securities and Exchange Commission seems to suggest that they are right. Apple’s been making some major investments in tooling and other off balance sheet commitments.
Apple’s tooling investment is the highest ever
As of the end of June, Apple reported $15.4 billion in purchase commitments for manufacturing and components. That’s an 18.5% year over year increase, RBC Capital Markets analysts Amit Daryanani, Mark Sue and their teams said in a report dated Aug. 25, 2014. They also note that other off balance sheet commitments related to tooling, research and development, capital assets, advertising and other uses were at $5.6 billion, a 300% year over year increase.
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They believe that the “material spike” in these types of commitments, particularly in the area of tooling (which was at the highest number they have ever seen), suggests that Apple isn’t only gearing up for the ramp of the iPhone 6. They think the company could also be “securing capacity” for some as yet unannounced product, perhaps the rumored iWatch.
Apple adjusts capital expenditures numbers
Although Apple didn’t make any overall changes to its $11 billion guidance for capital expenditures, the company did adjust the spending split. Currently, the company has $4.8 billion left on that guidance.
Under the new spending split, Apple slightly lowered its spending on retail stores, bumping it down from $550 million to $500 million. The company also reduced the number of stores it plans to open from 30 to 20 and cut the number of stores it plans to remodel from 20 to 15. The company also said it now plans to spend $10.5 billion on tooling, manufacturing process equipment and other commitments.
Apple revenue by product, warranty accruals
The company noted positive impacts in iPhone sales from strength in China and the rest of Asia. Sales of the iPad grew in developing markets, but mature market declines offset those gains. On the plus side though, the RBC team notes that Apple saw an increase in average selling prices because of a mix shift toward the 9.7-inch iPad. On the Mac side, the company saw a positive impact from Mac Pro and MacBook Air increases.
Apple also reported $4.2 billion in warranty and related expenses, which is a 3% quarter over quarter decline and a 45% year over year increase. Warranty accruals were $756 million, making up 2% of the company’s revenue. On the plus side, the RBC team doesn’t think this is negative because the June quarter is typically a trough.