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I think this statement is, in general, completely true. But it doesn't actually seem to apply to Apple, which continues to design many aspects of the iPhone. I
by jxdxbx 6y ago
I think this statement is, in general, completely true. But it doesn't actually seem to apply to Apple, which continues to design many aspects of the iPhone. In part this is because Apple essentially funds and builds many of the factories it "outsources" to, which very few companies can afford to do.
- gumby 6y agoThis is an important point. When hon hai builds the plant they have to capitalize it over 40 years or so (per whatever the local equivalent of GAAP is). For Apple it’s a current expense. Now most companies would prefer the longer capitalization period (it will increase earnings) but but with apple’s huge cash reserves and almost by definition nothing better to invest them in than Apple growth, this lets them take advantage of the investment right away, then move elsewhere if the numbers look better.
- blueblisters 6y agoWhat does capitalization over 40 years mean? They amortize plant costs over 4 decades? That sounds crazy because in this industry I would assume a plant would need to be completely retooled every 2-3 years.
- gumby 6y agoSorry, that was poorly written out. Under GAAP the building itself would typically have to be amortized for decades. A lot of the physical plant would need a lot of explanation to justify a short amortization period too (although not 40 years!) given that plenty of decades old plants still churn out chips at large node size. And There is, as I mentioned, an asymmetry in accelerating vs deferring the expense in terms of sector-specific stock market perception. But I was lazy in conflating the two cases so thanks for pointing that out.