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Apple competes against companies like Samsung (2012 ad budget: ~$4B) and Microsoft (2012 ad budget: ~$2.75B). This is not a lot of money in the markets where A

by runako 13y ago

Apple competes against companies like Samsung (2012 ad budget: ~$4B) and Microsoft (2012 ad budget: ~$2.75B). This is not a lot of money in the markets where Apple competes.

IBM 13y ago
Like the article says, the $578M is just the prepayment. The total amount may be much greater. The facility itself was acquired from First Solar, who sold it at a loss, and it seems like Apple will be fronting the capital for the factory's construction. The deal also requires a minimum amount of capacity for Apple and also exclusivity for some unknown amount of time (perhaps the same 5 years), so it's unlikely that they'll be supplying anyone besides Apple. And this is just for one component, Apple likely makes these deals with all their suppliers.
sc90 13y ago
Its not the size of the money, its what the money does:gobbling up scarce resources in advance hence locking out rivals from crucial supplies.
- maxerickson 13y ago
  The first phrase of the article is "Apple is building a manufacturing plant in Arizona". Space to build manufacturing plants is not scarce. They are actually even re-purposing one. I guess GT Advanced Technologies might have some scarce expertise.
  - craigyk 13y ago
    I'm so glad I bought a bunch of GTAT a year ago.
    - aaronbrethorst 13y ago
      What inspired you to buy stock in the company a year ago?
      - craigyk 13y ago
        convergence of three things really. When I heard the iPhone 5 was going to use a sapphire lens cover I decided to lookup more on the technology and found that GTAT had what looked like the best know-how in its manufacture. I had also previously seen a story on some tech being created by a company called Twin Creeks that looked pretty cool, and was surprised to see that GTAT had acquired it's assets. That made me think the company was being aggressive in it's pursuit of acquiring/developing cutting-edge manufacturing processes. Plus, I think solar power is a major part of the future and things will be pretty bleak if it can't deliver long-term, but I like to be an optimist, so why not put my money there?
        aaronbrethorst 13y ago
        Very interesting. Thanks for the insight!
  - jws 13y ago
    If I understand their business model, GTAT wanted to be in the furnace and process business and sell those to other companies that would do the manufacturing. It looks like no one wanted to be one of those companies. There is no "scarce" here. GTAT wanted to make and sell a lot of this capacity, they just couldn't get a buyer to risk their capital. From that standpoint it makes perfect sense for Apple to pony up. They want the end product. There is no need for a third company to take risk, provide capital, and make extra profit. Apple provides the capital, takes the risk.
    - IBM 13y ago
      The "scarce" is their ASF furnaces that enable production at scale and low cost, which is currently being repurposed for their own contract with Apple.
- Moto7451 13y ago
  Sapphire glass uses synthetic Sapphire so this is more like building another Gorilla Glass factory than hoarding the output from a Diamond mine. http://en.wikipedia.org/wiki/Sapphire#Synthetic_sapphire http://en.wikipedia.org/wiki/Sapphire#Synthetic_sapphire
selectodude 13y ago
Apple just purchased 15 percent of Samsung's entire worldwide advertisement budget in just sapphire. That's a pretty enormous chuck of change, even for massive corporations such as Samsung.
- mcintyre1994 13y ago
  For comparison's sake, Apple's ad budget in 2012 was $1 billion [0], so they just purchased almost 60% of their own advertisement budget in just sapphire. [0] http://www.sec.gov/Archives/edgar/data/320193/000119312512444068/d411355d10k.htm http://www.sec.gov/Archives/edgar/data/320193/00011931251244... ("Advertising costs are expensed as incurred. Advertising expense was $1.0 billion, $933 million and $691 million for 2012, 2011 and 2010, respectively.")
- r00fus 13y ago
  How is this bold in comparison to Google buying Motorola for $12B on the premise that it afforded patent protection? Apple's move here is a solid move to secure supply of a key material/component for their devices. Meanwhile Moto has yet to produce a profit, much less meaningful patent protection for Google.
lttlrck 13y ago
Those figures don't mean those companies have half a billion dollars to spend on sapphire. Edit: and that is just the prepayment.
- haldujai 13y ago
  Microsoft has $77 billion in cash reserves[0]. I assume this is pre-Nokia purchase but that doesn't change the fact that they could have done the same thing if they wanted to - they just didn't. It wouldn't make sense either as they don't manufacture to my knowledge. [0] http://www.geekwire.com/2013/apple-controls-10-percent-corporate-cash-microsoft-place/ http://www.geekwire.com/2013/apple-controls-10-percent-corpo...
philwelch 13y ago
Not sure why the total advertising budget for companies with radically different product sets should meaningfully compare in any way with the cost of preordering a single material in bulk.
- runako 13y ago
  I used ad budget as a proxy for a firm's discretionary cash flow. If you wanted, you could instead look up other financial figures and choose another proxy. For instance, Samsung had 2012: Revenue: $268 B (17% of S. Korea's GDP) Net Income: $26 B Total Assets: $470 B My point is that the companies Apple is competing against don't make these moves because they don't have the financial resources, it's because moves like these don't fit into their overall strategic plans.

by runako 13y ago

Apple competes against companies like Samsung (2012 ad budget: ~$4B) and Microsoft (2012 ad budget: ~$2.75B). This is not a lot of money in the markets where Apple competes.

IBM 13y ago

Like the article says, the $578M is just the prepayment. The total amount may be much greater. The facility itself was acquired from First Solar, who sold it at a loss, and it seems like Apple will be fronting the capital for the factory's construction. The deal also requires a minimum amount of capacity for Apple and also exclusivity for some unknown amount of time (perhaps the same 5 years), so it's unlikely that they'll be supplying anyone besides Apple. And this is just for one component, Apple likely makes these deals with all their suppliers.

sc90 13y ago

Its not the size of the money, its what the money does:gobbling up scarce resources in advance hence locking out rivals from crucial supplies.

maxerickson 13y ago
The first phrase of the article is "Apple is building a manufacturing plant in Arizona". Space to build manufacturing plants is not scarce. They are actually even re-purposing one. I guess GT Advanced Technologies might have some scarce expertise.
- craigyk 13y ago
  I'm so glad I bought a bunch of GTAT a year ago.
  - aaronbrethorst 13y ago
    What inspired you to buy stock in the company a year ago?
    - craigyk 13y ago
      convergence of three things really. When I heard the iPhone 5 was going to use a sapphire lens cover I decided to lookup more on the technology and found that GTAT had what looked like the best know-how in its manufacture. I had also previously seen a story on some tech being created by a company called Twin Creeks that looked pretty cool, and was surprised to see that GTAT had acquired it's assets. That made me think the company was being aggressive in it's pursuit of acquiring/developing cutting-edge manufacturing processes. Plus, I think solar power is a major part of the future and things will be pretty bleak if it can't deliver long-term, but I like to be an optimist, so why not put my money there?
      - aaronbrethorst 13y ago
        Very interesting. Thanks for the insight!
- jws 13y ago
  If I understand their business model, GTAT wanted to be in the furnace and process business and sell those to other companies that would do the manufacturing. It looks like no one wanted to be one of those companies. There is no "scarce" here. GTAT wanted to make and sell a lot of this capacity, they just couldn't get a buyer to risk their capital. From that standpoint it makes perfect sense for Apple to pony up. They want the end product. There is no need for a third company to take risk, provide capital, and make extra profit. Apple provides the capital, takes the risk.
  - IBM 13y ago
    The "scarce" is their ASF furnaces that enable production at scale and low cost, which is currently being repurposed for their own contract with Apple.
Moto7451 13y ago
Sapphire glass uses synthetic Sapphire so this is more like building another Gorilla Glass factory than hoarding the output from a Diamond mine. http://en.wikipedia.org/wiki/Sapphire#Synthetic_sapphire http://en.wikipedia.org/wiki/Sapphire#Synthetic_sapphire

selectodude 13y ago

Apple just purchased 15 percent of Samsung's entire worldwide advertisement budget in just sapphire. That's a pretty enormous chuck of change, even for massive corporations such as Samsung.

mcintyre1994 13y ago
For comparison's sake, Apple's ad budget in 2012 was $1 billion [0], so they just purchased almost 60% of their own advertisement budget in just sapphire. [0] http://www.sec.gov/Archives/edgar/data/320193/000119312512444068/d411355d10k.htm http://www.sec.gov/Archives/edgar/data/320193/00011931251244... ("Advertising costs are expensed as incurred. Advertising expense was $1.0 billion, $933 million and $691 million for 2012, 2011 and 2010, respectively.")
r00fus 13y ago
How is this bold in comparison to Google buying Motorola for $12B on the premise that it afforded patent protection? Apple's move here is a solid move to secure supply of a key material/component for their devices. Meanwhile Moto has yet to produce a profit, much less meaningful patent protection for Google.

lttlrck 13y ago

Those figures don't mean those companies have half a billion dollars to spend on sapphire. Edit: and that is just the prepayment.

haldujai 13y ago
Microsoft has $77 billion in cash reserves[0]. I assume this is pre-Nokia purchase but that doesn't change the fact that they could have done the same thing if they wanted to - they just didn't. It wouldn't make sense either as they don't manufacture to my knowledge. [0] http://www.geekwire.com/2013/apple-controls-10-percent-corporate-cash-microsoft-place/ http://www.geekwire.com/2013/apple-controls-10-percent-corpo...

philwelch 13y ago

Not sure why the total advertising budget for companies with radically different product sets should meaningfully compare in any way with the cost of preordering a single material in bulk.

runako 13y ago
I used ad budget as a proxy for a firm's discretionary cash flow. If you wanted, you could instead look up other financial figures and choose another proxy. For instance, Samsung had 2012: Revenue: $268 B (17% of S. Korea's GDP) Net Income: $26 B Total Assets: $470 B My point is that the companies Apple is competing against don't make these moves because they don't have the financial resources, it's because moves like these don't fit into their overall strategic plans.