Did Apple make a $3.9 billion investment to secure LCD panels?

Tue, Jan 25, 2011

News, Rumors

During Apple’s earnings conference call last week, Apple COO Tim Cook noted that the company had signed long term supply contracts worth $3.9 billion. While Cook refused to elaborate on what type of goodies Apple secured, he did draw a parallel to Apple’s 5-year deal for flash memory back in 2005 as the company anticipated that it would be an increasingly important part of its product line in the years to come.

On the operational side of the house, as you probably remember, we’ve historically entered into certain agreements with different people to secure supply and other benefits. The largest one in the recent past has been, we signed a deal with several flash [memory] suppliers back in the end of 2005 that totaled over a billion dollars, because we anticipated that flash would become increasingly important across our entire product line and increasingly important to the industry. And so we wanted to secure supply for our company. We think that was an absolutely fantastic use of Apple’s cash, and we constantly look for more of these. And so in the past several quarters, we’ve identified another area and come to some recent agreements that Peter talked about in his opening comments. These payments consist of both pre-payments and capital for process equipment and tooling. And similar to the flash agreement, they’re focused in an area that we feel is very strategic. And so I’d prefer not to go into more detail about what specific area it’s in, but it’s the same kind of thinking that led us to those deals.

Oh, what ever could this $3.9 billion deal be for?

MacRumors theorizes, via putting together a few puzzle pieces, that Apple’s big time deal was for LCD displays. Remember, initial supply of the iPad was limited due to LCD display shortages and a long-term deal to secure displays in exchange for a huge chunk of money up front would make a lot of sense for Apple. Moreover, in December we reported that Apple was rumored to be involved in a deal with Toshiba to construct a $1.2 billion factory to manufacture LCD panels. Toshiba currently churns out approximately 8.5 million LCD panels a month, a figure which the new factory will double.

On top of that, there were also reports that Apple also struck a deal with Sharp whereby Apple would purchase the bulk of LCD panels manufactured at a yet to be constructed plant.

With Apple’s 2010 iPad output head and shoulders above all analyst estimates, the number of displays Apple will need going into 2011, and especially in light of the forthcoming iPad 2, will be tremendous. Early estimates anticipate iPad shipments in 2011 to come in anywhere between 48 million and 65 million units.

Adding her two cents into the mix, Morgan Stanley analyst Katy Huberty wrote in a research note to investors that Apple’s $3.9 billion investment is enough to secure approximately 136 million iPhone displays, and, wait for it… 60 million iPad displays. Now if those displays are coupled with multitouch, Huberty’s adjusted figures come in at 100 million iPhone panels and 40 million iPad panels.


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