There are a lot of advantages to keeping a hoard of $81 billion in cash on hand, as Apple (s AAPL) does. One in particular allows Apple to set itself apart from its competitors in a very real and tangible way: by dominating the global electronics supply chain.
Bloomberg BusinessWeek has a great story out on Friday illustrating the massive pricing, manufacturing and shipping advantages that Apple gets from having one of the most successfully managed supply chains in the world. Reading it, you see how having lots of money frees Apple up to do things other companies either can’t or won’t.
The report includes interesting details, like how Apple made that little green light appear next to the webcam in your MacBook. It was a manufacturing challenge that required $250,000 laser machines to cut tiny holes through metal, so Apple bought “hundreds of them.”
There’s also the tale of how Steve Jobs bought out all air freight for Christmas 1998:
To ensure that the company’s new, translucent blue iMacs would be widely available at Christmas the following year, Jobs paid $50 million to buy up all the available holiday air freight space, says John Martin, a logistics executive who worked with Jobs to arrange the flights. The move handicapped rivals such as Compaq that later wanted to book air transport.
The report illustrates two of the things that set Apple apart from its competitors in ways that are invisible to most of its customers: money and attention to detail. It’s all of those billions in the bank that give Apple the freedom to lavish gobs of attention on everything from massive manufacturing problems to insanely small but critical details. Some of the things the company does with that freedom range from buying out the world’s supply of smartphone displays to Senior VP of Industrial Design Jonathan Ive and some of his team staying near a manufacturer’s facility in China “for months” to closely monitor the design manufacturing and prototyping process for future products.
For next year, Apple appears to be pursuing the same tactics. It has already said via its annual report to the SEC that it will spend “$7.1 billion for product tooling and manufacturing process equipment.”
Locking down the supply chain is clearly a spending strategy that has proven itself. But it will be interesting to see how or if Tim Cook, Apple’s new CEO and longtime supply-chain guru, will continue to use the company’s cash in other ways outside the strategy approved by Jobs. Jobs turned Apple into an extremely conservative company when it came to its spending and investments and resisted any calls for investor dividends or share buybacks. Cook, however, has indicated that he and Jobs differ slightly in their philosophies. During the company earnings call last month, Cook declared:
I’m not religious about holding cash or not holding it. I’m religious about a lot of things but not that one. We’ll continually ask ourselves what’s in Apple’s best interest. So it’s a topic for the board on an ongoing basis.