Does This Number Reveal Apple's Great Expectations?
Like all tech companies, Apple faces only two paths forward: innovate or die. And innovation calls for money.
Spending money to make money
Apple closed the books on its 2013 fiscal year when it reported earnings on October 28. And as all public companies must do, Apple also filed its 10-K annual report with the SEC after reporting fourth-quarter earnings.
In its 10-K, Apple mentioned that it plans to ramp up its capital expenditures in FY 2014. According to the filing, it expects to spend $11 billion in total capex in the coming 12 months. The company says $550 million of that will go toward opening an estimated 30 new retail stores, as well as the remodeling of an additional 20. That leaves $10.5 billion for, well, everything else.
Why it matters
Apple's capital expenditure numbers are worth following because historically, capex is a somewhat strong predictor of Apple's iOS device sales. The correlation was originally noted by Horace Dediu of Asymco.
Apple puts great effort and money into the design, manufacture, and delivery of each new iteration of its devices. It is famous for developing new and often proprietary manufacturing processes to keep its iDevices ahead of the pack. As recently reported by Bloomberg, when faced with a shortage of machines suitable for testing the motion sensors in the iPhone 4, Apple simply made its own.
That's why Apple's capex figures are worth watching -- they're indicators of which direction the business expects to go.
According to Dediu, Apple's capex plans suggest the company should sell 250 million to 285 million total iOS devices this year. For fiscal 2013, Apple sold 150 million iPhones and 71 million iPads. Devices sold will include new iPods as well, as they're iOS-powered, but Dediu's estimate implies an increase of 13%-29% in iOS device sales in the coming year.
Apple ramping its capital spending isn't a surprise. The company will continue to need to grow its manufacturing machines and processes to keep up with the smartphone market. Additionally, the iPhone should be set to receive a major form-factor overhaul next year as well, which will likely require more spending. There have also been supply chain rumors claiming that Apple is working on a larger or possibly curved screen for the iPhone 6, as well as sophisticated touch sensors.
There's also the somewhat more remote possibility that Apple could be allocating some of its increased capital spending toward a new product line, such as the iWatch or iTV.
Foolish bottom line
At a time when investors are questioning Apple's future, its capex spending should serve as a useful indicator that the world's largest company expects growth in the coming 12 months. Regardless of the exact iDevice it plans to pursue, Apple clearly has great expectations for 2014.
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The article Does This Number Reveal Apple's Great Expectations? originally appeared on Fool.com.Fool contributor Andrew Tonner owns shares of Apple. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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