Apple is in a very good place in terms of product demand and manufacturing advantages. In fact, The Wall Street Journal points out just how well Apple has their suppliers wrapped around their finger – they actually get paid for products before they even have to pay for the manufacturing!
…thanks to the efficiency with which Apple manages much of its balance sheet, the capital invested in its business is actually negative. In other words, Apple gets paid for its products faster than it pays to make them.
Cash comes in before it goes out in part because Apple has incredible negotiating leverage vis-à-vis its suppliers. On average, in fiscal 2011 it didn’t pay suppliers for 83 days after being invoiced, according to Sanford C. Bernstein analyst Toni Sacconaghi. Yet Apple collected on its customer invoices much faster, 18 days on average. Meanwhile, it paid to keep just four days of inventory on hand in 2011, versus an already impressive 10 days in 2010.
The report also touches on other critical ways that Apple effectively uses its supply chain as a weapon against its competitors by using cash, careful negotiations, and a large amount of control over product distribution to its advantage. I’d definitely recommend reading the entire thing!
We’ll be able to see some of the direct results of this tomorrow when Apple announces their quarterly earnings! It should prove to be a very profitable quarter for Apple. We’ll let you know what they reveal!