Comparing Capital Expenditures- Apple And Samsung

Background

A CAPEX (Capital Expenditure) is any expenditure changing a business’ future. The business incurs it when it utilizes money in purchasing specific fixed assets of enhancing the value of own extant fixed assets (Song & Lee, 2015). An asset whose value is extended has a functional life going beyond a given taxable year. Companies, including Apple along with Samsung, use Capital Expenditures in the acquisition or upgrading of own physical assets like equipment, buildings, and property.

When a company plans to spend significant percentages of its finances on such assets, its shareholders or directorial boards formalize the attendant decisions accordingly. Companies add A CAPEXs to own asset accounts, hence expanding the bases of their assets for taxation purposes. Samsung and Apple are among the leading companies in the mobile phone industry (Sengupta, 2014). Presently, Apple is more profitable and bigger than Samsung. Their competitors include Asus, Google, Sony Panasonic, Electrolux AB, Whirlpool as well as Kyocera.

Report on Capital Spending

            According to Market Watch (2015), Apple’s CAPEX remained fairly constant between 2012 and 2014. In 2012, its CAPEX was $9.4 billion. The CAPEX reduced to $9.08 billion in 2012 but rose to $9.81 billion in 2014 (Market Watch, 2015). According to Chen (2013), Samsung’s CAPEX in 2012 was almost twofold that of Apple in the same year, $21.1 billion.

GuruFocus (2015) reports that Samsung’s Capital Expenditures rose to $22.8 billion in 2013. Statista (2015) reports that Samsung’s CAPEX rose to $32.1 billion in 2014. The following graph shows the CAPEX trends of the two companies between 2012 and 2014.  From the graph, it is clear that Apple’s CAPEX, generally, was on the rise between 2012 and 2014. Even then, it registered a slight dip in 2013. As well, from the graph, it is clear that Samsung’s CAPEX was on the rise between 2012 and 2014. In each of the years, Samsung posted a higher Capital Expenditures than Apple.

 

Capital Spending of Samsung and Apple between 2012 and 2014

Samsung has always posted higher CAPEXs than Apple since the former is involved in production processes. Production processes are rather capital-intensive in all industries. Between 2012 and 2014, Samsung’s CAPEX increased owing to the related increase of own spending, or investment, in its semiconductor business and the continuing upgrading of its DPS (Display Panel Segment).

Over the same period, Samsung heightened its spending on the expansion of own facilities used for fabricating LCD panels and expansion of its OLED panels’ capacity (De, Sanz, Simon & Palgrave Connect, 2014). As well, the CAPEX increased over the years owing to the related increase of the company’s spending on the migration of its process to the 20 nm-class DRAM process. The company spent increasing amounts on the improvement of its plants for producing NAND chips according to Samsung (2015).

In 2014, a significant portion of Samsung’s CAPEX was towards the development of its integrated circuits technology. Notably, the company has been keen on fighting the competition growing in the field of solid state technologies, including the integrated circuits technology used in iPad, iPod touch as well as iPhone devices. The devices present opportunities for highly rewarding business, which Samsung is keen not to lose. The growth of the company’s CAPEX between 2012 and 2014 can as well be attributed to the reality that all memory producers, including Samsung, has been enjoying a favorable pricing environment, which persuades increased spending (Song & Lee, 2015).

Between 2012 and 2014, Apple’s CAPEX was lower than that of Samsung since the Apple does not invest in or run production plants. It principally runs data centers, which is has been increasingly investing in recent years. In the period under examination, Apple continued to increase spending on spaceship campuses, aluminum case tooling, and own mechanical components (De, Sanz, Simon & Palgrave Connect, 2014). Over the years, Apple has been keen on controlling the areas affecting the value it produces hence the increasing spending in them (Sengupta, 2014).

It appears that Apple is keen on engaging in particular value chain areas as elements of the ongoing evolution of its role. In addition, that may mean that a new era in the operations of technology companies is emerging. Like Microsoft, Apple has in recent years increased spending on the building of particular hardware, vertical integration. The general increase of its CAPEX between 2012 and 2014 may be attributed to its increasing focus on components.

Summary

A CAPEX is any expenditure changing a business’ future. Samsung and Apple are among the leading companies in the mobile phone industry. Samsung has always posted higher CAPEXs than Apple since the former is involved in component production processes.  Component production processes are rather capital-intensive in all industries. The general increase of Apple’s CAPEX between 2012 and 2014 may be attributed to its increasing focus on component production.

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