Why Apple Is Increasingly Investing in Its Suppliers, Including Possibly Toshiba
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Version 0 of 1. Updated from Sept. 15 with additional information. When a hardware maker consumes such huge volumes of certain commodities that shortages and price hikes inevitably follow when it launches big new products, the company has good motivation to invest in parts suppliers -- if not own them outright -- to guarantee adequate supplies at reasonable prices. Especially if it can do so by dipping into a giant offshore cash balance that still can't be repatriated without incurring a huge tax bill. That's where Apple Inc. (AAPL) stands now as it pushes ahead with what's the biggest iPhone refresh in at least three years. Though no stranger to helping suppliers foot the bill for new production lines, the company now also seems willing to take stakes in suppliers to further strategic goals. On Wednesday morning, Reuters reported that Toshiba had agreed to sell its coveted semiconductor business to a consortium led by private equity firm Bain Capital, but including Apple, Dell, Seagate Technology PLC (STX) and Korean memory maker SK Hynix Inc., for about $22 billion. Previously, Bloomberg reported that Apple was in talks to contribute about $3 billion (presumably via offshore cash) to the bid in return for an equity stake; if that number proves accurate, that would give Apple a roughly 14% stake. A deal is still not certain, however, given staunch opposition from Toshiba's flash memory joint venture partner Western Digital Corp. (WDC) . Western, which was part of a separate bid for the Toshiba unit and doesn't want rivals such as Hynix and Seagate owning stakes in the business, insists that Toshiba can't transfer its stakes in the companies' large flash manufacturing and R&D joint ventures without its consent, and has filed an arbitration claim to prevent this from happening. The terms of the joint venture agreements appear to back Western's case, and an arbitration court's decision on the matter might not arrive until mid-2018. Bloomberg reports that Japan's Ministry of Economy, Trade and Industry, wanting a deal to happen sooner rather than later, previously urged Toshiba to accept Western's offer, and that two Japanese government-backed funds that had supported both offers "decided to pull back from the Bain bid in the face of litigation from Western Digital." Apple's money will reportedly help fill the gap caused by the absence of the Japanese funds. The company was previously reported by Reuters to have threatened Western that it would no longer buy its products if it takes a majority stake in Toshiba's flash unit, out of a fear of the combined firm's pricing power. However, Reuters added that Apple was willing to provide about $460 million in financing for Western's bid if the firm remained a minority investor. Jim Cramer and the AAP team hold a position in Apple for their Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AAPL? Learn more now. Watch: Get your Look at the Futuristic Apple iPhone X More of What's Trending on TheStreet: |