Apple Event September 2021

Apple hit by chip and supply chain woes; warns that impact will get worse

Image credit: Apple

The global supply chain pinch cost Apple $6bn in sales during the company's fiscal fourth quarter, falling short of Wall Street expectations, according to chief executive Tim Cook, who said that the ongoing impact will be felt even worse during the current holiday sales quarter.

Speaking to Reuters, Cook said that the last quarter, ended September 25, had "larger than expected supply constraints" as well as pandemic-related manufacturing disruptions in South-East Asia. While Apple had seen "significant improvement" by late October in those South-East Asian facilities, the chip shortage has persisted and is now affecting "most of our products," Cook added.

"We're doing everything we can do to get more [chips] and also everything we can do operationally to make sure we're moving just as fast as possible," he said.

Cook said that chips made with older technology remain the key supply constraint. He said that Apple remains unsure whether the shortages will ease after the holiday shopping season.

"Most of what we design are leading-edge (chip manufacturing) nodes, but all of the products have some legacy node components in them as well. And so that (shortage) continues into (fiscal) Q1, and we'll see what it looks like beyond that. It's very difficult to call".

Cook said Apple expects year-over-growth for its quarter ending in December. Analysts expect growth of 7.4 per cent to $119.7bn, although some analysts have acknowledged that they underestimated the effect of the chip shortage and the supply chain issues on technology companies such as Apple.

"We're projecting very solid demand growth year over year. But we are also predicting that we're going to be short of demand by larger than $6bn," Cook said.

Apple said fourth-quarter iPhone sales were $38.9bn, just short of its estimates of $41.5bn. Apple had warned investors in July that chip constraints would start to hit its iPhone and iPad line-ups for the first time in the fourth quarter of 2021.

Despite the chip challenge, Apple was still able to reach above-expectations sales led by its iPhone 12 models, as well as strong sales of Mac computers ($9.2bn) and iPads ($8.3bn) for working and learning from home during the pandemic, helping to exceeding expectations in those segments.

The company announced a new September quarter record yesterday (Thursday) of $83.4bn with revenue up 29 per cent year-on-year, thanks largely to Services (including the App Store, which hit $18.3bn in revenue, up 26 per cent) and Mac revenue reaching all-time highs.

“This year we launched our most powerful products ever, from M1-powered Macs to an iPhone 13 line-up that is setting a new standard for performance and empowering our customers to create and connect in new ways,” said Cook. “We are infusing our values into everything we make - moving closer to our 2030 goal of being carbon-neutral up and down our supply chain and across the lifecycle of our products and ever advancing our mission to build a more equitable future.”

Luca Maestri, Apple’s CFO, added: “Our record September quarter results capped off a remarkable fiscal year of strong double-digit growth, during which we set new revenue records in all of our geographic segments and product categories in spite of continued uncertainty in the macro environment.

“The combination of our record sales performance, unmatched customer loyalty and strength of our ecosystem drove our active installed base of devices to a new all-time high.”

During a post-earnings call with analysts, Cook noted that Apple had "set quarterly records in every geographic segment, with strong double-digit growth across the board," adding that the company has "earned nearly one-third of our revenue from emerging markets and doubled our business in India and Vietnam."

China has also proved especially lucrative for Apple, with sales there up a staggering 83 per cent to $14.6bn.

Apple posted its results shortly after retailer forecast its own holiday-quarter sales well below Wall Street expectations, citing labour supply shortages and the global supply chain issues in part. Amazon's third-quarter results were equally disappointing, with operating profit at the parent company down to $880m - its slowest sales growth in almost seven years.

Fortunately for Amazon, its hugely popular cloud computing platform Amazon Web Services (AWS) generated $4.88bn in operating income, helping the company avoid an overall loss for the quarter.

Commenting on the supply chain issues hampering shipments in the global smartphone market, and beyond, Jusy Hong, senior research manager for wireless devices at Omdia (a technology-focused research and advisory group), said: “The shortage of semiconductor-related components supply since the beginning of the year is affecting set shipments in the second half of the year, rather than in the first half. In particular, shipments from third-tier OEMs, which have less economies of scale than first-tier companies, are significantly decreasing."

According to Omdia data, the global smartphone market has contracted 11.1 per cent year-over-year, to 317.7 million units in 3Q 2021, compared to the 357.4 million units shipped in 3Q 2020. Samsung retained its number one position in Omdia's top 10 manufacturers list (based on shipment figures), although its handset shipment numbers slumped by 14.8 per cent year on year. Apple reclaimed the number two spot, with an increase of 22.7 per cent.

The spread of the Covid-19 Delta variant in India and Vietnam, where major production bases are located, has hit Samsung hard in particular.

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