Supply chain crisis is the only drag on Apple’s huge growth


Three months ago, Apple CEO Tim Cook accused “supply constraints”, as well as a crisis in obtaining high-end chips to make equipment, resulting in a $6 billion hit in revenue.

However, the iPhone maker’s rapid growth has continued unabated.Earlier this month, it became the first company with a market capitalization of 3 tons — a landmark moment, even as Apple’s stock has retreated since then.

As the Silicon Valley giant prepares to report its latest earnings on Thursday, Apple is expected to once again post its biggest quarterly revenue and profit.

But while the coronavirus pandemic has boosted demand for devices like Macs and iPads, it has also sparked a global supply chain crisis that has hampered greater financial growth for the world’s largest publicly traded company.

Cook said on the last earnings call in October that “the impact of supply constraints will be greater in the December quarter” — a line that was interpreted as more than $10 billion.

Apple is battling the same problem Shaking up the global industry From petrochemical suppliers to consumer brands. Travel restrictions and shipping bottlenecks have been disrupted”timelyThe supply chain is designed to keep company inventories to a minimum, while using short-term flexible contracts that can be adjusted quickly as demand changes.

Still, analysts’ consensus estimates suggest Apple’s revenue will rise 6.5% to $119 billion in the final three months of 2021, which is typically the peak season around the holidays, and iPhone sales are expected to hit $67.4 billion. Net income is expected to rise 8% to $31.1 billion in what would be a record quarter for any company.

Pervinder Johar, CEO of Blume Global, an end-to-end supply chain visibility platform, said companies such as Apple face two core problems: logistical delays that have not improved in recent months, and a semiconductor shortage that will last for months, if not years ,solve.

The Commerce Department this week urged Congress to consider federal aid to chipmakers. It found that demand for chips will increase by 17% in 2021 compared to two years ago. However, supply has not kept up with this growing demand.

Johar said the perception that Apple is being prioritized by top chip suppliers such as Taiwan’s TSMC does not take into account the intense competition for components from companies such as Dell and Hewlett-Packard, as well as cloud computing giants Microsoft, Amazon and Alphabet, which power vast amounts of data. center.

“These are trillion-dollar companies competing for supply,” said Johar, who used to run a global supply chain system at Hewlett-Packard.

“So Apple may be a $3 trillion customer, but the components going into servers are higher quality and more expensive than components going into consumer devices.”

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Electric car maker Tesla, which has been praised for its performance on chip shortages in recent months, warned on Wednesday that its factories could be below capacity “through 2022” due to supply constraints.

Alan Day, founder of London-based procurement consultancy State of Flux, added that Apple as a well-known brand has “limited value” in securing the components it needs.

“The Apple brand definitely makes people dance,” he said, but manufacturers down the supply chain won’t know they’re feeding Apple.

“The biggest thing that could hit them and where they might not be able to control is their suppliers’ suppliers,” he said, citing unpredictable issues such as “labor availability as people go down because of the coronavirus.”

Bindiya Vakil, CEO of Resilinc, a California-based company that tracks more than 3 million components to provide supply chain mapping, said the situation has not improved since Cook predicted supply chain issues would weigh on revenue Serve.

Vakil added that the Omicron coronavirus variant just adds to the new risks that come with Russia-Ukraine tensions, port delays, the upcoming Chinese New Year and the Beijing Winter Olympics. “The only relief is that the holidays are over,” she said.

In the last quarter, Resilinc reported 1,915 supply chain issues in the high-tech industry to clients, including mine closures, legal action and factory fires. Such issues increased by 53% from the same period last year, well above the 5-year average of 397 incidents.

Analysts at Raymond James said Apple’s supply chain constraints include camera modules and power components made by Texas Instruments. They also noted that the supply of iPads was “deliberately limited.” . . Keep Components for iPhone”.

However, Apple’s problems related to hardware shortages are offset by its fast-growing services business.

The segment has a gross margin of over 70% and has more than 745 million customers in gaming, media, iCloud storage and warranty support. The services unit recorded $68.4 billion in revenue in the fiscal year that ended in September, and analysts expect a 19% increase in the quarter ending in December.

Wedbush, an investment bank bullish on Apple, thinks the services unit could be valued at $150 million, half of its peak valuation before shares fell 12 percent earlier this month.

“Apple is likely to still report a huge quarter, beating its previous quarterly revenue record [last year],” said Neil Cybart, an independent analyst at Above Avalon, who expects revenue to hit $127 billion. “However, the reported results could be stronger. “

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