Supply chain squeeze costs Apple $6B in revenue

Apple missed certain Wall Street expectations for its fiscal year fourth quarter, during which supply chain constraints cost the iPhone maker $6 billion in revenue despite year over year growth across products.

Apple hit a new September quarter record, posting $83.4 billion in revenue, up 29% year over year, but still below Wall Street consensus of $84.9 billion. Earnings per share were $1.24. Apple CEO Tim Cook talked up growth but cited larger-than-expected supply chain challenges related to global semiconductor shortages.

“We estimate these constraints had around a $6 billion revenue dollar impact, driven primarily by industry-wide silicon shortages and COVID-related manufacturing disruptions,” Cook said on the company’s earnings call.

During its July earnings call the smartphone giant had forecast supply constraints in the September quarter would be greater than what it saw in June and would primarily affect iPhones and iPads.

Cook said the manufacturing disruptions in Southeast Asia improved materially during October to now, but the chip shortage problem is expected to continue as the holiday season starts up.

CFO Luca Maestri said the company estimates supply constraint impacts will be even larger in the December quarter than the $6 billion. But executives continued to emphasize that Apple is seeing high demand for its products.

“We also achieved more than 20% growth across all of our product categories and in every geographic segment,” said Apple CEO Tim Cook on the company’s earnings call. “And today, Apple is reporting another very strong quarter.”

In terms of the chip shortage, a Reuters report noted how Apple had been able to shield itself better than some other smartphone-makers in part because its product line skews heavily toward premium devices, which were not as heavily impacted as shortages for lower-end phone components.

Cook on the call also highlighted that the chip shortage is focused on legacy nodes.

“Primarily, we buy leading edge nodes, and we’re not having issues on leading edge nodes,” he said. “But on legacy nodes, we compete with many different companies for supply,” adding it’s difficult to predict the trajectory.

Still, Cook said Apple is getting a lot more supply next quarter, with the amount “growing dramatically” but with such strong demand it will continue to impact fiscal Q1.

A smartphone market report released Thursday from research firm IDC highlighted how the global chip shortage began to hit the smartphone market in the three-month period from July through September, when global shipments dropped 6.7%. That’s more than twice the expected decline of 2.7%.

Notably, Apple was the only leading device maker to see growth rather than declines in device shipments.

"The supply chain and component shortage issues have finally caught up to the smartphone market, which until now seemed almost immune to this issue despite its adverse impact on many other adjacent industries," said Nabila Popal, research director with IDC's Mobility and Consumer Device Trackers, in a statement. "In all honestly, it was never fully immune to the shortages, but until recently the shortages were not severe enough to cause a decline in shipments and was simply limiting the rate of growth.

However, the issues have now compounded, and shortages are affecting all vendors alike.”

Citing continued strong demand, the firm doesn’t expect supply-side problems to ease until well into 2022.

According to IDC, Apple reclaimed the second spot for shipments and market share, with notable 20.8% growth year over year. Apple shipped 50.4 million units, capturing 15.2% market share. It came behind leading smartphone maker Samsung, which shipped 69 million units for 20.8% market share in Q3. However, that marked a 14.2% decline for the South Korean vendor, largely due to the supply constraints.

T-Mobile CFO Peter Osvaldik in September singled out Samsung as falling behind the eight ball compared to other OEMs on the supply chain front.

Apple reports growth across product lines

Fiscal year revenue was $366 billion, marking 33% annual growth. Apple isn’t providing revenue guidance for next quarter, citing continued near-term uncertainty.

Apple reported 30% year over year growth in products with revenue of $65.1 billion. The period marked an all-time high for Macs and quarterly records across its iPad, iPhone, wearables and home accessories lines.

In the December quarter, Apple expects the supply squeeze to result in a year over year decline for iPad sales – but anticipates revenue growth across each of the other product categories.

iPhone revenue grew 47% to $38.9 billion even in the face of supply constraints, with Maestri citing strong customer demand. That fell short of Wall Street estimates of $41.2 billion.

“The iPhone 12 family continued to perform very well and we are seeing enthusiastic customer response to the launch of our iPhone 13 family,” he said.

The latest iPhone 13 models just debuted in mid-September, shortly before the end of Apple’s fiscal Q4 on September 25. Apple’s active installed base of iPhones has reached a new all-time high, according to Maestri, although exact figures not disclosed.

Cook acknowledged that its iPhone channel inventory ended the September period below the target range and currently remains below it because of the constrained supply environment.

Its services business, which includes subscriptions, did better than Apple’s own expectations. Reporting 26% growth year over year and $18.3 billion in revenue as Apple reached more than 745 million paid subscriptions across its services. That figure is up more than 160 million over 2020 numbers.

Net sales were up across geographic segments, including the Americas which grew to $36.82 billion and Greater China which saw sales jump to $14.56 billion compared to $7.94 billion in the September 2020 period.