Apple Shines Despite Supply Constraints

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Apple’s sales hit a record even as overall smartphone shipments fell during the third quarter of this year amid supply shortages.

Apple CEO Tim Cook said robust demand fueled record sales totaling $83.4 billion during the iPhone maker’s most recent financial quarter.  Revenue soared 29 percent from the same period a year ago despite worsening supply disruptions

“We estimate these constraints had around a $6 billion revenue impact, driven primarily by industry-wide silicon shortages and Covid-related manufacturing disruptions,” Cook said on a quarterly-results conference call. “It affected the iPhone, the iPad and the Mac. It is affecting pretty much most of our products currently.”

Apple’s slowdown comes as previous double-digit growth in global smartphone shipments reversed during the third quarter, declining 6.7 percent from a year ago, according to the International Data Corp.

Apple can count its blessings. The company may be among the last to face production slowdowns caused by chip shortages. Nearly a year ago, global automakers started shuttering car assembly lines when their semiconductor inventories dried up. Since then, the shortages have spread across the entire electronics industry.

“The supply chain and component shortage issues have finally caught up to the smartphone market,” said Nabila Popal, research director with IDC’s Mobility and Consumer Device Trackers. “Shortages are affecting all vendors alike. On top of component shortages, the industry has also been hit with other manufacturing and logistical challenges.”

Stricter Covid-19 testing and quarantining policies are delaying transportation, and power-supply constraints in China are restricting manufacturing of key components, Popal noted.

That double whammy hit Apple during the past quarter. In addition to chip shortages, pandemic-related manufacturing disruptions hit Southeast Asia producers several months back. Apple said those restrictions could end soon. Still, Cook said he expects IC supply chain disruptions to continue for at least the next three months.

Indeed, the supply situation is likely to get worse before it improves. Apple expects theimpact on its sales from supply constraints to be larger during the current quarter. Cook saidApple’s chip supply from companies like Taiwan Semiconductor Manufacturing Co. (TSMC) and others is growing dramatically, but still falls short of demand.

Even so, Apple forecasts a record revenues during the quarter ending this year. Revenue for each product category will grow on a year-over-year basis, except for the iPad, which is likely to decline on an annual basis due to supply constraints, the company said.

Apple’s main chip supplier, TSMC, appears to be producing enough 5-nm chips for iPhones and iPads. However, display drivers and power management ICs made with older 28-nm technology continue to delay Apple’s production.

“That chip shortage is happening on legacy nodes,” Cook said. “It’s difficult to forecast when those things will balance because you’d have to know how the economy is going to be in 2022 and the accuracy of everyone else’s demand projections.”

Declines in smartphone shipments vary among regions, IDC said. Central and Eastern Europe as well as Asia (excluding Japan and China) saw the largest declines, down 23.2percent and minus-11.6 percent year over year. In the U.S., western Europe, and China, the declines were a smaller as phone vendors typically give priority to upscale markets.

Samsung finished the third quarter as the top smartphone supplier with 69 million units shipped and a 20.8 percent market share, according to IDC. Samsung’s shipments fell by14.2 percent, largely due to supply constraints. No. 2 Apple shipped 50.4 million units, accounting for 15.2 percent of the smartphone market, fueled by what IDC called“incredible” 20.8 percent year-over-year growth.

Apple appears to have filled a vacuum left by Huawei. Around this time last year, the Chinese company briefly became the world’s largest smartphone maker. Huawei tumbled from the top after the U.S. put Huawei on its Entity List, cutting off chip supplies from TSMC. TSMC had previously been making the 7-nm Kirin 980 processor for Huawei.

Meantime, Apple said it is working closely with its chip suppliers to streamline production and boost profit margins. “We are reducing our lead times and cycle times, so that when you get a chip off of a fab as quickly as possible, it’s in a product and shipping.” Cook said. “And, also helping the fab partners increase their yields.”

Cook also urged congressional passage of proposed U.S. chip legislation designed to promote domestic semiconductor research and production.

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