Apple finally feeling effects of global chip shortage

Apple also announced a US$90 billion share buyback. PHOTO: AFP

SAN FRANCISCO (BLOOMBERG, REUTERS) - Apple's latest quarter was a blockbuster, with soaring revenue, record Mac sales, and stronger-than-anticipated iPhone demand. There was only one major snag: The global chip shortage is finally catching up to the company.

On a call with analysts, chief executive officer Tim Cook and chief financial officer Luca Maestri warned that supply constraints are crimping sales of iPads and Macs, two products that performed especially well during pandemic lockdowns. Mr Maestri said this will knock US$3 billion to US$4 billion (S$4 billion-S$5.3 billion) off revenue during the fiscal third quarter.

The executives blamed "semiconductor shortages that are affecting many industries" and "very, very high" demand for iPads and Macs. Mr Cook said the component shortages were for "legacy nodes," implying the setbacks are for products using older generation processors. He wouldn't specify how long the shortages will last, but noted that Apple did not experience this problem during the previous quarter.

The electronics and automotive industries are among those that have been hurt by chip shortages since last year, when a sudden rebound in orders took the semiconductor industry by surprise. It takes months to ramp up production at chip factories, so demand is still outstripping supply.

Apple had avoided any major impact from this phenomenon, until now. The company recently announced new iMac models and iPad Pros with custom M1 processors, but neither product will begin shipping until the second half of May - an unusually long delay.

Still, the company's main product, the iPhone, seems unscathed at the moment.

Consumers, businesses and schools have been snapping up millions of iPads and Macs for remote work, and Mr Cook suggested on Wednesday that the momentum won't necessarily slow down after the Covid-19 pandemic ends. He said many businesses will shift to hybrid models with employees working at home and in the office. That could support continued demand for the devices.

The tech giant didn't provide specific revenue guidance for the fiscal third quarter. Analysts estimate revenue will top US$68.7 billion, according to data compiled by Bloomberg mostly before Wednesday's results.

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For the fiscal second quarter ended March 27, Apple said sales and profits were US$89.6 billion and US$1.40 per share, compared with estimates of US$77.4 billion and 99 cents per share, according to Refinitiv data.

IPhones were the biggest driver of growth, suggesting consumers are upgrading to 5G, said Haris Anwar, senior analyst at Investing.com.

Sales to China nearly doubled and results topped analyst targets in every category, led by US$6.5 billion (S$8.6 billion) more in iPhone sales than predicted and Mac sales about a third higher than estimates.

Apple also announced a US$90 billion share buyback, a day after Google-owner Alphabet Inc announced a US$50 billion share repurchase plan.

Apple shares rose 2 per cent in extended trading on Wednesday after the results.

While Apple's business is booming, its App Store, one of its fastest-growing businesses, has come under increased antitrust scrutiny because of Apple's in-app payment rules and app review policies.

Facebook warned on Wednesday that growth later this year could "significantly" decline as new Apple privacy policies will make it more difficult to target ads.

In the coming weeks, Apple will defend a high-profile antitrust lawsuit brought by "Fortnite" maker Epic Games, while European Union antitrust regulators are set to chare the company following a complaint by music streaming service Spotify , Reuters reported this week.

Macs and iPads - two product categories that Wall Street rarely counted on to supply growth - both benefited from consumers working from home and remote learning. On top of those trends, Mr Cook said Apple customers were responding strongly to the company's M1 chip, its first in-house processor for Mac computers.

"Both of those things happening at once really supercharged the Mac sales. The last three quarters on Mac have been the strongest three quarters ever in the history of the Mac," Mr Cook told Reuters.

Apple investors are also looking for growth from Apple's accessories business, which includes products like AirPods headphones and its new AirTag trackers, and its services business, which includes its App Store and new offerings such as paid podcasts. Sales in the segments were US$7.8 billion and US$16.9 billion, respectively, versus estimates of US$7.4 billion and US$15.5 billion.

Mr Cook said the company has 660 million paying subscribers on its platform, an increase from the 620 million in the fiscal first quarter.

Shares of Apple are up some 93 per cent over the past year, compared with a 61 per cent rise for the Nasdaq 100 index of which Apple is a component.

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