Apple couldn’t dodge chip pain forever

Written by eveningindia

For a company that generates more than 80% of its revenue selling gadgets packed with chips, Apple sure has managed to sell a lot of them.

Apple’s fiscal second-quarter results Wednesday afternoon would be remarkable even if not for a global semiconductor production shortage that has hindered other industries like autos. Revenue surged 54% year over year to mark the company’s best growth rate in nine years. iPhone revenue jumped 66% to $47.9 billion while the smaller iPad and Mac businesses notched even higher growth rates.

Easy comparisons were a big help; the original coronavirus outbreak in China hobbled Apple’s manufacturing and sales in that country beginning last January, making Apple the first among its big tech peers to feel the pandemic’s impact directly.

It also helps that investors have reset their expectations a bit. Apple’s share price has slipped 6% since its last report three months ago. It also has been among the weakest performers among large-cap tech companies this year, gaining less than 1%, versus a 9% rise by the Nasdaq Composite. The stock still trades around 30 times forward earnings—near the high end of its historic range. But that multiple has slipped about 14% since the last report. Apple’s share price rose about 2% following Wednesday’s release.

Yet even Apple’s noted procurement prowess can’t score the company enough chips in such a tight market. Apple refuses to project revenue for the quarter at hand, but Chief Financial Officer Luca Maestri told analysts during the company’s conference call that the sequential revenue decline the company normally experiences during the June quarter would be greater than normal due in part to supply constraints arising from the chip shortage. Those constraints will have a revenue impact of between $3 billion to $4 billion during the period. Apple has averaged a 10% revenue drop between the March and June quarters over the last five years.

That disclosure drives home the harsh realities of the current semiconductor shortage. Apple has the deepest pockets of any chip buyer; trailing 12-month free cash flow has now reached about $84 billion, according to FactSet. It is also becoming a notable chip designer in its own right, having recently displaced Intel from much of its Mac lineup in favor of its in-house processors.

But Apple still depends on a large network of chip manufacturers that are straining to meet demand. Chief Executive Officer Tim Cook noted Wednesday that much of the shortage affecting the company is coming from “legacy nodes”—older manufacturing lines that produce the types of low-price chips for which car makers and other industries are also scrambling. Auto chip maker NXP warned analysts on Tuesday that the “tight supply environment” will persist through the rest of this year.

It is a harsh reality even Apple can’t distort.

This story has been published from a wire agency feed without modifications to the text.

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