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The chip shortage has finally come for Apple

·Technology Editor
·5 min read
In this article:
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Apple (AAPL) has seemingly been the only business that hasn’t been impacted by the ongoing global chip shortage. Until now. On Wednesday, the company announced that its revenue in the June quarter could take a $3 billion to $4 billion hit as a result of the semiconductor crisis.

Apple had a blow-out Q2, with the company reporting an incredible 54% year-over-year jump in revenue on strong hardware sales across the board. We’re talking incredible sales performance from the iPad and Mac businesses in addition to its signature product, the iPhone.

But it’s the iPad and Mac segments, which both launched new products during Apple’s “Spring Loaded” event this month, that will take the brunt of the shortfall, CEO Tim Cook said during the company’s Q2 conference call.

“Apple had an incredible first quarter and was one of the few vendors who appeared to get as many chips as they needed,” Moor Insights and Strategy president Patrick Moorhead told Yahoo Finance. “So I'm not surprised that the company indicated it could be an issue moving forward.”

Apple was prepared

Apple, according to IDC, is the largest smartphone maker on Earth, controlling 23.4% of the global market share as of Q4 2020. And in November, the company launched its new MacBook Air, MacBook Pro, and Mac mini, refreshing even more of its hardware lineup.

Apple CEO Tim Cook speaks via video conference during a hearing of the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law on
Apple CEO Tim Cook speaks via video conference during a hearing of the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law on "Online Platforms and Market Power", in the Rayburn House office Building on Capitol Hill, in Washington, U.S., July 29, 2020. Graeme Jennings/Pool via REUTERS

Despite requiring such a huge number of chips for those products, the company managed to avoid any sales slowdowns caused by the crisis. Mac and iPad sales were also incredibly strong in Q2, an especially impressive feat considering that increased numbers of people working and learning from home could have put pressure on its supply chain.

According to Apple's CEO, it all came down to preparedness.

“You wind up collapsing all of your buffers and offsets,” Cook said during the company’s earnings call. “And that happens all the way through the supply chain. And so that enables you to go a bit higher than what we were expecting to sell when we went into the quarter 90 days ago.”

But preparation can only go so far when chip makers around the world are struggling to keep up with pandemic-driven demand for consumer tech products. A prime example of that is Samsung. The world’s second largest smartphone maker, and biggest chip manufacturer, the company announced in March that it may have to delay the launch of its upcoming Galaxy Note phone due to the semiconductor crisis.

In total, an incredible 169 industries are impacted by the shortage, according to Goldman Sachs.

Analysts are still high on Apple

Despite Apple’s warning, Wall Street analysts are still high on the company. Wedbush’s Dan Ives, for instance, downplayed chip shortage’s impact on Apple in a research note following the company’s Q2 earnings announcement.

“Of course chip shortages will have a headwind for the next few quarters (roughly $3 billion to $4 billion headwind in the June quarter) for Apple like every technology/automotive player, but the reality is this product cycle is enabling Cook & Co. to achieve its next level of growth and monetization looking ahead,” Ives wrote.

Oppenheimer’s Martin Yang offered an equally positive outlook despite the processor shortage.

“The growth we saw in F2Q21 will prove hard to repeat as tailwinds moderate and chip shortages hurt Mac/iPads in coming quarters,” Yang wrote in a research note. “However, we see Apple as a core holding for long-term investors, based on [confidence] over its competitive moat and sustainable growth spanning product cycles.”

It looks as though Apple will continue to escape the worst of the chip shortage going forward. The Mac and iPad businesses, though integral to the company’s Q2 performance, aren’t Apple’s bread winners. That would be the iPhone, which accounted for 53% of the tech giant’s total Q2 revenue.

If the chip shortage starts to impact sales of the iPhone, analysts may start to sing a different tune. But so far, Apple has managed to stay ahead of the game. And it’s reaping the benefits.

It’s not just hardware sales that are garnering attention, though. Apple’s Services business also performed incredibly well in Q2, generation $16.9 billion in revenue. And subscriber numbers continue to grow.

“They now have 660 million [services] subscribers, and recall that the last number they gave us was 1 billion active iPhone users,” Needham analyst Laura Martin told Yahoo Finance Live, adding that means a majority of iPhone owners sign up for at least one Apple subscription service. "Once you take some kind of service from Apple it’s harder and harder to leave the iOS ecosystem."

And that bodes well for Apple’s future, because the more services it has you locked in on, the more likely you are to keep coming back.

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Got a tip? Email Daniel Howley at dhowley@yahoofinance.com over via encrypted mail at danielphowley@protonmail.com, and follow him on Twitter at @DanielHowley.

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