Apple has $ 6 billion supply chain problem (which may get worse)

Success creates problems. And, not having enough iPhones, Macs, and iPads to sell because you’ve sold so many is a good problem, but it’s a problem nonetheless.

Apple (AAPL) – Get the Apple Inc. has had a pretty amazing past year that has been driven not only by its products but also by its services. CFO Luca Maestri spoke about how strong that performance was during his remarks during the company’s fourth quarter earnings call, starting with growing subscription revenue from Apple.

“We now have over 745 million paid subscriptions through the services of our platform, which is an increase of over 160 million from last year, and nearly five times the number of subscriptions. payloads that we had less than five years ago, ”he said.

Maestri, however, made it clear that revenue from services and subscriptions is only one piece of a very successful puzzle.

“Fiscal ’21 has not only been a great year for services, but for our entire business,” he said. “Over the past 12 months, we have grown our business by 33% or $ 91 billion, reaching nearly $ 366 billion in revenue with record performance across all areas. Each product category and geographic segment set a new annual sales record and increased by at least 20% from fiscal 2020. “

These are incredible numbers, but this level of success has created its own set of problems, which have been made worse by the pandemic.

Apple lost $ 6 billion in sales

Tim Cook doesn’t pull his punches or try to bury bad news. He was very blunt about Apple’s supply chain issues and their impact on bottom lines during his remarks on the results call.

“If you look at the fourth quarter for a moment, we had about $ 6 billion in supply constraints and that affected the iPhone, iPad and Mac,” Cook said. “We had – there were two causes for them for the fourth quarter. One was the chip shortages which you have heard a lot about from many different companies in the industry. And the second was the COVID-related manufacturing disruptions in Southeast Asia. ”

Cook has had both good news and bad news when it comes to what he expects to do with his company’s supply chain going forward.

The second of these, COVID-related disruption improved dramatically in October until we are now. And so for this quarter, we believe the main cause of supply chain related shortages will be the chip shortage. It will affect – I – it will affect, should I say, just about most of our products right now. And – but demand-wise, demand is very robust. And so, part of it is that the demand is also very high. But we believe that at the end of the quarter, the constraints will be greater than the $ 6 billion we experienced in the fourth quarter.

If you can’t get chips, you can’t make iPhones, iPads, and Macs. Apple’s problem is that consumers want its products – and that’s a really happy problem – but at some point consumers need a phone, a laptop. , or a tablet and lack of availability could result in sales elsewhere.

How does Apple deal with its supply chain issues?

Cook was not overly specific in explaining how the company plans to solve its supply chain issues, but offered a lot of color on its overall approach and thoughts on supply chain constraints.

I feel like we’ve made great strides on COVID-related disruption. And that happened during the month of October and we’re in a noticeably better position today. It’s hard to predict COVID, so I won’t predict where it’s going. But I can just tell you that to this day we are in a materially better position than in September and the first few weeks of October.

He offered a more direct analysis regarding the chip shortage. but he stopped before saying when the problems would be resolved.

In terms of chip shortage, this chip shortage occurs on legacy nodes mostly with lower supply. And it’s hard to predict when those things will balance out because you’d have to know how – how the economy will be in 2022 and how accurate everyone else’s demand projections will be. And so, I don’t feel comfortable making a prediction. I think that would be, you know, subject to too many inaccuracies.

The CEO also praised the way his team has responded to the ongoing issues.

“I feel very comfortable with our operational team,” he said. “I think we have a world class one and I’m sure they’re doing all they can to reduce cycle times and improve returns and do whatever you can do besides an investment of fundamental capacity to remedy the situation. “

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