Technology

Apple says chip shortage reaches iPhone, growth forecast slows

Chief Executive Tim Cook said the affected chips are made with older technology but are needed to make the company's flagship device.  

Apple Inc said on Tuesday that a global chip shortage that has bit into its ability to sell Macs and iPads will start to affect iPhone production and forecasted slowing revenue growth, sending its shares lower.

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Apple executives said revenue for the current fiscal fourth quarter will grow by double-digits but be below the 36.4% growth rate in the just-ended third quarter. Growth will also slow in Apple's closely watched services business, they said.

In a conference call with investors, Apple executives also said that the global chip shortage had a less severe impact than feared in the company's third quarter but will worsen in the fourth quarter, extending to iPhone production.

Chief Executive Tim Cook said the affected chips are made with older technology but are needed to make the company's flagship device.

"We do have some shortages," Cook said, "where the demand has been so great and so beyond our own expectation that it's difficult to get the entire set of parts within the lead times that we try to get those."

Shares, which have more than doubled in value in about three years, dropped 2.3% to $143.38 in after-hours trading after the call.

Earlier, Apple reported third-quarter sales and profits that beat analyst expectations as consumers bought premium versions of its 5G iPhones and signed up for its subscription services.

Driven by the better-than-expected iPhone sales, total revenue hit $81.43 billion, above analyst expectations of $73.30 billion, according to IBES data from Refinitiv. Apple's profits were $21.74 billion, or $1.30 per share, above estimates of $1.01 per share, according to Refinitiv.

Apple's strongest sales growth came from China, where Cook told Reuters that customers are buying up accessories such as the Apple Watch to pair with their iPhones. China sales grew 58% to $14.76 billion in the fiscal third quarter ended June 26.

"It wasn't just iPhone. We set a new quarterly record for Mac, for wearables, home and accessories, and for services" in China, Cook said in an interview. "It was our strongest geography."

Investors who once worried that Apple was too dependent on sales of the iPhone have pushed the company's value to nearly $2.5 trillion.

"Their main challenge now is keeping up success to justify its +$2 trillion valuation," said Jesse Cohen, a senior analyst at Investing.com.

Apple launched its iPhone 12 models, all of which can connect to faster 5G wireless networks thanks to chips from Qualcomm Inc, later than usual last year. Because that delay pushed some iPhone purchases that would normally happen in the company's fiscal first quarter into the second, executives had warned investors to expect a steeper drop in iPhone sales than usual in the third quarter as consumers start holding back on purchases in anticipation of a new generation of phones this fall.

But impetus to upgrade for 5G appeared to be driving a better buying cycle for iPhones than many analysts expected. Apple said iPhone sales were $39.57 billion, up nearly 50% from a year earlier and above analyst expectations of $34 billion.

Cook told Reuters that Apple's iPhone 12 Pro and 12 Pro Max, the premium tier of the device, were strong sellers. That helped pushed gross margins to 43.3%, above estimates of 41.9%, according to Refinitiv.

The other major driver of Apple's results was its services business, which includes paid subscriptions for television and music as well as its App Store. Services revenue reached a record high of $17.49 billion, up by a third from a year earlier and above analyst expectations of $16.33 billion. Cook told Reuters that Apple now has 700 million subscribers on its various platforms, up from 660 million a quarter earlier.

Chief Financial Officer Luca Maestri told investors that services growth will slow.

"We expect still-significant growth in services but not to the level that we've seen in June," he said on the call.

Cook said Apple set quarterly sales records in many of its first-party services, including its AppleCare hardware insurance plans, which had slowed somewhat during the pandemic when many of the company's retail locations were closed.

Last quarter, Apple had told investors that the global chip shortage could hold back sales by $3 billion to $4 billion.

Cook told Reuters that although Apple was limited in how many Macs and iPads it could sell because of the shortage, the hit to Apple's overall revenue in the third quarter was "lower than the low end" of its previously forecasted range. Sales of iPads and Macs were $7.37 billion and $8.24 billion, compared with analyst expectations of $7.15 billion and $8.07 billion, according to Refinitiv data.

In the longer term, Apple's services business also faces regulatory risks. The company's practice of charging commissions of 15% to 30% to developers who sell in its App Store and requiring them to use Apple's payment system could face scrutiny from regulators in the United States and Europe, where legislators are also proposing laws that could curtail some of Apple's practices.

A ruling is also expected in the coming months in an antitrust lawsuit filed against Apple by "Fortnite" creator Epic Games.


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Printable version | Sep 23, 2021 9:55:04 PM | https://www.thehindu.com/sci-tech/technology/apple-says-chip-shortage-reaches-iphone-growth-forecast-slows/article35575275.ece

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