Apple said that a global chip shortage that has already impeded the production of Ford's F-150, Sony's Playstation 5, and a wide range of other consumer goods would will start to impact its flagship iPhone.
On a recent earnings call with analysts, Apple executives warned of worsening supply constraints for chips that will predominately affect sales of iPhones and iPads in the fourth quarter ending in September. Apple has been handicapped in recent months by a limited supply of chips that it needs to assemble Macs and iPads. While the fallout from the global chip shortage was less severe than it feared over the last quarter, executives said the supply gap will widen in the fourth quarter of 2021.
CEO Tim Cook said the chips primarily affected by the supply constraints are based on legacy nodes and are used as supporting parts in its iPhone. Consumer electronics giants such as Apple have been limited in their ability to buy power management ICs (PMICs) used to prolong battery life in the devices, display drivers that control brightness and color levels on a phone's screen, and radio frequency ICs that amplify or filter out radio transmissions on cellular networks in recent months.
These types of chips are based on mature technology nodes such as 40-, 90-, and 180-nm. They tend to be manufactured in 200-mm fabs that industry insiders have warned have been overloaded with orders.
Apple is not experiencing serious issues with the supply chain for chips based on more advanced nodes, Cook said. For more than a decade, Apple has designed the A-series SoCs at the heart of its iPhone and iPad, with the A14 in the iPhone 12 mass-produced on TSMC's 5-nm node. Last year, the company also dropped the Intel processors in its Macs in favor of its custom M1 processor, which is also used in the latest iPad Pro tablet. Apple has long been at the front of the line for TSMC's most advanced offerings.
Today, a smartphone contains hundreds to thousands of parts, ranging from advanced 5G modems to power management ICs to capacitors and other electronic components. But even if you have everything else, a single component can shut down production if it is out of stock and alternatives are unavailable. Without a $1 display driver, it can be impossible to roll out a $1,000-plus smartphone, laptop, or tablet.
While it's fighting over the same limited supply of parts as many of its competitors, Apple also said that some of its struggles are self-inflicted. Apple executives said it has also faced shortages as a result of stronger than forecast demand for its hardware. "We do have some shortages where the demand has been so great and so beyond our own expectations that it has been difficult to get the entire set of parts within the lead times that we try to get," Cook said.
Apple said sales jumped to $81.4 billion in the third quarter, buoyed by consumers upgrading to 5G phones, including the premium iPhone 12 Pro, as well as people buying into the product line for the first time. Apple reported all of its product lines improved by double-digits last quarter, with iPhone sales rising by 49% year on year to $39.57 billion. Furthermore, net income rose 36% to $21.74 billion, or $1.30 per share. Sales of iPads and Macs came to $7.37 billion and $8.24 billion, respectively.
Apple executives said sales could have been even better if not for the component shortages that largely affected its Mac computers and iPad tablets. Apple's CFO Luca Maestri warned the global chip shortage would get worse in the fourth quarter of 2021, weighing on sales from its iPad and iPhone lines.
In April, Apple executives said the global chip shortage would hold back its sales by around $3 billion to $4 billion, primarily limited to its iPad and Mac product lineups. "We were able to mitigate some of those constraints during the June quarter," Apple's CFO said , adding that the impact on revenue was "slightly below" the lower end of that range. "But we expect that number to be higher for the September quarter."
Globally, the electronics industry is in the throes of a major chip shortage. Many companies are having trouble buying chips in the wake of soaring demand for game consoles, personal computers, and other consumer devices, which has also sapped the supply of parts to major automakers and other sectors. A series of factory closures—due to a prolonged drought in Taiwan, a power outage in Texas, a major fire at a semiconductor fab in Japan, and new outbreaks of the coronavirus—has exacerbated the situation.
Supply constraints also persist for substrates used to package delicate chips into tougher housings and blank discs of silicon as well as other raw materials used to manufacture chips of all types. Furthermore, lead times for assembling, testing, and packaging chips into finished products are longer than usual. On top of that, bottlenecks are also throttling the supply chain for high-end machines used in chip factories.
But industry analysts have warned that semiconductor makers lack the flexibility to turn things around in the short term. A full recovery may be more than a year out as demand for chips remains at record highs.
Intel CEO Pat Gelsinger said the global chip shortage is likely to continue into 2022 and potentially into 2023, while AMD CEO Lisa Su is seeing the supply chain improving. Texas Instruments and other firms are staying out of the debate. “While I expect the shortages to bottom out in the second half, it will take another one to two years before the sector is able to completely catch up with demand,” Gelsinger said.
Apple declined to speculate whether the shortages affecting iPhone production will last into the first quarter. “In terms of supply constraints and how they will last, I don’t want to predict that today,” Cook said.
“We’re going to take it sort of one quarter at a time."