Mac sales are hard-hit by supply Constraints

The Mac Studio desktop, Studio Display, M1-powered iPad Air, and the latest iPhone SE went on sale back in March. In addition, apple has a “flood” of new products in the pipeline for the fall and extending into 2023.

Apple narrowly outperformed Wall Street anticipations with its Q3 earnings on Thursday afternoon, saying a slight year-over-year increase in iPhone revenue and a 12 percent jump for its services division.

The company’s numbers sagged: Mac revenues were down by 10 percent — a drop that CEO Tim Cook attributed to supply chain constraints and unfavorable foreign exchange rates. But it also matches an industry-wide trend of PC sales being on the decline.

Apple released a redesigned MacBook Air powered by the company’s M2 chip — but that didn’t factor into this quarter’s results. The new Air followed the upgraded 13-inch MacBook Pro launch in June.

Wearables revenue was down around 8 percent, while the iPad unit fell by 2 percent. Overall, Apple Mac still managed to set a June quarter revenue record, taking in $83 billion with earnings per share of $1.20.

For its 2022 lineup of new iPhones, Apple is rumored to be preparing not one but two large, 6.7-inch devices. These will be the iPhone 14 Pro Max and an iPhone 14 model with fewer frills. The usual pair of 6.1-inch phones: iPhone 14 Pro and iPhone 14. However, the mini-sized iPhone will not be part of this year’s updates. Instead, the new phones will feature upgraded cameras, with the top-tier Pro models gaining a faster processor and redesigned, smaller screen cutouts for Face ID and the selfie camera.

Apple is continuing the development of its next wave of major software updates for the iPhone, iPad, Mac, Apple Watch, and Apple TV. iOS / iPadOS 16, macOS Ventura, and other updates are currently in public beta testing ahead of a wide release to all consumers in the fall. The iPhone release will include:

  • New lock screen customization capabilities
  • The option to edit or unsend messages

Despite a triumphant vaccination rollout, the effects of the COVID-19 pandemic are still being handled across different industries, especially those reliant on semiconductors. Supply chain issues are widespread, with the current chip shortage holding up production and denting sales. Semiconductors or chips are crucial in manufacturing consumer electronics such as smartphones, cameras, and computers. In cars, they are required for everything from entertainment systems to power steering. The supply crunch and shortage of chips have forced car manufacturers to cut production and delivery targets and have led to several profit warnings.

J.P. Morgan Research examines how the chip shortage impacts automakers, the “perfect storm” causing it, and the path forward for the auto and auto parts industries.

The existing chip shortage is due to strong demand and no supply. It stemmed from COVID-19 lockdowns in the second quarter (Q2) of 2020, when demand for work-from-home technology increased exponentially.

Globally the circumstances in Q3 this year have been affected by delays at critical suppliers, such as Japanese semiconductor manufacturer Renesas. However, manufacturing capacity has now been restored. In addition, the Delta variant has adversely impacted downstream operations in South Asia in recent months, adding to the problem and creating further bottlenecks in the supply chain.

Apple Mac

Malaysia serves many “back-end” operations, such as chip packaging and testing, which is more grind intensive than wafer fabrication processes. Hence, activity is more easily influenced by public health measures. It seems likely that for the second half of 2021, the impact could be in the capacity of 3.6 and 2.6 million (m) units, respectively, obtaining the full year disruption to more than 10m units.

BMW predicts chip supply to remain tight for another 6-12 months, with supply chain restrictions lasting well into 2022. In addition, Toyota Motor announced a 40% cut in car and truck production worldwide in October due to complications from a deficiency of computer chips and COVID-19 restrictions affecting the presentation of parts in Southeast Asia. Honda has also expressed its production lines in Japan are operating at 40% of its initial strategy for August-September. In October, the group was conducting 30% below previous projects.

The supply situation should start to improve in 2022. Semiconductor companies are in a remarkable position, constrained by supply, not demand. Semiconductor companies protected by J.P. Morgan Research have very elevated book-to-bill in the end demand, showing strong demand. They are significantly growing capital expenditure (CAPEX) to satisfy this demand.

As the chip endeavor is a cyclical sector, the current period of constant shortages suggests there will be a time of oversupply at some point in the future. Autos also generally need older chips, and capacity in this sector won’t come on stream until the end of 2022. Based on the current timing of ability ramping, the before broad-based oversupply of auto semiconductors would be at some juncture in 2023, according to J.P. Morgan calculations.   

Semiconductor capacity takes time to build, which affects supply, production, and inventories. However, we acknowledge that though the news flow is still concentrating on capacity shortages, later this year, this will begin to move, and auto companies will indicate that supply is enhancing.