Unable to escape the supply chain crisis, even Apple is facing a "chip shortage"

On October 18, Apple, the world's most valuable company, finally failed to escape the impact of the supply chain crisis, joining the ranks of more and more large companies, from Toyota to Samsung, that have been forced to scale back their operations due to the global semiconductor shortage. Recently, media reported that Apple may cut its expected production target for the iPhone 13 in 2021 by more than 10 million units.

For months, even as supply shortages rocked electronics, auto manufacturing and a growing number of industries, Apple was able to get enough chips to keep selling its latest gadgets because its supply chain was well managed and held to extremely strict standards. But Apple’s latest setbacks mean hopes are fading that the supply chain crisis is easing.

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“If supply shortages happen to the strongest companies, it can happen to anyone,” said Neil Campling, an analyst at wealth management firm Mirabaud Securities. “These companies have strong capabilities as key customers and can purchase enough semiconductors, and other companies will face more serious problems than them.”

Apple's production cuts are a clear sign that the devastating global supply disruptions are worsening, which could jeopardize the prospects for economic recovery after the COVID-19 pandemic. Almost all major manufacturers have been affected by the lack of key materials such as semiconductors, while being constrained by their inability to get finished products to consumers.

As U.S. President Joe Biden focuses on solving transportation bottlenecks, the congested Port of Los Angeles plans to operate around the clock to cope with cargo shortages.AP Moller-Maersk A/S, the world's largest container shipping company, said it had to divert some ships from Britain's largest container port because of port congestion caused by a shortage of truck drivers.

"Recent complaints from chipmakers suggest that problems are expected to persist," Jim Reid, global head of fundamental credit strategy at Deutsche Bank, wrote in a new research note. This "will complicate central bank decisions in the coming weeks as they grapple with growing supply constraints that are pushing up inflation while threatening to undermine the recovery."

Apple had expected to produce 90 million new iPhones this year but has told manufacturing partners the total will be lower as Broadcom and Texas Instruments struggle to deliver enough components, people familiar with the matter said. Japan Display, which gets more than half of its revenue from Apple, fell 5.6%, joining U.S. suppliers that fell in after-hours trading.

The main reason for the shortage of semiconductor supply is underinvestment for many years, coupled with the failure to predict the explosive growth in demand for networking equipment. Even many industry insiders were surprised. Peter Wennink, CEO of ASML, a Dutch EUV lithography machine manufacturer, said in July that the company underestimated the growth trend of the semiconductor industry in the past 15 years.

The time companies have had to wait for chip orders to be fulfilled has hit a record high for nine consecutive months, suggesting that the semiconductor shortage will continue to plague businesses until 2022, and possibly longer. Global consulting firm AlixPartners estimated last month that the global auto industry will lose about $210 billion in sales in 2021 alone.

Earlier this year, Apple had warned that it would face supply constraints for iPhones and iPads in the third quarter, but it did not lower its internal forecasts at the time. Apple is expected to have its biggest sales blitz yet in the fourth quarter, with revenue of about $120 billion. That would be an increase of about 7% from the same period last year and more than Apple's full-year revenue 10 years ago.

In addition to facing tight supply issues for the iPhone, Apple is also struggling to produce enough Apple Watch Series 7 and other products.

However, many analysts also see opportunities for Apple investors. Morgan Stanley analysts believe: "If Apple cannot meet near-term demand, competitors' supply gaps may become larger, which will create opportunities for its stock price to rise."