Apple’s billion dollar component nosebleed


Apple shared the dark side of digital transformation during the then pandemic when it confirmed this week that component shortages will affect its business. The distress signal arrived during the company’s third quarter earnings call.

A multibillion dollar nosebleed

Apple CFO Luca Maestri said supply constraints would affect the company’s revenue to the tune of $ 3-4 billion, though he still predicts double-digit growth for the company . But increased demand for Apple products combined with global semiconductor shortages means that supply will be limited. While to some extent it’s a good problem to have, it’s still an issue Apple needs to fix.

“It’s remarkable that the last four quarters for Mac have been its best four quarters of all time,” Maestri said.

Low-end technology

Apple designs its own processors in the A and M series chips, but these do not appear to be the chips causing the problem. Instead, the challenge is to find less advanced chips for things like displays, ports, and audio. (No wonder Apple plans to use its own chips in future monitors.)

“The majority of the constraints that we see are of the variety that I think others are seeing, which I would characterize as an industry shortage,” said Apple CEO Tim Cook.

Apple is also experiencing a supply / demand imbalance as iPhones, iPads and Macs roll off (usually virtual) shelves.

The move to remote work (at least in most well-meaning businesses) results in a rapid replacement cycle, especially since many existing PCs are at the end of their life at this point. “We have a few shortages on top of that, where the demand has been so great and so beyond our own expectations that it’s difficult to get all of the parts on the timeline that we’re trying to get. . “

The world (digitally) transformed

While much of the problem has been created by the worsening trade relationship between the United States and China, it is also true that there has never been so much demand for less advanced processors. These see rapid deployment everywhere, from the use of drones for tracking livestock to monitoring infrastructure to smart devices in smart homes. Medical equipment, vehicles, and even some cables contain low-end chips.

Apple mentioned three different companies investing in new technology for this new world during the tax appeal:

  • MassMutual offers MacBook Pros M1 to all its employees and equips all conference rooms with Mac minis M1.
  • Italgas, Italy’s largest natural gas company, is replacing every employee’s Windows laptop with a MacBook Air M1.
  • In Southeast Asia, Grab is deploying Mac M1s throughout the company.

The need to work remotely during the pandemic has quickly accelerated the current trend of digital transformation as businesses of all stripes seek to put intelligence into their businesses – both for profit and short-term efficiency. and to allow remote management of these assets.

This is clearly what is happening.

The Semiconductor Industry Association (SIA) predicts that global semiconductor sales will generate $ 527.2 billion this year (up 19.7%). SIA Chairman and CEO John Neuffer said: “The global chip market is expected to grow dramatically in 2021 and 2022, as semiconductors increasingly become part of the breakthrough technologies of today and tomorrow. .

But transformation is not universally available

For businesses, this makes it even more vital that any project to inject intelligence into existing parts of the business is credibly thought through before action takes place; in this environment, a failed digital transformation project will be even more costly.

It also creates a new barrier to universality, as, as the cost of connected solutions inevitably increases, small businesses will be prevented from exploiting digital opportunities, thereby generating more benefits for large businesses.

What’s also interesting about this is that lack of access to processors can hamper innovation.

Apple did not say at all whether processor shortages delayed any of its product release plans, but there was strong speculation that it could introduce new MacBook Pro models at WWDC last month. . This did not happen, which begs the question: Was this non-appearance based on these constraints?

Will the offer hold back innovation?

In a way, it doesn’t matter too much; Apple ships the products when they are ready. It’s a new consensus that with the introduction of new Macs and new M-series processor models, we’re seeing a performance renaissance on the platform. But what might matter is the extent to which Apple’s broader plans are affected by these shortages, especially the long-awaited Apple Glass product that we expect / don’t expect / hope to see the light of day in 2022. .

Apple has most likely already taken steps to resolve the issue. The company has a roadmap for launching its products, and as a product-driven company, senior management will already be working with manufacturing partners to create alternative supply chains. There is an opportunity to be unlocked in such an investment, as new facilities may use new technologies (especially around rare earth recycling) as Apple continues its efforts to develop closed-loop manufacturing processes and go neutral. in carbon throughout its supply chain by 2030..

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Copyright © 2021 IDG Communications, Inc.

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