Apple Forecasts Worsening Supply Constraints, Slowing Growth Rate

All of Apple’s product lines saw double-digit revenue growth during its latest quarter, but products such as the iPad and iPhone could be more severely impacted by component shortages during the current quarter, Apple executives said Tuesday.

While Apple’s revenue surged 36 percent during its latest quarter, year-over-year, the growth is expected to face a slowdown for the current quarter due in part to increased supply constraints, Apple executives said Tuesday.

Compared to Apple’s third quarter of fiscal 2021, ended June 26, “we expect supply constraints during the September quarter to be greater,” CFO Luca Maestri said Tuesday during the company’s quarterly call with analysts.

The disclosure was the latest indicator that suggests a worsening of the global shortage of processors and other components. While processor supply issues have been impacting the industry for several years, surging demand for devices during the pandemic has made supplies even tighter.

[Related: Apple, Dell Make Gains In U.S. PC Market In Q2: Gartner]

Apple had previously been anticipating an impact of between $3 billion and $4 billion on its fiscal Q3 results from supply constraints, but the impact came in slightly below the bottom end of the range, Maestri said.

However, supply issues are expected to worsen during the company’s fiscal fourth quarter, he said—with the constraints expected to “primarily” affect the iPhone and iPad.

For the September quarter, “we expect very strong double-digit, year-over-year revenue growth … [But] we expect revenue growth to be lower than our June quarter year-over-year growth of 36 percent,” Maestri said.

The component shortage is among the factors behind the expected slowdown, as are foreign exchange impacts and services growth returning to a “more typical” level, he said.

When asked by an analyst what the December quarter might look like in terms of supply constraints, Apple CEO Tim Cook said he couldn’t offer a prediction and that the company is taking things “one quarter at a time.”

In response to a later question, Cook said that “legacy” processor components are “where the supply constraints have been on silicon.” By contrast, the “latest” processor technologies used in some Apple products “have not been as much of an issue,” Cook said.

Despite the shortages, revenue for Apple’s fiscal third quarter reached $81.43 billion—a record for the company’s June quarter—up 36.4 percent from $59.69 billion during the same period a year earlier.

The Mac business also set a June quarter revenue record in spite of supply constraints, Maestri said. Mac sales climbed 16 percent year-over-year to $8.24 billion during the quarter, which included the launch of a redesigned iMac desktop featuring Apple’s high-performance M1 processor.

Apple saw a “great response” to the new iMac during the quarter, Cook said. Overall, “the response to the M1 has been unbelievable,” he said during the quarterly call on Tuesday.

Maestri, meanwhile, said that the past four quarters have been the “best four quarters ever” for the Mac business. He touted growing demand for M1-powered versions of the MacBook Pro and MacBook Air, including from businesses.

Enterprise customers are responding positively to the capabilities of the M1-powered Macs including around performance, battery life and security, Maestri said. Insurance firm MassMutual, for instance, is now offering M1 MacBook Pros to all of its employees and equipping all conference rooms with M1 Mac Minis in preparation for the return to the office, he said.

Apple is nearly nine months into its two-year transition away from using Intel processors in the Mac.

Jerry Zigmont, owner of MacWorks, an Apple consultancy in New Haven, Conn., said that the M1-powered Macs have been popular with certain customers so far. But for customers that have pro-level performance needs, Zigmont has been advising them to wait for Macs featuring Apple’s next-generation processor technology and potentially up to 32 GB of RAM. The M1 Macs can only be configured with up to 16 GB of RAM.

“I love the M1s and I think that they’re a game changer for Apple. But we’re telling a lot of people to wait,” Zigmont told CRN.

The impact of component shortages on the forthcoming Macs is also a major concern, he said.

“I think there will be huge demand [for the next-generation Macs], and I think it’s just a question of whether they’ll be able to fulfill that demand,” Zigmont said.

Ultimately though, Zigmont said he thinks that the “growth potential is huge” for Macs with Apple-developed chips, especially given the success of the first-generation models.

“I think these M1s have proven themselves to be extremely reliable, extremely fast, extremely dependable,” he said. “I’ve had no complaints at all from our clients—other than that they want more RAM and more ports.”

Apple is planning to begin manufacturing of the next MacBook Pro models during the current quarter, though sales may not start until the fall, well-known Apple analyst Ming-Chi Kuo of TF International Securities has reported.

For Apple’s iPad business, revenue during the company’s fiscal Q3 rose 12 percent to $7.37 billion. In April, Apple extended the M1 into the iPad lineup for the first time, with the chip powering a refreshed version of the iPad Pro. Customer response “has been outstanding to the new iPad Pro,” Maestri said.

Combining the recent sales in Apple’s iPad and Mac businesses adds up to the size of a Fortune 50 company, he said.

Apple’s strongest growth during its latest quarter came in its largest business, the iPhone, which spiked 50 percent from the year before to reach revenue of $39.57 billion during the quarter. Apple has been seeing “very high demand” for the 5G-enabled iPhone 12 lineup, Maestri said.

Cupertino, Calif.-based Apple also saw strong growth during the quarter in its Services business (up 33 percent year-over-year to $17.49 billion) and in its Wearables, Home and Accessories business (up 36 percent to $8.78 billion).

Net income for Apple’s fiscal Q3 reached $21.74 billion, or earnings of $1.30 per diluted share. That was up from net income of $11.25 billion, or earnings of 65 cents per diluted share, a year earlier.

During the quarterly call, Cook also responded to a question from an analyst about chipmaker Nvidia’s planned $40 billion acquisition of Arm, which provides silicon designs that Apple uses for its in-house processors. “I think that that acquisition has lots of questions that people are asking—and I’ll leave that up to everyone else,” he said.