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Apple Says Supply Chain Woes Cost $6B in Fiscal Q4; Expects Shortages to Get Worse

Apple may be the most valuable U.S. company, but even the clout of its $2.5 trillion market value nor its cash war chest of close to $200 billion were enough to keep the supply chain beast at bay.

This as the Cupertino, California-based tech giant said Thursday afternoon (Oct. 28) that its latest quarterly earnings results took a $6 billion supply chain hit and warned analysts and investors that things were going to get worse before they get better.

“There were two causes for the Q4 [supply constraint hit],” CEO Tim Cook said on the call. “One was the chip shortages that you’ve heard a lot about from many different companies throughout the industry, and the second was COVID-related manufacturing disruptions in Southeast Asia.”

While Cook and Chief Financial Officer Luca Maestri said the COVID disruptions have “improved materially” this month since the company’s Q4 and fiscal year ended Sept. 30, the chip side of the equation has not.

“We estimate that supply constraints will be larger during the December quarter,” Maestri said without offering a specific number, although the impact of the chip shortage is being felt throughout the company.

“So, for this quarter, we think that the primary cause of supply chain-related shortages will be the chip shortage, and it is affecting, I would say, pretty much most of our products currently,” Cook added.

Across the Board Demand

Despite the supply-side headwinds, Apple still managed to deliver 20% growth across all product categories and record sales in all geographies, which Cook said led to record September-quarter revenues of $83.4 billion, a 29% increase from a year ago.

Alongside an all-time record for the newly upgraded Mac, as well as quarterly records for iPhone, iPad, wearables, home and accessories, Apple said its services business also performed better than it expected, where revenues rose 26% to a record $18.3 billion.

“On services, we reached all-time records for cloud services, music, video, advertising, Apple Care and payment services, and a September-quarter record for the App Store,” Maestri said, pointing out that the $68 billion full-year record take for services reflected a tripling of the category in the past six years.

More specifically, Apple said its base of installed users continued to grow, as did customer engagement and paid accounts at its digital content stores, which grew double-digits to more than 745 million paid subscribers, marking a five-fold increase in less than five years.

Bundles, Payment Plans and App Privacy

Cook said that when it comes to buying iPhones, monthly payment plans are still the predominant mode of purchasing in the U.S., while the rest of Apple’s products are most often purchased outright.

“But we are seeing more and more demand for monthly payments, and so we want to give the customer what they want, and so you will see us do more things that will allow us to meet the customer where they want and provide the price that they want, and in a way that they want to pay for it,” Cook said. “I don’t know the percentage of products that are sold that way today, but it is increasing.”

In the wake of Apple’s recent privacy rule changes, which have impacted the earnings and ability of social media companies such as SnapChat to measure user engagement, Cook said he was not worried about any potential blowback causing a slowdown in the growth of the company’s services business.

“The main thing that we’re focused on with the App Store is privacy and security,” Cook said in response to analyst questions, adding those two tenants have produced an environment in which consumers can trust the developers they’re dealing with, while developers get access to a huge audience to sell their software.

“So [privacy and security] is No. 1 on our list, and everything else is a distant second,” said the 10-year tenured CEO who will turn 61 on Nov. 1.

“What we’re doing is working to explain the decisions that we’ve made,” Cook said. “And we’re also very, very focused on discussing the privacy and security elements of the App Store with regulators and legislators.”

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