Apple Warns of Supply-Chain Disruptions as It Reports Record Year-End Results
Investors remain watchful of chip shortages as iPhone maker posts profit of $20.6 billion
Apple Inc. AAPL 2.50% on Thursday reported record year-end results, including a 12-month profit nearing $100 billion, while cautioning that the current quarter will face increased challenges from supply-chain disruptions.
The iPhone maker still expects to see year-over-year revenue growth during the period that ends in December, and includes the important holiday season, Apple Chief Financial Officer Luca Maestri said in an interview.
The company had cautioned this summer that disruptions from a shortage of microprocessors would affect its iPhone line up, but it was worse than expected, he said. The disruptions came from the shortages roiling others and because of an increase in Covid-19 cases in Southeast Asia that affected manufacturing.
Mr. Maestri acknowledged that wait times for some Apple products were longer than the company would like. Supply constraints during the previous quarter hurt revenue by $6 billion, he said, and will be worse in the current period.
“We fully expect to set a new December quarter record for revenue,” he said. “But we also expect the supply constraints will be greater than the $6 billion.…We expect most of our product categories to be constrained during the December quarter.”
Apple had largely avoided a hit to its financial results during the past year as other companies have struggled with shortages of microprocessors, putting the company in a position to benefit from iPhones that offered faster 5G cellular technology for the first time.
But questions loom about the availability of Apple’s newest smartphone, the iPhone 13, which was introduced last month. There are multiweek waits in some areas for delivery of certain models of the phone and other products. Investors are eager to see if the continued allure of 5G technology and new camera capabilities will help fuel another big year.
“Can they deliver the product?” asked Dan Morgan, a senior portfolio manager who focuses on technology at Synovus Trust Co., which counts Apple among its largest holdings. He remains bullish but wants to know if supply chain challenges could affect orders of the iPhone 13, iPad Mini or other products during the holiday season, he said.
In July, Apple cautioned that iPhone sales would be affected during the company’s fiscal fourth quarter, which ended in September, slowing its rate of growth compared with the third quarter when overall revenue rose 36%.
After the market closed, the company reported $20.6 billion in profit for the quarter, or $1.24 a share, up from $12.7 billion a year earlier. Analysts had expected profit of $1.24 a share.
During the first three quarters of its fiscal 2021, from October 2020 through June of this year, Apple earned $74 billion. That is already far more than what was previously its best full year, in fiscal 2018, when the company’s profit totaled $58.5 billion.
Slightly lower-than-expected sales of iPhones resulted in total revenue of $83.4 billion for the fourth quarter, a 29% rise from a year earlier but lower than the $85 billion expected by analysts surveyed by FactSet.
Chief Executive Tim Cook’s success navigating the turbulent waters of the Covid-19 pandemic helped Apple lead other big tech companies in enjoying outsize profits during uncertain times. That success and broader questions about the power of these tech companies have also put them under scrutiny.
Apple emerged mostly unscathed from an antitrust lawsuit in September brought by Epic Games Inc. that centered on its App Store’s role as the gatekeeper for customers on its iPhones and its required in-app payment system that gives it as much as a 30% cut of digital revenue. Apple and Epic are appealing the ruling.
Investors were set to look closely at the company’s service revenue—which includes sales from the App Store and ads sold through its own nascent advertising network—for any signs that its crackdown on third-party software privacy has helped its own ad business. Revenue in the services category rose 26% to $18.28 billion from a year earlier, the company said.
Last quarter was the first full period since Apple introduced changes to its mobile software that required third-party apps to receive user permission to track their usage, a key part of the online ad industry. Facebook Inc. this week reported slower revenue growth attributed to Apple’s changes, while Snapchat’s Snap Inc. cautioned last week that it expected growth to slow for the same reason.
Some investors argue that Apple is naturally going to see a tougher year in fiscal 2022 and, to make their case, they point to previous years that followed the company benefiting from hot iPhone introductions that have resulted in larger than normal results. Others see continued momentum from 5G.
Apple is expected to have delivered a record 238 million iPhones in the past fiscal year, according to analysts’ estimates. They expect 233 million this year. The company doesn’t disclose unit sales but, during the first nine months of the fiscal year, iPhone revenue rose 38% to $153 billion. In the July-to-September quarter, iPhone revenue rose 47% to $38.9 billion, missing the $41 billion expected by analysts.
The strength of Apple’s other products throughout the Covid-19 pandemic has helped fuel record profit. The company has benefited from workers and students at home wanting new laptops and iPad tablets.
Those results continued to grow in the fiscal quarter. Sales of Mac computers rose 1.6% to $9.2 billion, while sales iPads rose 21% to $8.3 billion. Analysts had expected growth of 1.3% for Macs and 6.6% for iPads during the period compared with a year ago.
Since the pandemic began, disrupting normal operations, Apple has stopped giving detailed guidance. Still, analysts and investors will be looking closely for any hints dropped by Mr. Cook during the company’s conference call with analysts after earnings are released.
Investors are also looking at how Apple is dealing with rising costs associated with increasing inflation. The newest iPhones didn’t have a starting price jump when revealed in September, though the company has benefited from higher selling prices in part because of deals being offered by cellular phone service providers in the U.S., which are fighting to keep customers.