apple (AAPL -3.44%) It is one of the largest companies in the world, but this does not prevent it from facing supply chain problems. One of the continuing effects of the coronavirus pandemic is disruption to supply chains. Depending on the region in which the infection rate is high, it can cause varying degrees of underemployment, which then slows economic output, among other negative effects.
On the other hand, consumer demand has been resilient despite the global crisis. With less customers buying more products and supplies, companies like Apple are having a hard time meeting consumer demand. In fact, Apple expects it will lose about $6 billion in sales in the third quarter of the fiscal year because it won’t have the product that meets strong demand.
The epidemic caused a huge increase in sales
Sales to Apple have boomed since the start of the pandemic. People who spend more time learning, entertaining and working from home are looking to Apple’s range of electronic devices to make it all easier. Revenue increased 33% for Apple in 2021. The increase was about $90 billion more than the previous year’s total, to put that in context. It is no simple task to achieve a $90 billion increase in customer demand in one year.
In the first six months of fiscal 2022, Apple maintained this momentum. Revenue in the first two quarters was $221 billion, compared to $201 billion at the same time a year earlier, despite supply chain disruptions that limited Apple’s ability to meet all customer demands. Undoubtedly, sales would have risen by billions, had it not been for the restrictions. To make matters worse, management expects the supply and demand imbalance to continue into the third quarter.
“Supply constraints resulting from disruptions related to COVID and industry-wide silicon shortages are impacting our ability to meet customer demand for our products. We expect these constraints to range from $4 billion to $8 billion, which is significantly greater than what we experienced during the course of the year,” Apple CFO Luca said. Maestri at the company’s conference call following the announcement of second-quarter earnings (for the March quarter).
Fortunately, the most important cause of the shortages – the shutdowns in cities where their suppliers are – has waned and production is back on the rise again. It remains to be seen how long these upheavals will last. Consumers around the world face higher costs for necessities, including food, fuel, and housing. This may cause lower demand for discretionary items such as electronics. Right now, Apple is fortunate to have an insatiable appetite among consumers for its products and services.
The imbalance could partly explain why Apple is boosting gross margins. If you can barely meet the organic demand, there are few reasons to offer discounts, and more Apple sales come at full price. Apple’s gross margin of 41.8% in 2021 was the highest in the past decade, and management expects a gross margin of 42.5% in the middle of the third quarter.
Lack of supplies helps Apple profit
Interestingly, while supply chain shortages have restricted sales, Apple has seized the opportunity to boost profitability. Operating income jumped to $109 billion in 2021, up from $66 billion in 2020, and continued through 2022. As long as Apple can maintain this trend, you don’t have to worry about losing sales due to supply chain shortages.