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Apple Has a $6 Billion Supply Chain Problem (That May Get Worse)

The iPhone and Mac maker has seen its business grow by a third over the past 12 months.

Success creates problems. And, not having enough iPhones, Macs, and iPads to sell because you have sold so many counts as a good problem, but it's a problem nonetheless. 

Apple (AAPL) - Get Apple Inc. Report had a pretty amazing past year which was driven not just by its products, but also its services. CFO Luca Maestri laid out just how strong that performance was during his remarks in the company's fourth-quarter earnings call, starting with Apple's growing subscription revenue.

"We now have more than 745 million paid subscriptions across the services on our platform, which is up more than 160 million from last year, and nearly five times the number of paid subscriptions we had less than five years ago," he said.

Maestri, however, made it clear that service revenues and subscriptions were only one piece of a very successful puzzle.

"Fiscal '21 was not only a big year for services but for our entire company," he said. "During the past 12 months, we grew our business by 33 percent or $91 billion, reaching nearly $366 billion of revenue with record-level performance across the board. Every product category and every geographic segment set a new annual revenue record and was up at least 20% over fiscal 2020."

Those are incredible numbers, but that level of success has created its own set of problems, which have been compounded by the pandemic.

Apple Lost $6 Billion In Sales

Tim Cook does not pull his punches or try to bury the bad news. He was very direct about Apple's supply chain issues and their impact on the bottom line during his remarks in the earnings call.

"If you look at Q4 for a moment, we had about $6 billion in supply constraints and it affected the iPhone the iPad, and the Mac," Cook said. "We had -- there were two causes of them for Q4. 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." 

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Cook had both good news and bad news when it came to what he expects to happen with his company's supply chain going forward.

The second of those, the COVID disruptions have improved materially across October to where we currently are. And so for this quarter, we think that the primary cause of supply chain-related shortages will be the chip shortage. It will affect -- I -- it is affecting I should say pretty much most of our products currently. And -- but from a demand point of view, demand is very robust. And so, part of this is that demand also is very strong. But we believe that by the time we finish the quarter that the constraints will be larger than the $6 billion that we experienced in Q4.

If you can't get chips you can't manufacture iPhones, iPads, and Macs., Apple's problem comes because consumers want its products -- and that's a really happy problem -- but, at some point, consumers need a phone, laptop, or tablet and lack of availability could drive sales elsewhere.

How Is Apple Handling Its Supply Chain Woes?

Cook wasn't overly specific in explaining how the company plans to solve its supply chain challenges, but he offered a lot of color on its broad approach and his thoughts on supply chain constraints.

I feel like we've made great progress on the COVID-related disruptions. And that happened across the month of October and we're in a materially better position today. It is difficult to predict COVID, and so I'm not going to predict where it goes. But I can just tell you that as of today, we're in a materially better position than we were in September and in the first several weeks of October.

He offered more direct analysis when it comes to the chip shortage,. but he stopped short of saying when the issues would be resolved.

In terms of the chip shortage, that chip shortage is happening on legacy nodes, primarily with bottom supply. And it's difficult to forecast when those things will balance because you'd have to know how -- kind of how the economy is going to be in 2022 and the accuracy of everyone else's demand projections. And so, I don't feel comfortable in making a prediction. I think it would be, you know, would be subject to too much inaccuracy.

The CEO was also effusive in his praise for how his team has reacted to the ongoing issues.

"I do feel very comfortable with our operational team," he said. "I think we've got a world-class one and I'm sure they're doing everything they can do to collapse cycle times and improve yields and do all the things that you can do in addition to fundamental capacity investment to remedy the situation."