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Apple boasts of record quarter, but warns supply shortages will get worse before they get better

'The road to recovery will be a winding one' Cook predicts

Apple reported record revenue in Q3 of its fiscal 2021, but admitted it is being hit by industry-wide component shortages – and things are only going to worsen in the quarter to come, costing the company billions of dollars.

Cupertino's latest financials for the three months ended 26 June paint a rosy picture, with revenue up 36 per cent year-on-year to a record $81.4bn on a healthy gross margin of 43.3 per cent. A big chunk of that came from the company's high-margin services arm – cloud, music, video, advertising, payments, and more – which saw sales jump to $17.5bn, including cash from over 700 million paid subscribers.

iPhone accounted for almost half of Apple's total revenues, jumping 50 per cent on the year-ago quarter to $39.57bn. "Customers love iPhone 12 for its superfast 5G speeds, A14 Bionic chip and Adobe vision camera never seen before in a phone," trilled CEO Tim Cook.

Mac revenues grew 16 per cent to $8.23bn and the iPad was up 12 per cent to $7.36bn, despite what CFO Luca Maestri called "significant supply constraints" hitting both product lines – a story heard across the industry, with Microsoft having blamed the same for the weaker results delivered by its Surface range in the quarter just ended.

Those constraints won't be ending any time soon, either. "We expect supply constraints during the September quarter to be greater than what we experienced during the June quarter," Maestri warned investors on the call. "The constraints will primarily impact iPhone and iPad.

"Back when we talked here three months ago, we said that we were expecting supply constraints for the June quarter between $3bn and $4bn, primarily [on] iPad and Mac. We were able to mitigate some of those constraints during the June quarter, and so we came in at a number that was slightly below the low end of that range. But we expect that number to be higher for the September quarter."

Head honcho Cook, however, had a brighter spin on things – pointing to a decline in component costs even as the industry struggles to meet demand. "In terms of the cost, we're paying more for freight than I would like to pay," the Apple chief said. "But component costs continue, in the aggregate, to decline.

"In terms of supply constraints, and how long they will last, I don't want to predict that today. We're going to take it, sort of, one quarter at a time. And as you would guess we'll do everything we can to mitigate whatever set of circumstances we're dealt."

Most of the constraints Apple has experienced are shared by the wider industry – but not all. "The majority of constraints we're seeing are of the variety that I would classify as industry shortage," Cook claimed, seeing an opportunity to spin constrained supply into a positive for the company. "We do have some shortages, in addition to that, that are where the demand has been so great and so beyond our own expectation that it's difficult to get the entire set of parts within the lead times that we try to get those. So it's a little bit of that as well."

A marketing maestro of spin.

Cook further claimed that semiconductor shortages were primarily on "legacy nodes," with the company's latest parts – including its in-house ARM-based M1 chip – less affected, but did not specifically name any parts or product lines.

Maestri again refused to offer projections for the company's revenue in the coming quarter, blaming "the continued uncertainty around the world in the near-term." What he could offer: expectations of "strong double-digit year-over-year revenue growth," but little chance Apple will hit the 36 per cent growth it saw in the quarter just finished.

"As the last 18-months had demonstrated many times before, progress made is not progress guaranteed," Cook claimed during the call. "An uneven recovery to the pandemic and a Delta variant surging in many countries around the world have shown us, once again, that the road to recovery will be a winding one."

While stating very clearly that "we're all looking forward to a COVID-free world," Maestri offered a positive spin on the pandemic: "During the periods of extreme lockdowns [our] digital services did very well, because entertainment options were limited," he explained. "And so, obviously, our digital services did really, really well. Obviously with more people working from home, more people studying from home, we know that iPad and Mac demand was very, very strong.

"On the other side we had certain services like advertising because of the reduced economic activity, Apple Care because our stores were closed, they were affected negatively. And certain products like the iPhone or the Watch that are maybe more complex types of sales because of the complexity of the transaction."

Apple's share price dropped 1.31 per cent in pre-market trading, after closing down an additional 1.49 per cent. The company did not respond to a request for additional comment. ®

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