Following disappointing third-quarter results, and the company’s warnings about the next quarter, Apple shares fell by as much as 5% yesterday (Oct. 27). Its value dropped by more than $126 billion, leaving an opening for Microsoft to overtake its market cap.
Apple has faced serious supply-chain problems, while Microsoft has cashed in on the pandemic-induced demand for cloud-based services—its stock has rallied 45% this year.
How did supply issues affect Apple?
Apple’s supply-chain troubles are big—as big as $6 billion, to be specific.
That’s how much “larger than expected” supply issues cost the iPhone maker in the June to September quarter, CEO Tim Cook told CNBC. “The supply constraints were driven by the industry-wide chip shortages that have been talked about a lot, and covid-related manufacturing disruptions in southeast Asia,” he said.
For a while, Apple escaped the worst of the shortages, owing to solid planning and ample buffers. But eventually, the crunch did hit the company—especially as demand for its new iPhones shot up faster than it could bolster its supply chain. In the middle of the year, Apple had to slash iPhone 13 sales goals by 10 million.
The worst of it isn’t even over yet. Apple expects a bigger hit from supply chain issues in the last three months of 2021, it said during its earnings call on Thursday (Oct. 29).
But there’s considerable solace in the fact that Apple also expects the current quarter, including the biggest global holiday season and ending in December, to be the company’s largest ever in terms of revenue.
Over the last year and a half, as people have stayed home, demand grew for gaming consoles, personal computers, and other consumer devices. Factories closed because of covid, among a string of other reasons for the chip shortage—Taiwan’s worst drought in 50 years, power outages across Texas, and a major fire at a semiconductor factory in Japan.
Apple’s iPhone sales keep rising
In the quarter ending Sept. 30, Apple posted revenue of $83.4 billion, up 29% year-over-year. Its sales climbed across all segments—services, Mac and iPad—and the highest share came from its flagship iPhones.
Globally, Apple climbed up to second place on the smartphones chart with 49.2 million iPhone sales between June and September, data from Canalys show.
The iPhone 13 has “proved a compelling upgrade, with better cameras, battery life and, of course, 5G,” says Canalys research analyst Le Xuan Chiew. Pre-orders for the device were high, and unlike last year, Apple’s retail stores were open so foot traffic was also driving sales. Factors like growing enterprise channels for all its devices and services, and currying favor with network operators to get iPhones prioritized in their portfolios, have also helped, Chiew said.
And the giant will likely get supply pressures under control. “Apple is a sourcing powerhouse,’ says Chiew. “Its high-end devices make it less exposed than many competitors, and it will be aiming for the number one spot next quarter.”
Apple’s stock market value first overtook Microsoft’s in 2010, three years after the first iPhone released. The two companies have taken turns being Wall Street’s most valuable company, with Apple riding consumer sentiment waves, and Microsoft’s surges being driven by enterprise successes.