Apple shared the dark side of digital transformation during then pandemic when it confirmed this week that component shortages will affect its business. The distress signal came during the company’s Q3 results call.
A multi-billion dollar nose bleed
Apple CFO Luca Maestri said supply constraints would affect company revenue to the tune of $3 billion to $4 billion, though he still predicts double-digit growth for the company. But increased demand for Apple products in combination with global semiconductor shortages means supply will be constrained. While to some extent this is a good problem to have, it’s still a problem Apple must navigate.
“It is remarkable that the last four quarters for Mac have been its best four quarters ever,” Maestri said.
Apple designs its own processors in the A- and M-series chips, but these don’t appear to be the chips causing the problem. Instead, the challenge is in sourcing less-advanced chips for things like displays, ports, and audio. (No wonder Apple is may be considering using its own chips in future monitors.)
“The majority of constraints we’re seeing are of the variety that I think others are seeing, that I would classify as industry shortage,” Apple CEO Tim Cook said.
Apple is also experiencing supply/demand imbalance as iPhones, iPads, and Macs fly off the (usually virtual) shelves .
The move to remote working (at least across most right-thinking enterprises) is prompting a rapid replacement cycle, particularly as many existing PCs are very much end-of-life at this point. “We do have some shortages in addition to that, 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….”
The world (digitally) transformed
While much of the problem has been created by a worsening U.S. trade relationship with China, it’s also true that there has never been more demand for less-advanced processors. These are seeing rapid deployment everywhere, from drone use in cattle tracking to infrastructure monitoring all the way to smart devices in smart homes. Medical equipment, vehicles, even some cables have low-end chips inside.
Apple mentioned three different companies investing in new tech for this new world during the fiscal call:
- MassMutual is offering M1 MacBook Pros to all of its employees and equipping all conference rooms with M1 Mac minis.
- Italgas, Italy’s largest natural gas company, is replacing every employee’s Windows laptop with M1 MacBook Airs.
- In Southeast Asia, Grab is deploying M1 Macs across the company.
The need to work remotely during the pandemic has rapidly accelerated the existing trend toward digital transformation as enterprises of every stripe seek to put intelligence into their business — both to release short-term profit and efficiency and to enable remote management of those assets.
That’s clearly what’s happening.
The Semiconductor Industry Association (SIA) predicts global semiconductor sales will generate $527.2 billion this year (up 19.7%). SIA president and CEO John Neuffer said: “The global chip market is projected to grow substantially in 2021 and 2022 as semiconductors become increasingly integral to the game-changing technologies of today and the future.”
But transformation is not universally available
For enterprises, this makes it even more vital that any plans to inject intelligence into existing strands of the business are credibly thought through before action takes place; in this environment, a failed digital transformation project will be even more costly.
It also creates a new barrier toward universality, in that as the cost of connected solutions inevitably climbs, smaller enterprises will be held back from exploiting digital opportunities, generating more advantages for larger firms.
What’s also interesting about this is that lack of access to processors may inhibit innovation.
Apple hasn’t made it at all clear whether processor shortages have delayed any of its product release plans, but there was strong speculation it might introduce new MacBook Pro models at WWDC last month. This didn’t happen, which raises the question: Was that non-appearance predicated by these constraints?
Will supply hinder innovation?
In a sense this doesn’t matter too much; Apple ships products when they are ready. It’s an emerging piece of consensus wisdom that with the introduction of new Macs and new models of its M-series processors we’re witnessing a renaissance in performance on the platform. But what might matter is the extent to which Apple’s wider plans are affected by these shortages, particularly the long-anticipated Apple glass product we expect/don’t expect/hope will see the light of day in 2022.
Apple is very likely to already be taking steps to address the issue. The company has a product release road map and as a product-driven business, senior management will already be collaborating with manufacturing partners to create alternative supply chains. There’s an opportunity to be unlocked in any such investment, as new facilities can make use of new technologies (particularly around recycling of rare earth materials) as Apple continues efforts to develop closed loop manufacturing processes and to become carbon neutral across its supply chain by 2030.
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