DJ The Chip Shortage Could Be Spreading to iPhones -- Barrons.com

Dow Jones · 2021-12-03 10:08

Al Root

The global semiconductor shortage has roiled automotive and appliance production all year long. Now a warning from Apple raises the possibility that the impact of the shortage is spreading and, more important, affecting consumer demand.

According to reports, Apple (ticker: AAPL) told its suppliers this week to cut targeted production of the iPhone 13 to about 80 million units from 90 million units. Apple wasn't immediately available to comment on the reports.

Apple stock fell more than 3% shortly after the open of trading Thursday. Shares clawed back some of those losses, closing down 0.6%. The S&P 500 and Dow Jones Industrial Average gained 1.4% and 1.8%, respectively, on Thursday.

The stock bounced likely because analysts and investors already knew that Apple, like everyone else, faces supply chain delays. On Apple's October earnings conference call, CEO Tim Cook said that "the primary cause of supply-chain-related shortages will be the chip shortage" in the calendar fourth quarter. At the time, Cook remained confident in demand, calling it robust.

Now, however, Apple investors have to wrestle with the question if that is still the case for demand, after reports of a potential production cut.

"Consumers have been relatively eager to upgrade their phones to take advantage of 5G technologies," wrote Gavekal Research analyst Vincent Tsui in a Friday report. But supply-chain problems have made phones harder to get. "It seems frustrated consumers are deciding not to upgrade now, but instead to wait for the release of newer models next year."

Tsui points out that the shortage isn't in the state-of-the-art chips, but for commodity chips used for display, power management, and other "mundane" functions. "The effects of these bottlenecks are now rippling back up along Asia's supply chains," added the analyst.

If Tsui is correct, it raises the possibility of quarterly sales and earnings shortfalls for big tech companies and their suppliers -- when business should be booming.

The bright side for investors, of course, is the chip shortage isn't a new issue. And even with the reported production cut of 10 million iPhone 13s, "Apple is having its strongest holiday quarter ever," Wedbush analyst Dan Ives tells Barron's. "Apple has a supply issue, not a demand issue with iPhone 13."

Ives rates Apple shares Buy. He has Buy-rating on the stock and a $200 price target.

Ives doesn't see demand lost, just shifted. That's the approach automotive investors have taken with the 2021 chip shortage too. Coming into Friday trading, shares of Ford Motor (F) have gained about 126% year to date. Ford, through November, has shipped about 6% fewer vehicles in 2021 compared with the same span of pandemic-affected 2020, because of the chip shortage. That lack of chips hasn't constrained Ford profits or investor sentiment, however.

Write to Al Root at allen.root@dowjones.com

(END) Dow Jones Newswires

December 03, 2021 10:08 ET (15:08 GMT)