Tech earnings this quarter were, to the surprise of no one, high. The looming threat of a global semiconductor shortage was a glaring problem despite the record-setting revenues.
Although most of the tech companies were not too worried by their calls, Apple, Microsoft and Samsung called out component shortages as possible problems for their upcoming or previous quarters.
Apple warned in Q2 that part shortages could affect its iPad and Mac business to the tunes of $3 billion to 4 billion. CFO Luca Maestri said on last week's Q3 earnings call that it was able to keep those losses mainly limited to iPads and under $3 billion, in what was definitely a win for Apple. It came as CEO Tim Cook warned that supply shortages could affect the iPhone, the most valuable and profitable part of Apple's product line -- in the next quarter. This could prove to be more worrying for the company.
Microsoft, too, called out a decline in Windows OEM revenue (a drop of 3 percent) as being directly caused by supply chain constraints, even as its cloud revenue continued to soar. Although Microsoft's next-generation Xbox Series X consoles and Series S consoles sell well, there is simply not enough stock.
Similar results were seen at Samsung. The company saw an increase in revenue and operating profits year over year due to massive demand from its semiconductor division (which accounts more than a third of its revenues and half its profit). Samsung was also affected by lower overall demand and revenue from its mobile phone business. This is due to supply shortages and seasonal buying cycles.
Other companies, like Tesla, have taken more drastic steps to face the shortage: the company had to develop new firmware for whatever chips it could get its hands on, but CEO Elon Musk was blunt about the fact that semiconductors would be a big concern for the company. He stated that "the global chip shortage situation is still quite serious" and highlighted the difficulties Tesla had in obtaining chips to power its essential parts, including the seatbelt module airbags.
The chipmakers are also raising concerns. Intel CEO Pat Gelsinger noted on an earnings call that the shortage could last through 2023 across the industry, noting that he expects that "it will take another one to two years before the industry is able to completely catch up with demand." The company also called out "persistent industry-wide component in substrate shortages" -- meaning that Intel doesn't expect to be able to get enough of the raw materials it needs to make chips -- despite high demand for its processors. This could lead to "particularly acute shortages" of Intel's consumer chips during the third quarter. It would also be right as back-to school students are starting to buy more PCs.
AMD CEO Lisa Su was more optimistic, explaining to Yahoo Finance that although supply is still tight for 2021, things have been improving throughout the year. She stated that she believes things will improve as we move through the year and into next year.
As a group, you can see two trends. The first is that tech companies aren’t letting supply problems stop them from posting record revenues. It's clear, however, that the effects of the shortages are still being felt. Until capacity increases or demand decreases, worries about shortages, product delays and difficult-to-find gadgets will only increase as we approach the busy holiday season.
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