Tech earnings this quarter were, to the surprise of no one, high. But amid the record-settling revenues, the looming specter of the global semiconductor shortage was the fly in the ointment.
While virtually none of the major tech companies sounded too concerned on their calls, component shortages were called out by Apple, Microsoft, Samsung, Tesla, AMD, and Intel as potential problems for either their previous or upcoming quarter.
Apple had already warned that part shortages could impact its iPad and Mac businesses at its Q2 earnings to the tune 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. But it came at the same time as a warning from CEO Tim Cook that supply constraints could impact the iPhone — the most important and lucrative part of Apple’s product lineup — in the coming quarter, which could be a far more concerning factor 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. And of course, while Microsoft’s next-gen Xbox Series X and Series S consoles continue to sell every unit Microsoft can make, there’s just simply not enough supply to go around yet.
Earnings are up, but parts are still in short supply
It was a similar story at Samsung, which posted increased revenue and operating profit year over year, carried by massive demand from its semiconductor business (which accounts for over a third of its revenue and more than half its profit). But Samsung was also weighed down by less overall demand and revenue for its mobile phone business, which declined compared to last quarter due to a combination of supply shortages and the seasonal buying cycle.
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. “The global chip shortage situation remains quite serious,” he said, highlighting difficulties Tesla experienced getting chips that power essential parts of its cars — specifically the airbags and seatbelt modules.
And of course, the chipmakers themselves are calling out 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. That may lead to “particularly acute” shortages for Intel’s consumer chips in the upcoming third quarter — which would be right when PC sales tend to kick up for back-to-school students.
Hard-to-find gadgets will likely only grow harder to find
AMD CEO Lisa Su took a more optimistic note, explaining in an interview with Yahoo Finance that while supply may still be “tight” for the rest of 2021, things have been getting better throughout the year. “As we go through the end of this year and certainly into next year, I think things will improve,” she said.
Taken as a whole, there are two trends to see here: the first is that big tech companies aren’t letting supply issues stand in the way of posting record revenues. But it’s also clear that the impact of the shortages is very much one that’s still in progress, and until capacity starts to increase or demand starts to die down, concerns over shortages, product delays, and hard-to-find gadgets will likely only grow as we head toward the busy holiday shopping season.