Tech Industry Expects Continued Supply Chain Disruptions

Article By : Stefani Munoz

Apple and Samsung reported record revenues. But one thing is clear: the COVID-19 pandemic will continue to affect supply chains into 2022.

Tech giants Apple, Samsung and Intel reported record revenues this past week. Other companies, such as Lam Research, weren’t so fortunate, reporting lower–than–expected numbers and dwindling sales. But if there’s one thing these companies can agree on, it’s that supply chain disruptions are here to stay.

On Thursday, Samsung reported an all–time quarterly high with a Q4 revenue of 76.6 trillion won ($63.4 billion), which the company says is due in part to its expanded sales in premium smartphones, smart TVs and home appliances. Gross margins did decrease because of a decline in memory prices, according to the company.

During its earnings call, executives provided Samsung’s business outlook for 2022, expecting growth in several areas, including memory, component business and finished product business, based on expected recovery of the global IT demand. Executives did acknowledge, however, that component shortages are likely to persist well into 2022.

Median consumer inventories of semiconductor products in 2021 vs. 2020 (Source: U.S. Department of Commerce) (Click image to enlarge)

Jin-Man Han, Samsung’s senior vice president of semiconductor business, said that although overall revenue increased, its Q4 memory demand stand-alone server performance declined compared to Q3 because of the continued global supply chain issues, a slight drive in ASP and payments of one-off special incentives. The company is also experiencing COVID-19 related impacts on its DRAM business as well as stagnation in demand for client SSD because of set build disruptions cause by component shortages.

Apple also reported record highs on Thursday with a Q1 revenue of $123.9 billion, an all–time high for the company and an 11 percent increase YoY. Analyst estimates originally forecasted Apple’s Q1 earnings to reach $118.5 billion and expected mid single–digit growth in both its iPhone and Mac revenues, which Apple beat with a 9 and 25 percent increase in those areas, respectively.

The company struggled to hit its growth expectations for its iPad product category, claiming pronounced supply constraints because of the pandemic. Down 14 percent YoY, the company’s iPad sales hit $7.25 billion versus company estimates of $8.18 billion.

Apple’s outlook on supply chain challenges for the coming year seems to be more optimistic compared to Samsung, however. Luca Maestri, Apple’s chief financial officer, said that though the company still expects significant supply constraints, it predicts the severity of the shortage to lessen for its March quarter.

“First of all, we expect a record for the March quarter. We expect solid growth on a year–over–year basis,” Maestri said. “But … we still expect significant supply constraints but less than what we’ve seen in December.”

Observers aren’t so optimistic of Apple’s future. Analysts at Stone Fox Captial Advisors warned Apple is heading toward flat growth even though its stock is currently priced at 28x forward EPS targets.

“Apple was one of the biggest beneficiaries of the tech pull forward in the last year and growth rates are now decelerating,” Stone Fox Capital said. “My investment thesis remains Bearish on the stock as guidance around FQ2’22 results confirm the gravy days are over for the company.”

Intel’s Q4 earnings report also beat analysts’ expectations and company guidance, bringing in $20.5 billion — $1.3 billion more than its guidance and $17.62 billion more than analyst estimates. The company’s most lucrative business sector, its Client Computing Group, however, saw a decrease of 7 percent YoY, according to FactSet. Intel CEO Pat Gelsinger said that this drop in business was due in part to supply constraints, but otherwise argues it isn’t cause for concern as it marks its customers and PC makers shifting sales on a quarter–to–quarter basis.

Gelsinger did acknowledge, however, the affect the supply shortage has had on Intel’s business, especially in regard to channel inventory rising despite persistent shortages.

“Now, the inventory position is one where we have just been at historically low inventories for an extended period of time, just racing to catch up with demand. And so, we would say that some of this is just getting to inventory levels that are even approaching what we consider normal for a business of this size,” Gelsinger said. “So, a lot of these challenges have really led to, I’ll just say, supply issues throughout the customer base. So, as we go to next year, we hope to see some of those starting to moderate and turn to a more normal behavior in the industry.”

Supply shortages seem to have hit other companies harder. Lam Research’s December 2021 quarter revenue came in at $4.23 billion, below analysts estimates of $4.41 billion, according to FactSet. The company’s shares also dropped 6 percent in late trading on Wednesday following the release of its report.

Not to mention its 2022 outlook dissatisfied analyst predictions. The company expects a Q3 revenue of $3.95 billion to $4.55 billion, which barely meets analysts average of $4.49 billion.

During its earnings call, Lam Research’s president and CEO Tim Archer explained a host of supply chain disruptions attributed to its less–than–positive results.

“In the December quarter, unexpected shipment delays, primarily for components from a critical supplier, surfaced in the last two weeks of the quarter, leaving us with insufficient time for full recovery despite the diligent efforts of our supplier and our global operations team,” Archer said. “The resulting shipment delays caused revenues to come in below the midpoint of our guidance range.”

Archer also said that he expects the latest omicron strain to negatively impact freight and logistics operations, as well as exacerbate skilled labor shortages.

“We continue to encounter significant scarcity of certain components and parts, including semiconductors. As a result, our March quarter revenue levels will be limited by the output constraints of our global supply chain.”

This article was originally published on EE Times.

Stefani Munoz is associate editor of EE Times. Prior to joining EE Times, Stefani was an editor for TechTarget and covered a host of topics around IT virtualization trends and VMware technologies.

 

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