business

Why Apple has chips for iPhones while Ford got caught short

7 Comments
By Jonathan Weber and Stephen Nellis

On the same day that Ford Motor Co said it would be able to produce only half as many cars as planned due to a global chip shortage, Apple Inc announced blowout quarterly earnings as smartphone and computer sales soared, with the chip shortage having only a small impact on its business.

The contrasting results show how major players in the electronics industry, accustomed to the long time horizons of chip production, have mostly avoided major disruptions from the chip shortage. Automakers and their suppliers, with "just-in-time" production lines that can more easily be spun up or changed to produce different varieties of parts, have not.

Apple said Wednesday that it would lose $3 billion to $4 billion in sales in the current quarter due to limited supplies of certain older chips.

Still, that represents just a few percent of Apple's projected sales of $68.94 billion for the fiscal third quarter, according to Refinitiv revenue estimates, compared to a massive 50% production hit at Ford.

German automaker Daimler also warned last week that the chip shortage would likely carry over to next year.

The supply bottleneck threatens to derail the country's fragile economic recovery.

Ford Chief Executive Jim Farley singled out a March fire at a Renesas Electronics Corp plant in Japan as a key factor in its chip shortfall.

But some of the problems at Ford and other automakers are the result of their own decisions. Many cut orders a year ago when the pandemic hit, and then were caught short when auto demand rebounded much more quickly and strongly than anticipated.

Farley gave a bleak outlook Wednesday, saying that even though the company was working "24/7" to address the issues, "there are more whitewater moments ahead." The problems could persist into 2022, he added.

Apple, which is famous for its supply chain management and has more buying power than any other company, has avoided problems so far in meeting surging demand in part by burning through supply buffers, Chief Executive Tim Cook told investors on a conference call Wednesday.

Problems procuring chips made with older-generation technologies will catch up with Apple in the current quarter, Cook said, noting that other industries also use such chips. He did not cite automakers specifically, but many of their components are based on such earlier-generation tech.

Apple expects the problems to mostly affect iPads and Macs - two product lines that have sold well as work-from-home tools during the pandemic but whose sales are a fraction of Apple's cash cow, the iPhone. Ford, by contrast, is facing production shutdowns for its most profitable product, the F-150 pickup.

The uneven impact of the chip shortage was evident in mobile phone chip supplier Qualcomm Inc's results announced Wednesday: The company said business was booming on strong demand for smartphone processors and 5G communications chips.

Mobile phone processors are not suffering the same kind of manufacturing capacity shortage as auto chips because they are made with more advanced production technology that chipmakers have spent heavily on in recent years.

Mobile phones do, however, require some older-technology chips in addition to their advanced processors. Samsung Electronics also announced strong earnings and said it expected to see a hit to smartphone sales in the current quarter due to the chip shortage. But profits at its chip division are expected to be robust.

In cases where advanced chip production technology faces bottlenecks, semiconductor firms are finding some ways to mitigate them. Advanced Micro Devices Inc on Tuesday raised its annual sales targets, with CEO Lisa Su saying the company saw no problems in secure the supplies needed to meet the targets.

To address a shortage in so-called "substrates" - a substance used to help put delicate silicon chips into tougher packaging so they can be placed on circuit boards inside electronic devices - she said AMD invested money into its substrate suppliers to secure dedicated capacity.

"We're a bigger part of our suppliers' businesses, and we're looking for opportunities to help our partners get the capacity that we need in place," Su told Reuters in an interview. "We started that last year, and we're going to continue."

© Thomson Reuters 2021.

©2021 GPlusMedia Inc.

7 Comments
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So much for capitalism.

-2 ( +1 / -3 )

So much for capitalism.

Yes, you're right. That's why places like North Korea and Cuba have no supply issues for chips used in making, uh, well, nothing. No chips in making bicycles. Oh, and they're so technically advanced that they can barely make a can of beans.

1 ( +2 / -1 )

Yes, you're right. That's why places like North Korea and Cuba have no supply issues for chips used in making, uh, well, nothing. No chips in making bicycles. Oh, and they're so technically advanced that they can barely make a can of beans.

You might be surprised how many products that say "Made in China" including cell phones and other consumer electronics are actually made in North Korea. Even the Chinese will offshore for cheaper labor.

0 ( +0 / -0 )

Yes, you're right. That's why places like North Korea and Cuba have no supply issues for chips used in making, uh, well, nothing. No chips in making bicycles. Oh, and they're so technically advanced that they can barely make a can of beans.

Oh yeah, North Korea has a niche making movements for various brands of watch, including I think Swatch (or at least they did for a while). Watches were one of the few goods not subject to UN sanctions so the North Koreans quickly built up a business making watch movements.

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That's why places like North Korea and Cuba have no supply issues for chips...

those are small developing countries. May as well compare, say, Guatemala's high tech industry. How about China? It started stockpiling chips last year due to the efforts of its communist central planners and through its state-own enterprises, and now isnt suffering as badly from the shortage as its capitalist rivals.

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Anyone here old enough to remember when brand new Ford pick-em-up trucks didn't have a single microchip anywhere to be found? Somehow those old trucks ran good and got the job done. A lot of them are still on the road.

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So much for capitalism.

How so? Privately owned and operated businesses made a bad call about when a pandemic would ease up and allow increasing sales. The industry guess wrong. The error of their guess is magnified by greater than expected demand for consumer electronics that drew on the chip supply combined with sanctions on Chinese firms that prevent them from accessing many technologies needed to manufacture chips. Considering the rarity of pandemics and all the uncertainty involved it is hardly a reason to condemn capitalism.

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