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Amazon and Apple’s profits are hit by supply chain crunch

Apple and Amazon on Thursday revealed disappointing results for their most recent quarters, as problems in the global supply chain began to be felt, and Apple’s chief executive said the shortages could sabotage Christmas gift plans.

Tim Cook, the CEO of Apple, said that his company’s lower-than-expected performance was due to a shortage of chips.

Customers seeking to buy new iPhones, iPads, Apple Watches and Mac models have found that the products will not be delivered until late November or even December – a situation that Cook earlier this month warned could be coming.

He said the problem could roll over into the holiday period, and prevent people from getting their presents.

‘Most of what we design are leading-edge (chip manufacturing) nodes, but all of the products have some legacy node components in them as well,’ he told Reuters. 

‘And so that (shortage) continues into (fiscal) Q1, and we’ll see what it looks like beyond that. 

‘It’s very difficult to call.’ 

This quarter marks the first time since April 2016 that Apple has failed to beat earnings estimates, and the first time since May 2017 that Apple’s revenues have missed estimates, according to Refinitiv data. 

‘We had a very strong performance despite larger than expected supply constraints, which we estimate to be around $6 billion,’ Cook told CNBC

Tim Cook, the CEO of Apple – pictured on October 18 – has said that ‘the chip shortage lingers on’ amid issues in the global supply chain

‘The supply constraints were driven by the industry wide chip shortages that have been talked about a lot, and COVID-related manufacturing disruptions in Southeast Asia.’ 

He said the situation had improved, but ‘the chip shortages linger on,’ and could run in to 2022. 

Apple's iPhone 13 was released on September 24 - the day before the quarter closed - and so the results do not reflect its successful launch

Apple’s iPhone 13 was released on September 24 – the day before the quarter closed – and so the results do not reflect its successful launch

Apple’s overall revenue was still up 29 per cent, to $83.36 billion – versus an estimate of $84.85 – and each of its product categories grew on an annual basis.

Sales of iPhones made up the lion’s share of revenue, with $38.87 billion recorded – an increase of 47 per cent, year on year. Apple missed its target of $41.51 billion, however. 

The data also fails to take into account most of the sales of the new iPhone, the 13 – the phone was available for pre-orders on September 17, and available from September 24. The quarter ended on September 25.  

Cook said the company expects ‘solid year-over-year revenue growth’ in the December quarter – despite him admitting Apple will face worse supply constraints in the current quarter. 

The strongest growth in Apple product categories aside from iPhones was in its services business, which includes sales from the App Store, music and video subscription services, advertising, extended warranties, and licensing. 

Apple’s services grew 26 per cent annually, which Cook said was higher than the company expected. 

The tech behemoth’s shares fell 4 per cent at one point on Thursday as the news of their missed targets was released.

Amazon also saw its share price fall by 4 per cent on Thursday as they too announced worse than expected results.

Revenue in the third quarter rose 15 per cent, down from 37 per cent growth in the same period a year ago. 

The disappointing result was due to people returning to shops, post-pandemic, and relying less on Amazon for their purchases, said CEO Andy Jassy.

Jassy, 53, took over from Amazon’s founder Jeff Bezos in July.  

He warned investors that issues in the global supply chain and the lingering impact of the pandemic would also be felt in their next quarter.

Jassy said the company expects to take on ‘several billion dollars’ of extra costs in its consumer business in the fourth quarter as a result of labor shortages, higher employee costs, global supply chain constraints and increased freight and shipping costs. 

Andy Jassy, who took over from Jeff Bezos as CEO of Amazon in July, has admitted that the company is struggling with supply chain issues and post-pandemic problems in staffing

Andy Jassy, who took over from Jeff Bezos as CEO of Amazon in July, has admitted that the company is struggling with supply chain issues and post-pandemic problems in staffing

Amazon is struggling with a shortage of staff as COVID problems linger

Amazon is struggling with a shortage of staff as COVID problems linger

Amazon is navigating these challenges as it enters the peak holiday season, he said.

‘It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners,’ Jassy said in a statement. 

Amazon said its operating profit in the fourth quarter will be in the range of $3 billion – a sharp drop from its operating profit of $6.9 billion in the same period in 2020.

Sales in online stores rose 3 per cent from a year earlier to $49.9 billion, while physical store revenue increased 13 per cent to $4.27 billion.

Revenue from third-party seller services, which includes commissions on the marketplace as well as fulfillment and shipping fees, climbed 18 per cent to $24.25 billion – a slowdown from 34 per cent growth in the second quarter and 60 per cent in the first.

For the first time in its history, revenue from Amazon services surpassed its retail sales. 

Net product sales were $54.9 billion in the quarter, while revenue from Amazon Web Services, advertising, third-party seller services and Prime subscriptions added up to $55.9 billion.

Apple and Amazon’s disappointing results come as retailers warn shoppers to get their Christmas orders in early, amid the unprecedented supply crisis. 

Starting Monday, LA and Long Beach port officials will start billing carriers who’ve left empty containers on the property for prolonged amounts of time

Starting Monday, LA and Long Beach port officials will start billing carriers who’ve left empty containers on the property for prolonged amounts of time

Cargo ships are seen off the coast of Los Angeles, waiting to unload their containers amid an unprecedented backlog

Cargo ships are seen off the coast of Los Angeles, waiting to unload their containers amid an unprecedented backlog 

The ports recorded a record vessel backup on October 24, when 110 ships were at anchor

The ports recorded a record vessel backup on October 24, when 110 ships were at anchor 

There were 103 container ships in the LA and Long Beach ports on Wednesday

There were 103 container ships in the LA and Long Beach ports on Wednesday

The ports of Los Angeles and Long Beach will on Monday introduce fines for carriers who leave empty containers at the dock, in a bid to kick start the supply chain – but some logistics experts fear the fines could make things even worse. 

Riche Roche, an executive of Mohawk Global Logistics, told a National Shippers Advisory Council (NSAC) meeting on Wednesday: ‘As far as the ‘hyper-demurrage’ announced in Los Angeles/Long Beach, I think it will be catastrophic.

‘Chassis are already in short supply and this will artificially suck out the rest of the containers that may be sitting in there that didn’t need to be on a chassis and now they’re going to be parked somewhere. 

‘It’s probably going to wipe out whatever’s left in terms of chassis.’

Meanwhile, Pottery Barn, Lands End, and L.L.Bean, are among some of the companies issuing shipping warnings to buyers, with less than two months to go before Christmas.

‘We’re facing some unique challenges this year,’ L.L.Bean said in a note to its customers posted online. 

‘People have been getting outside in record numbers (and that’s great!), but high demand paired with extraordinary global events means we may not have some of the products you’re looking for right now.’ 

LA and Long Beach ports – which move about 40 per cent of shipped cargo entering the U.S. – are struggling with an historic backlog that’s slowing the nation’s supply chain ahead of the holidays.

LL Bean, is among a number of companies issuing shipping warnings to buyers with less than two months to go before Christmas

LL Bean, is among a number of companies issuing shipping warnings to buyers with less than two months to go before Christmas

Lands End said the global shipping shortage – combined with a deficit of workers and heightened demand - is delaying its products, too

Lands End said the global shipping shortage – combined with a deficit of workers and heightened demand – is delaying its products, too

Maine-based L.L.Bean said it’s working around the clock to get products to doorsteps. 

The products are being stalled by an abundance of empty shipping containers that have been lingering at the ports for weeks, creating congestion and preventing new containers from being transported.

The Biden administration has come under fire for its ‘too little, too late’ response to the backlog after it announced West Coast shipping ports would be running around the clock to ease bottlenecks in the system. 

The LA and Long Beach ports – which move about 40 percent of shipped cargo entering the U.S. – are struggling with an historic backlog that’s slowing the nation’s supply chain

The LA and Long Beach ports – which move about 40 percent of shipped cargo entering the U.S. – are struggling with an historic backlog that’s slowing the nation’s supply chain

Lands End is another company that says the global shipping shortage -combined with a deficit of workers and heightened demand – is delaying its products, too.

And Hanna Andersson, the maker of organic pajamas for kids and adults, put out its own warning ahead of the holidays.

The company’s chief executive in an email that customers should order Christmas long johns by early November to avoid disappointment.

‘We urge you to order your holiday [pajamas] very early this year due to the continued COVID impact on our global supply chain—including factory and port closures, and major shipping and logistical challenges—that may cause delays in orders,’ Sally Pofcher said in the note.

Numerous items are already backordered into the new year because of the supply crisis.

Lego’s Heartlake City Hair Salon is backordered until January 7, while its Mars Research Shuttle set could be a close call with an estimated ship date of November 26.


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