Microchip shortage: The cause and how it’s affecting the markets (Apple)

Chips are in nearly every electronic device humans own, phones, personal computers, cars, washing machines, toothbrushes… These parts are minimal in size, but essential from a power perspective – they can be conceived as the brain of our electronic devices. These chips are often also referred to as “semiconductors” or “microchips”; they host many transistors that allow electrons to move. Their supply chain and development involves many experts, countries and takes multiple steps. 

Recently we have been experiencing an exponential increase of their demand, causing a general shortage. As the world was hit by the Covid-19 pandemic, chip-factories were forced to close and thus the production dropped. The current demand for microchips is so high that manufacturers can’t meet the deadlines and the quantity necessitated by customers.

Many industrial sectors have been hit by the microchip shortage as they represent the lifeblood of several industrial products. Nissan has announced that it will be making 500,000 less vehicles; General Motors was forced to interrupt some of its truck production; Apple has alerted its consumers that its products’ sales will suffer from the shortage. 

Apple Inc. is very likely to cut its production of iPhone 13 projected for 2021 as the company expected to produce around 90 million models of the latest iPhone in the remaining trimester of this year, but its microchip suppliers, Broadcom Inc. and Texas Instruments Inc., are insolvent to deliver the correct amount of microchips. Despite its size and importance on the tech products’ market, Apple is grappling with the same microchip supply disruption as every other company and industry.

The latest iPhone was released on the market in September, but orders have not been delivered from the official website for more than 30 days. Moreover, new devices are found as “currently unavailable” for pickup at many retail stores. The company’s carrier partners are facing very similar shipment delays. Apple is also struggling in producing the Apple Watch Series 7, ninth-generations iPads and iPad mini, third-generation AirPods.

The year-end quarter is expected to generate about $120 billion in revenue, hitting a sale record – 7% increase from the previous year. Nonetheless, it has still to be seen whether the chip shortage will affect also Apple’s revenues. By now, CEO Tim Cook confirmed CNBC that the supply chain constraints have already impacted on the financial results of the quarter; “We had a very strong performance despite larger than expected supply constraints, which we estimate to be around $6 billion”.

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