Apple’s Supply Chain Issues Are ‘Investor Distraction Vortex’ and ‘Blown Out of Proportion’: Analyst

A customer holds the new green-colored Apple iPhone 13 Pro inside the Apple Store on Fifth Avenue in the Manhattan borough of New York City on March 18, 2022. Mike Segar/Reuters

Problems with Apple Inc.’s supply chain have been “blown out of proportion” according to Gene Munster, Apple analyst and co-founder and managing partner at Loup Funds.

Munster said in a note published on April 29 that the tech giant’s supply chain issues are in fact an “investor distraction vortex” after the company predicted a decline in performance for its third quarter of fiscal 2022, ending in June.

The company based the forecast on persistent global supply chain disruptions.

“We believe our year-over-year revenue performance during the June quarter will be impacted by a number of factors. Supply constraints caused by COVID-related disruptions and industrywide silicon shortages are impacting our ability to meet customer demand for our products,” Luca Maestri, chief financial officer at Apple Inc., said during an April 28 earnings call detailing the company’s second-quarter results.

The company said it expects supply constraints to impact sales by $4 billion to $8 billion, noting that this is substantially more than it experienced during the March quarter.

Apple CEO Tim Cook noted that the majority of the supply constraints are centered around its corridors in China’s financial hub of Shanghai, which has been hit with strict COVID-19 lockdowns, and that this applies to most of the company’s product categories.

“The COVID-related disruptions are also having some impact on customer demand in China,” Maestri said.

However, Munster said he believes the topic has been “blown out of proportion,” despite phone manufacturers experiencing shortages of components sourced in China.

“The conversation of supply chain is important because it masks the pace of intrinsic growth, making it difficult to discern the health of the business,” Munster wrote. “I believe the topic has been blown out of proportion, now somewhat of an investor distraction vortex, as is evidenced by the number of times Apple has mentioned ‘supply chain’ on earnings calls.”

The analyst pointed to the impact that supply chain issues have had on the tech giant’s revenues since the June quarter of 2021, noting that “the supply chain headwind has a pendulum effect.”

Munster said supply chain issues will often improve, only to worsen in a subsequent quarter.

“Over the past year, the supply chain has delayed about $27B in revenue or about 6 percent of total sales,” he wrote.

Munster believes that Apple “makes the best consumer tech products in the world” and that its customers are willing to wait to get their hands on them or wait for upgrades, as opposed to looking elsewhere for competing products.

This, Munster says, is why Apple’s growth revenue for the second quarter ending March 26 was at $97.3 billion, up 9 percent from the same period in 2021, despite global economic uncertainty. That figure was also higher than Wall Street’s expectations of 4 percent.

Apple’s global phone sales revenue was at $50.6 billion for the second quarter, a record for that period and a year-over-year growth of 5 percent, although iPad revenue fell 2 percent.

The company’s revenue from wearables, home, and accessory products also increased by 12 percent to reach a March quarter record of $8.8 billion.

“As long as Apple continues with its mission to create the world’s best consumer tech products, the supply chain topic isn’t going away anytime soon,” Munster said.