The technological world has been shaken by a phenomenon that has affected its operations, launches and new products. It’s about the global chip shortage, the effects of which began to show in late 2020. While many companies have been affected in various ways, Apple has managed to sidestep the shortage with some ease.
The lack of news on the impact of this situation on Apple’s operations can be explained by the emergency measures it has deployed. Measures that can be summed up in five words: down payments and large orders.
An accelerating demand for chips that production barely follows
The semiconductor crisis is the result of a perfect storm. An area in which the consumer electronics industry is not the only one affected. Any area where microchips are part of the chain has been affected. Automobiles and even household appliances such as refrigerators or washing machines are using chips with increasing frequency and abundance.
The pandemic has accelerated the acquisition of processors of all kinds, from computers to tablets and phones. Telecommuting was the time when many users and businesses decided to renew or acquire new equipment to perform their work remotely. And it added stress to a supply chain that was already on edge.
Increasing chip manufacturing capacity is not easy at all. In fact, very large investments are required to build state-of-the-art factories. Their construction in turn requires considerable time and planning, assuming a high risk when it comes to recouping the investment. Therefore, the chip manufacturing capacity simply cannot keep up.
Increasing manufacturing capacity will take time, prolonging shortages in the medium term
The consequence is that manufacturers have to make tough decisions. Among them, the establishment of quotas for its customers to avoid the unnecessary accumulation of stock or the prioritization of more profitable premium tokens. These are found in computers and especially the latest generation smartphones and would harm other cars, household appliances and other less efficient consumer electronics.
Volume, advance and advance payments to secure Apple’s supply
During Tuesday’s earnings call, Apple first raised the global chip shortage in questions from an analyst. The company was quite optimistic about the current situation, assuring that high-end chips for iPhone and iPad were not a problem, whereas in previous generations they had seen some shortage, although not to be alarmed.
This matches what we saw in the previous section, where the A14 and M1 chips in the 2021 iPhone 12 and iPad Pro are the most advanced in the industry. Apple is leading its suppliers to prioritize apple chips thanks to a combination of factors:
Apple has always been a good customer when purchasing high volume components, thus receiving sales discounts. Payment for orders is made in advance, guaranteeing manufacturing space and deliveries if necessary. Apple has even gone so far as to invest with its suppliers to strengthen manufacturing capacities, develop technologies and thus secure supply.
As we can see, this is something that goes beyond putting a very luscious heel on the table. It’s something that has more to do with the security and peace of mind that you can get from working with a client like Cupertino. If we take a look at Apple’s finances, we’ll see a change in Apple’s latest Q3:
Q3 2017 purchase obligations: $ 23,400 million. Q3 2018 purchase obligations: $ 31.4 billion. Q3 2019 purchase obligations: $ 29.8 billion. Purchase obligations in Q3 2020: $ 30.3 billion. Purchase obligations in Q3 2021: $ 38.2 billion.
Compared year over year, the jump from the third quarter of 2020 to the third quarter of 2021 is evident. An additional $ 7.9 billion in purchase obligations that cannot be canceled without heavy penalties. Everything indicates that thanks to these tactics, Apple will launch the iPhone 13 next September.