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Apple’s Supply Chain Chatter Hides the Big Picture

Supply constraints.

It seems like that’s the only topic on the minds of Apple investors these days. In fact, it’s nothing new. Since the launch of the iPod twenty years ago, navigating the theme of product availability has been an essential part of investing in Apple. It’s a well-traveled road: Apple releases a new product and it takes 2-4 months for supply to catch up with demand. We’ve all learned to extrapolate underlying demand from the reported numbers. Then, the supply chain tightened not only for newly announced Apple products but for others as well.

It started last April

On April 29th, 2021, Luca Maestri warned that broader supply challenges would have a negative impact on the forthcoming June quarter by $3-4B. That headwind was expected to dampen sales by 4%. It was the only mention of supply constraints in Apple’s prepared remarks for that quarter. In hindsight, it highlighted a theme that has dominated the Apple conversation for the past year. 

Supply chain is a distraction vortex for investors

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. 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.

What stands out is that the supply chain headwind has a pendulum effect. It improves, only to worsen in a subsequent quarter. Over the past year, the supply chain has delayed about $27B in revenue, or about 6% of total sales. 

The forest for the trees

It’s hard for me to step back and look at the big picture when the topic is dominating not only Apple but many parts of my comfortable life that require me to wait longer to get things. The big picture is as clear as it’s been for the past 15 years: Apple makes the best consumer tech products in the world, and consumers are willing to wait to get them. Loyal Apple customers are not jumping ship for competing products. They’re committed to upgrading, to expanding the number of Apple products they own, and they’re willing to be patient to that end. This is why Apple reports 9% revenue growth in March, higher than the Street’s 4% expectation, against a monster 53% revenue growth comp and global economic uncertainty.

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. I might as well get comfortable with that fact.

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