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Is Apple Having a Supply Chain Problem?

Written: September 2022

Big Brown pulled up in front of my home at 12:15 p.m. on Friday. Our happy UPS driver, Russ, brought the box to my front door. I had pre-signed the Apple/UPS form and taped it to the door to authorize leaving the package in case I was indisposed when he rang the bell.

The shipping box is small because Apple no longer includes a charger. Like many people, I have a drawer full of chargers. I am looking forward to when Apple makes the transition to USB-C standardized chargers and cables for all of its devices. In June, the European Union announced a mandate that will require all new portable devices like smartphones, earbuds, and wireless keyboards to use USB-C by 2024. Apple has often been the first to adopt new technology but with more than a billion iPhones out there, they have built up a huge business around their Lightning cable. I suspect 2023 iPhones will have the new standard cable and charger. Amazon this week introduced a new $99 Kindle, and it will have USB-C.

The setup process seems to get easier every year. When the iPhone 14 Pro Max arrived, I placed it on my desk next to my old iPhone. The new iPhone copied all my apps, data, and settings from the old iPhone. I then put the old iPhone in a box Apple FedEx’ed to me, and it will be on its way back to Apple.

Skeptics have said people would not pay $1,000 for an iPhone. Turns out people are more than willing to do so and, in fact, many paid more than $1,000, helped by financing plans from Apple and carriers. I like the Apple Upgrade plan. I pay $58.25 per month and get a new iPhone every year. I order the newest iPhone when Apple opens its website orders. You set everything up the day before so placing the order takes just seconds. The site opened for orders at 5 a.m. Pacific Time so I placed my order at 8 a.m. In years past, the opening time was midnight Pacific Time. I had to get up at 3 a.m. to place the order.

Placing the monthly charge on my Apple Card, I get $1.75 (3%) rebated in Apple Cash which accumulates and can be spent from the iPhone Wallet. I don’t think of it as paying $1,000+ for the iPhone 14 Pro Max. I think of it as paying $58.25 per month for a personal supercomputer.

iPhone revenue for the second quarter was $50.57 billion. The numbers are staggering. The global count of iPhones is 1.2 billion. Even more astounding is the production rate. During the 90 days of the second quarter, Apple produced more than 44 million iPhones. That equates to 488,889 per day, 20,370 per hour, 340 per minute, and 5.7 per second.

Supply Chain has been a major problem around the world, but Apple has managed through it. Their secret weapon is Tim Cook, often referred to as a just-in-time inventory genius. After graduating from Auburn University as an industrial engineer, Cook spent 12 years in IBM’s personal computer business, ultimately serving as the director of North American fulfillment. A friend of mine was Tim’s boss and he once told me Tim was the best employee he ever managed.

As of the close on Friday, Apple was valued by investors at 2.5 trillion dollars, the largest valuation in the world. Skeptics have questioned whether the company can continue to grow rapidly, if at all, especially on such a huge base. Just to grow 5% requires $20 billion of new business. As written here many times, the skeptics have underestimated the potential of Apple’s services business which includes iCloud storage, Apple Music, Apple TV, Apple News, Apple Fitness, and the App Store. Services revenue was $19.6 billion for the quarter. Looks to me like the goal of a $50 billion a year business can happen. Total revenue for last quarter was a record $97.3 billion, up 9 percent year over year.

Behind everything Apple does is an incredible customer support process. Whoever is in second place for support is not even close. I agree no business can grow straight up forever, but I see no signs of things slowing down at Apple. As for the stock price, who knows? A wise friend once told me, “Never confuse a great company with a great stock.”

Disclosure: I am an investor in Apple. I am not making any recommendation about whether the stock will go up or down from where it is. I am simply sharing my views on what I see as a great company doing amazing things.