(NASDAQ:AAPL) - Apple, Inc. reported earnings on January 23, 2013 which caused its stock to tumble to a low of $457.30/share and a believed to be close of $463.49 as reported on Yahoo! Finance. Apple blamed its performance in part upon supply constraints. As this author stated on July 30, 2012, Apple may experience supply constraints due to a shortage in 28 nm chips. Apple, by its own words appeared to have suffered just such a shortage resulting in lower iPhone 5 sales than expected and failure to meet demand, i.e. "constrained supply", for both iPhone 4 & 5.
iPhone 5 Inventory Problems
In response to a question by Bill Shope - Goldman Sachs, Tim Cook, CEO of Apple responded as follows:
Bill, let me take the second half of that and then I'll hand it back to Peter for the first half. If you look at the iPhone sales across the quarter, we were very constrained for much of the quarter on iPhone 5. As we began to produce more and ship more, sales went up with the production. iPhone 4 was actually in constraint for the entire quarter, and sales remained strong, and so that's how sales progressed across the quarter. Apple Earnings Transcript 1-23-2013.
CEO Tim Cook tried to dispel rumors about supply issues stating that "...it would be impossible to accurately interpret the data point as to what it meant for our overall business, because the supply chain is very complex and we obviously have multiple sources for things, yields might vary, supplier performance can vary, the beginning inventory positions can vary, I mean, there's just an ordinate long list of things that would make any single data point not a great proxy for what's going on." Apple Earnings Transcript 1-23-2013. Tim Cook CEO of Apple was less than clear in his answer.
Apple stated it sold 47.8 million iPhones compared to 37 million in the year ago quarter, an increase of over 10 million iPhones. However, Wall Street Analysts had higher figures for iPhone sales and one analyst expected more as reported by Investors Business Daily.
Simply and clearly stated, Apple sold less iPhone 5s than anticipated since launch in September 2012 through December 2012 due to lack of inventory or "supply constraints" as termed by Apple. The author stated much the same on July 30, 2012 on this site.
iPad mini & iPad
When asked about iPad mini, SVP & CFO Peter Oppenheimer summed it up best "With the iPad mini, it's hard to know. We could not make enough in the quarter. We were constrained every week. Customers love the Mini and we wish that we could have made more and we ended the quarter with significant backlog." Apple Earnings Transcript 1-23-2013.
For emphasis, Apple's SVP & CFO stated that Apple was constrained in supply every week for its iPad mini.
Apple via Peter Oppenheimer, SVP & CFO also cited to supply constraints for its iPad as well. "We began and ended the quarter with about 3.4 million iPads in channel inventory. That left us below our target range of four to six weeks of iPad channel inventory on a look-forward basis." Apple Earnings Transcript 1-23-2013.
The author mentioned that Apple may likewise experience problems with supplying chips for iPhone 5 for "[a]ll kinds of smartphones and tablets use the 28 nm chip, perhaps difficulties with supply of said chips may bypass Apple completely." Said difficulties in chip supply appear to have not passed Apple by.
On July 30, 2012, the author questioned whether Samsuing would forego its own supply needs to supply its competitor, Apple.
Samsung did compete with Apple, quite effectively.
As of January 16, 2013, idownloadblog.com reported that Samsung for the time being remained an exclusive maker of the Apple-designed engine that powers iPhones, iPads and iPods, with the same being "fabbed" at Samsung's $14 billion semiconductor plant in Austin, Texas -- but questioned for how long.
Perhaps Apple added to its supply constraints with the iPhone 5 by using the same producer or producers to produce chips for its iPad and/or iPad mini?
Previously, this author cited as follows: "On July 2, 2012, Taiwan Economic News reported that Qualcomm chose Samsung and United Microelectronics Corp. (NYSE:UMC) as suppliers of 28 nm process capacity in addition to its primary source for 28 nm chips, TMSC," in reference to the iPhone 5.
Through SVP & CFO Peter Oppeheimer, Apple gave a hint as follows: We expect to spend about $10 billion in CapEx this fiscal year that will be up little under $2 billion year-over-year. We expect to spend a little bit under $1 billion in retail stores and the other $9 billion is spent in a variety of areas. We're buying equipment that we will own that we will put in our partners facilities. Our primary motivation there is for a supply, but we get other benefits as well." Apple Earnings Transcript 1-23-2013.
MacRumours reported on October 12, 2012 that Apple would be working with TMSC on the 20 nm chip, which cited to the Taiwan-based China Economic News report of October 2012 "Citigroup Global Markets' market research fellow, J.T. Hsu, pointed out that Apple began verifying TSMC's 20nm process in August this year and may begin risk production in November with the process." In the same report, TMSC was reported as stating that it will be breaking ground on its Fab 14 plant which will produce 20 nm and 16 nm chips.
As reported and translated at TheNextWeb.com, Chairman and CEO of Taiwan Semiconductor Manufacturing Company Morris Chang is reported by the China Times on January 18, 2013 to having said that he expects his company to be responsible for almost all chips built on the 28nm process in 2013, prompting analysts to suggest that the company may have struck a deal with Apple to build the next-generation of A-series SoCs.
When you add it all up, Apple may very well be swtiching its sourcing to TMSC for the chips needed to run its iPhone and iPad which may include purchase or capital to purchase a portion of the equipment to produce the chips. If true, Apple appears to be planning ahead for its supply and at the same time making a capital investment. If true and successful, maybe Apple can avoid another stock price tumble after reporting earnings, a tumble created in part due to its "supply constraints."
Tim Cook CEO of Apple is alleged to be a logistics genius, as a former employee said to Business Insider in November 2012.
Apple launched its iPhone 5 apparently without sufficient inventory to meet demand. Apple suffered from supply constraints likely chip supply constraints for the iPhone and/or iPad. Apple implied if not stated it lost sales for both product lines due to "supply constraints."
Again for emphasis, Apple lost opportunities for sales.
The author called this possibility in his article of July 30, 2012 published on this site and referred to it in his author's January 14, 2013 Instablog "Bad Apple - Likely Less than Appealing Earnings."
After hours, Apple's stock price tumbled. Reteurs.com reported that Apple missed revenue for the 3rd quarter straight after iPhone sales came in below expectations, causing declines in certain Asian markets later corrected due to China's PMI reports.
Apple controlled the date on which it was going to launch its iPhone 5. Apple knew or should have known whether it would have supply constraints when trying to meet demand for iPhones and iPads. Apple should have known its own logistics.
Apple disappointed. Apple shares lost value. Shareholders lost money as of the time of this report.
"Well, all I know is what I read in the papers." Will Rogers, New York Times, Sept 30 1923.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.