How Supply Chain Issues Affect Big Tech Companies

5 min read
How Supply Chain Issues Affect Big Tech Companies

There continues to be a lot of chatter around supply chain issues and how long this situation is to persist. Some of the latest projections are pessimistic, showing some of the problems might extend well into 2022. Uncertainty remains elevated as publicly-listed companies need to find solutions to keep the same impressive results as those of last year.

Higher input costs have been passed along to consumers, but as inflation is now at multi-decade highs in various countries, taking a closer look at supply chain problems is important for those heavily involved in stock trading.

#1 Chip shortages and phone manufacturers

Chip shortages weigh on companies such as Apple, the largest name traded on the US Stock Exchange by market capitalization, which already announced in October that it will be cutting down on its iPhone production rate due to this issue.

The iPhone accounts for a big chunk of Apple’s revenue and if that starts to shrink, at a time when the stock price is trading at all-time highs, the market could start to price in lower revenues over the upcoming quarters.

On the flip side, companies like Nvidia, Qualcomm, and Intel are benefiting from the shortages in  chips, as higher prices mean improving revenues. All of these upgraded projections for the next several months, as chip prices continue to edge up.

How Supply Chain Issues Affect Big Tech Companies

#2 Online retailers and inventories

People who are active in stock trading should consider that phone and chip manufacturers are not the only companies impacted by supply chain issues. Online retailers such as Amazon must now build up inventories to meet customer demands.

The wider public is aware of the current imbalance between demand and supply, which leads to changing consumer behavior. More specifically, some of them are conducting holiday purchasing sooner when compared to prior years, afraid inventories might not be enough to satisfy demand near Christmas.

How Supply Chain Issues Affect Big Tech Companies

#3 Rising costs and future profitability

With only a few exceptions, companies are going through a tough period as a result of these supply chain issues. Keeping a good pace is essential for public companies because the current elevated valuations need to be backed by strong data.

Reporting for Q3 earnings has already ended and although more than 80% of the companies part of the S&P 500 have posted above-expectations figures, rising costs and elevated inflation were highlighted as the main risks moving forward.

For over a decade companies have gotten accustomed to stable costs and now that this has changed substantially, it is yet to be seen what solutions are to be found.

Summary

Despite some positive remarks in the media, supply chain disruptions are bound to persist. The pandemic is not yet over, as can be seen across Europe for the time being. South-East Asian countries could also be exposed, given the vaccination rates are lower.

That is where the industrial capacity is now concentrated and measures to contain the spread of the virus can put renewed pressure on economic developments. The big question remains for how long companies can pass higher costs to consumers.

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