They did it again! 

Apple, everyone’s top supply chain icon, including ours, yesterday reported yet another blowout quarter of revenues and profits. If you had not read the news in the financial media, the fiscal Q2 (ending March 26) numbers were impressive, to say the least:

  • Quarterly profits up 95 percent to $5.99 billion
  • Revues up 83 percent to $24.6 billion
  • Gross margin increase of 2.9 points to 41.4 percent
  • Doubled iPhone sales from a year ago, to a record 18.6 million, including a 15 percent increase from the holiday-laden December quarter
  • Increased Macintosh sales by 28 percent to 3.7 million computers

Congratulations to the entire Apple supply chain team and ecosystem partners for a superb effort.

On the slightly concerning side, the supply-demand imbalance situation concerning the newly introduced iPad2 began to show in quantitative numbers.  Apple was only able to ship 4.7 million iPads in the quarter vs. 7.3 million shipped in fiscal Q1.  Apple’s management communicated that it was able to sell every iPad it could make, a clear indicator of a supply constrained situation.

From our perspective, some global supply chain observations and comments related to these results are the following.

Apple’s shipment momentum relative to iPhones clearly benefitted from its new channel partner, Verizon Wireless.  Verizon announced that it had sold close to a half-million iPhones from its introduction on February 10th.  A $49 promotional price on the iPhone3 from AT&T also helped to increase volumes.

The most anticipated news was whether the recent earthquake in Japan had, or would have any future impact on Apple’s current momentum.  In the earnings conference call, COO Tim Cook declared that the company hasn’t been affected by the disaster, though it continued to caution that the situation was still unpredictable.  Cook also indicated that there was no supply issue that the company viewed as unsolvable, a clear statement of confidence in Apple’s supply chain team.

As we have noted in prior commentary, that statement has cascading implications for other high tech and consumer electronics providers, especially those that do not currently have long-term, higher volume supply agreements in-place.  Apple’s shipment volumes and business potential are such that key suppliers will continue to service Apple’s needs, even if it results in shorting other lower-volume customers.  The question of the impact of the Japan disaster is more pertinent to other industry players who find themselves in the lower tiers of prioritization from key suppliers, especially smaller mid-market companies.

A closing thought reflects on Apple’s continued mind-blowing momentum.  With each successive blowout quarter, the stakes get higher in terms of Wall Street and shareholder expectations.  If Apple were to experience a significant supply chain glitch or even a hiccup, Wall Street would probably respond with a punishing result to Apple’s stock.

Success brings high expectations, especially in supply chain fulfillment capabilities.

Bob Ferrari