Supply Chain Matters highlights added evidence derived from sampling of Q2 financial and operational reporting of key high tech industry suppliers reinforcing product demand cyclical shifts are still underway.



In a prior published Supply Chain Matters industry specific commentary, we indicated that a continued market induced cyclical slump in high tech and consumer products demand is impacting this industry’s supply networks. We cited as evidence the recent Q2 financial and operational performance of the industry most influential bellwether suppliers, namely TSMC and Samsung Electrics.

There is now added evidence, specifically on the product demand side for smartphones, that is reinforcing a continued downturn in demand. However, there are signs on the personal computer segment of some bounce back.

Apple’s Q2 Financial Performance

Apple’s Q2 financial and operational performance was headlined among Wall Street focused media as the third consecutive quarter of declining iPhone and other hardware product sales revenue.

The consumer electronics giant was able to exceed analyst expectations on modest revenue and profitability growth, primarily because of surging services related revenues brought about by the large number of active hardware devices through the years. Overall sales in the quarter declined one percent.

Apple indicated that quarterly service revenues grew to a new high of $21 billion driven by more than one billion subscriptions related to smartphone apps, music, among others.  Apple CFO Luca Maestri indicated to the Wall Street Journal that the company set all-time records for multiple services segments which have now doubled over the last three years.

However, iPhone hardware sales reportedly declined 2.4 percent to $39.7 billion in the most recent quarter. Declines were further reported for iPad and Mac computer sales. That caused the company’s stock to decline 4.8 percent on the immediate news.

Guidance provided by executives related to iPhone sales for the upcoming September ending quarter called for an anticipated 3 percent rise in sales, fueling expectations of a September announcement of a new version of the iPhone being available for holiday surge sales.


Qualcomm Quarterly Financial Performance

Smartphone telecommunications chip provider Qualcomm reported disappointing sales in the latest quarter and warned of an expected new round of headcount layoffs based on existing declining industry demand patterns.

The supplier to both iOS and Android powered smartphones indicated that revenues from chips and the company’s other products declined 25 percent on a year-over-year basis to $5.3 billion. Total revenues declined 23 percent. Company executives indicated in future guidance that sales would decline by a high single digit percentage based on a weaker global economy and a slowing consumer economy within China. Qualcomm CFO Akash Palkhiwala especially indicated that until the company sees sustained signs of improving industry fundamentals, cost-cutting efforts would continue into the next fiscal year.

Intel and AMD Financial Quarterly Performance

The Wall Street Journal recently reported that the personal computer market has been showing signs of recovering in recent months as manufacturers have run through chip inventories and are reportedly making new orders. Cited are the latest estimates from quantitative research firm IDC indicating that PC shipments declined 13.4 percent in the second quarter, which is a more-modest fall than the 29 percent rout reported in the first quarter.

A reported resurgent personal computer market helped to boost Intel’s latest quarterly financial performance after two quarters of record losses. Sales for the chip maker’s PC-chip division reportedly fell by 12 percent in the second quarter, but the $6.8 billion in sales in Q2 exceeded the reported $5.8 billion reported for that division in Q1.

CEO Pat Gelsinger indicated to investors that demand for AI applications was poised to boost PC and data-center chip sales that have languished in recent quarters. However, total revenues declined 15 percent on a year-over year basis. The CEO further indicated that the industry’s inventory situation had improved. He specifically declared: “The PC as a category that is now healthy again.”

Rival Advanced Micro Devices (AMD) reported an 18 percent decline in Q2 revenues while operating income declined 47 percent,  missing analyst expectations. One notable bright spot was advanced chips produced for the PC market which was reported to be 23 percent above expectations. AMD has also been targeting advanced chips to facilitate greater leverage of generative AI applications in PC’s.


Augmented Perspectives

As noted in our prior commentary, as is often the case, high tech, consumer electronics and smartphone supply networks traverse cyclical market changes driven by economic, political and industry forces. The last three plus years of pandemic induced exploding levels and component shortages provided a high threshold level of comparison. It now appears that demand and supply networks are adjusting to different levels of product demand, economic market and innovation specific cycles.

The open question is likely where the new industry threshold of growth ultimately turns out to be, especially given the hype cycle of generative AI applications and even more sophisticated smartphones.

Beyond market demand is the ongoing regionalization of supply networks predicated on national policies or supply network resiliency strategies.


Bob Ferrari

© Copyright 2023, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.