In this Supply Chain Matters Supply and Demand Network Perspective commentary, we highlight some of the recent financial performance reporting from closely watched manufacturers. We further include the financial challenges of a previous highflyer, now struggling with a significant product demand reduction.
We do so to garner for our readers a gauging of various industry challenges entering 2022, and especially the outlooks that these companies are indicating.
Apple’s Record Quarterly Performance But Continued Cautions
Consumer electronics and smartphone producer Apple’s financial performance for the October 2021 to December 2021 quarter was generally positively received. The overall headline was iPhone, Mac, wearables and services revenues all recording all-time highs. The latter, services, was especially strong in revenue and profitability performance.
Highlights included total revenues rising 11 percent to a record $123.9 billion. Quarterly net income was a record $34.6 billion.
Year-over-year iPhone sales reportedly rose 9 percent to $71.6 billion, above Wall Street’s expectations of 3 percent sales gains. In its reporting, The Wall Street Journal noted some caution in its reporting in indicating that analyst consensus for full fiscal year sales of the iPhone, which extends to September 2022, will rise less than one percent, compared with a 39 percent sales increase in the prior fiscal year.
Mac computer sales rose 25 percent in the quarter, while iPad revenues declined 14 percent, the latter well below analyst expectations. During November, Supply Chain Matters called attention to a report that limited supplies of key semiconductor processors were being allocation to support the production output needs of the newly announced iPhone 13. That came at the expense of the production plan for the newest iPad models and older iPhone models. Limited supply was thus being allocated to the most profitable models.
Regarding supply chain constraints, CEO Tim Cook indicated to analysts that the company experienced supply constraints across most of the company’s products in the recent holiday focused quarter but that he expects such constraints will improve during the March ending quarter. Asked if global wide semiconductor shortages will improve this year, he declined to say. He noted: “You need to know a lot of things to be able to make an accurate forecast there.” The WSJ indicated that during the July thru September quarter, Apple indicated that $6 billion in lost sales were encountered because of supply constraints. CEO Cook indicated that in the October to December fiscal quarter, the number was more than $6 billion.
Tesla Exceeds on Revenue and Profit But Cites Supply Challenges
Electric auto maker Tesla’s fourth quarter financial performance was headlined with revenues and profit exceeding expectations, with quarterly revenue rising 65 percent and net income up 760 percent.
None the less, the company noted in its shareholder report: “Our own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through 2022.” CEO Elon Musk added that the company expects to be chips and component part limited this year, and the auto maker will instead introduce no new models this year. Musk told The Wall Street Journal: “The fundamental focus of Tesla this year is scaling output” and added that he expects to boost auto deliveries by more than half this year.
Earlier this month, Supply Chain Matters provided its Tip of the Hat recognition to Tesla’s supply chain and product management teams for their outstanding performance in 2021, and particularly efforts to pivot around semiconductor shortages with on-the-fly electronic design and software changes.
Separately, the U.S. Commerce Department indicated this week that based on recent survey data, U.S. manufacturers and companies that utilize semiconductors for product needs are down to less than five days of inventory for 160 of key, in-demand chips. That compares to an average of 40 days on inventories of key chips in 2019, before the pandemic.
Procter and Gamble Impresses Investors But Elects Price Increase Strategies
Consumer products producer and long recognized supply chain excellence provider P&G reported impressive financial performance for the company’s December-ending quarter. Net sales and organic revenues rose by 6 percent while net income rose by 9.6 percent. An intense cold, flu and Covid infection season accelerated sales for its personal healthcare product lines.
Analysts noted that half of P&G sales growth came from the company’s abilities of raising prices on in-demand branded products. Average price increases amounted to 3 percent during the recent quarter, The price increase strategy is expected to continue this year.
P&G senior executives indicated to investors that there is no relief in sight from higher costs related raw materials, transportation and labor. CEO Jon Moeller indicated the company spent big to keep factories operating and products in stock during the quarter. The producer further stated that it expects to commit an additional $2.8 billion for commodity, freight and foreign exchange costs in the existing fiscal year. That number is $500 million more than what was projected in the previous quarter.
Peloton Addresses a Market Demand Shift Crisis
During 2020, when so many consumers were restricted to personal residences because of rampant Covid-19 infection spread and death rates, one of the most visible beneficiaries was interactive fitness equipment provider Peloton Interactive.
The company experienced an unprecedented demand for its fitness bikes and treadmills, eventually far exceeding the ability of its Asia based supply network to be able to keep up with customer delivery expectations. At one point the company elected to air freight fitness equipment direct from China in order to keep it with customer commitments, since each piece of equipment came with a monthly subscription for virtual instructor led interactive training sessions that was billed a time of initial customer order.
That crisis came to a boil in January 2021 as a flurry of continuous reports of customer frustrations in delivery of orders and with customer support experiences reached the attention of the company’s most senior management, as well as its investors. While some companies found themselves in a position to be able to quickly pivot their supply chain capabilities to respond to added COVID-19 market demand, that was not the apparent case for this company.
In late May of last year, and to address its elongated supply network challenge, the company announced plans to invest $400 million to construct a one million square foot manufacturing, office and amenities facility on a 200-acre site in Troy Township, Ohio, with expectations to have the site up and running by 2023.
The company has since been challenged with continuing declining demand for products and interactive services and has now brought in outside consultants to review overall cost structures. Continual headlines regarding the company’s slide occupy business reporting, the latest being warnings of headcount reductions and temporary suspension of production of certain of the company’s fitness models. The company’s market value has now dropped from more than $50 billion to under $10 billion.
Of the many views that are or will be expressed relative to the experiences of Peloton, one will have to include a deeper understanding of the vulnerabilities of a globally extended supply chain in the throws of a pandemic, when frequent production and transportation disruptions were the norm, and where a lack of supply chain visibility and resiliency proved costly.
Final Note
Our final note relates to praising the various procurement, supply chain, and sales and operations planning teams that contributed to the business financial outcomes of Apple, Tesla and P&G amid significant challenges and headwinds.
Regarding Peloton Interactive, it is a business case study lesson of deeper understanding for integrating business and product management strategy with that of supply network sourcing and customer fulfillment.
As for the coming year, the above cited examples portend another challenging year for these same companies and their supply chain focused teams.
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