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Apple warns of supply chain woes while Amazon faces increased labor costs

Apple, which had record 12-month profit nearing $100 billion, warned that supply-chain disruptions are hindering iPhone and other product manufacturing and would bring increased challenges during the important holiday-shopping quarter.

Amazon posted lower-than-expected third-quarter sales as labor and supply-chain challenges pushed costs up $2 billion and have made it harder to meet demand. The company has had to reroute products and has seen inconsistent staffing in some areas, according to executives. Sales of $110.8 billion fell below Wall Street expectations, and profit of $3.2 billion fell by about 50% from the same period a year earlier.

Shares in both companies fell by 3% or more in after-hours trading.

The pandemic lifted the businesses of tech giants in its early stages because people who stayed at home during lockdowns needed more of their products. But as the pandemic’s economic disruption has dragged on, it us creating problems that even the strongest companies are struggling to reckon with.

The automotive industry has been trying to untangle supply-chain woes. Computer-chip shortages dented factory output and contributed to a steep drop in third-quarter profits for both General Motors Co. and Ford Motor Co. Meanwhile, shortages of dishwashers and refrigerators due to the issue are likely to stretch well into next year, Whirlpool Corp. said.

The pandemic-era pain has expanded to other industries beyond manufacturing as well, leaving stores and restaurants looking for workers and weighing price increases. McDonald’s Corp. is raising menu prices to keep pace with rapidly growing costs, with wages increasing 10% so far this year at its U.S. restaurants. Kraft Heinz Co. can’t keep up with demand for children’s meals and other flagship products and said that similar hurdles would remain in the coming months.

To be sure, some companies saw revenue and profits expand even as the challenges intensify across many industries. Microsoft Corp. shares have risen about 5% this week after the company reported continued growth in its cloud-computing unit. Alphabet Inc.’s Google nearly doubled its profit in the third quarter as its ad business withstood market changes that had crimped earnings for social media companies.

For Apple, the effects of the disruption are comparably new. Chief Executive Tim Cook had largely helped Apple navigate the turbulent waters of Covid-19 and avoid a hit to its financial results during the past year as other companies struggled with chip shortages.

But that changed in the summer. In July, Apple cautioned that a global shortage of computer chips would extend to its iPhone production.

Actually, the supply-chain disruptions during the fiscal fourth quarter were worse than expected, Apple Chief Financial Officer Luca Maestri said. The problems were twofold—the chip shortage roiling everyone and an unanticipated increase in Covid-19 cases in Southeast Asia that affected manufacturing.

The results: Revenue fell short of analyst expectations. After the market closed Thursday, the company reported total revenue for the July-through-September quarter of $83.4 billion, a 29% increase from a year earlier but lower than the $85 billion expected by analysts surveyed by FactSet. The company’s profit rose in line with expectations to $20.6 billion for the quarter, or $1.24 per share, from $12.7 billion a year earlier.

During the first three quarters of its fiscal 2021, from October 2020 through June of this year, Apple earned $74 billion. That is already far more than what was previously its best entire year, in fiscal 2018, when the company’s profit totaled $58.5 billion.

Even before the results were released, investors were concerned about how supply-chain issues might affect Apple’s important holiday quarter.

There are multiweek waits in some areas for delivery of certain models of the iPhone and other products, and even with supply-chain delays, investors are eager to see if the continued allure of 5G technology and new camera capabilities will help fuel another big year.

Mr. Maestri acknowledged that wait times for some Apple products were longer than the company would like. Supply constraints during the fiscal fourth quarter hurt potential revenue by $6 billion, he said, and will be worse in the current period.

Mr. Maestri said the iPhone maker still expects to see year-over-year revenue growth during the period that ends in December. “We fully expect to set a new December quarter record for revenue,” he said. “But we also expect the supply constraints will be greater than the $6 billion.…We expect most of our product categories to be constrained during the December quarter.”

Some investors argue that Apple is naturally going to see a tougher year in fiscal 2022 and, to make their case, they point to previous years that followed the company benefiting from hot iPhone introductions that have resulted in larger than normal results. Others see continued momentum from 5G.

Apple is expected to have delivered a record 238 million iPhones in the past fiscal year, according to analysts’ estimates. They expect 233 million this year. The company doesn’t disclose unit sales but, during the first nine months of the fiscal year, iPhone revenue rose 38% to $153 billion. In the July-to-September quarter, iPhone revenue rose 47% to $38.9 billion, missing the $41 billion expected by analysts.

The strength of Apple’s other products throughout the Covid-19 pandemic has helped fuel record profit. The company has benefited from workers and students at home wanting new laptops and iPad tablets.

Those results continued to grow in the fiscal quarter. Sales of Mac computers rose 1.6% to $9.2 billion, while sales iPads rose 21% to $8.3 billion. Analysts had expected growth of 1.3% for Macs and 6.6% for iPads during the period compared with a year ago.

(This story has been published from a wire agency feed without modifications to the text)

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