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3 Companies Getting Whacked by the Global Semiconductor Shortage

By Leo Sun - May 12, 2021 at 7:00AM

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Apple and two other tech giants could suffer temporary slowdowns as they run out of chips.

The global semiconductor shortage came about due to challenges manufacturing new chips, pandemic-related disruptions, the secular growth of new technologies, and elevated demand for consumer electronics as more people stayed at home. The world's top chip foundries are currently expanding their production facilities to deal with that perfect storm, but those bottlenecks won't get wider anytime soon.

As a result, any company that depends on the timely production of new chips could face supply constraints this year. Let's examine three companies that recently cited the chip shortage as a major headwind, and how much the crisis could throttle their growth this year.

1. Apple

At the end of April, Apple (AAPL 2.14%) posted a strong second-quarter earnings report that easily beat analysts' estimates. But during the conference call, CFO Luca Maestri warned that "supply constraints" would reduce its third-quarter revenue by $3 billion to $4 billion.

A silicon wafer.

Image source: Getty Images.

Maestri said the chip shortages would mainly impact its sales of iPads and Macs, which saw a "very, very high level of demand" throughout the pandemic as more people worked and attended classes remotely. Apple didn't specify exactly which chips it was running out of, but CEO Tim Cook said the shortages mainly affected its "legacy nodes" of older chips.

A $3 billion-to-$4 billion impact would only equal about 1% of Apple's estimated revenue this year, but the company didn't predict when the shortages would actually end or how much they would impact its revenue beyond the third quarter.

On the bright side, Apple's iPhone -- which is expected to drive most of its growth this year -- hasn't been affected by the chip shortage yet. But Apple still relies on Taiwan Semiconductor Manufacturing, the world's tightest bottleneck for fabless chip production, to consistently produce its new iPhone chips, so investors shouldn't assume the coast is clear for Apple's biggest business.

2. Sony

Sony (SONY 1.14%) launched its new PS5 consoles last November and initially expected those shipments to strengthen the gaming and networking services (G&NS) segment, which generated 30% of its revenue and 35% of its operating profit in fiscal 2020 (which ended in March).

Its G&NS revenue rose 34% in 2020 as the pandemic boosted its PS4 software sales up to the PS5's launch. The PS5 also got off to a strong start and sold out during the holidays.

Sony's PS5 consoles.

image source: Sony.

Sony has sold 7.8 million PS5 units through the end of March, and it expects to sell at least 14.8 million units for the full year -- which would match the initial growth trajectory of the PS4.

But its warning regarding the PS5's supply chain suggests the console's growth trajectory could have actually been much higher if it weren't for the global chip shortage. Those hardware delays could also cause third-party game publishers to postpone their new PS5 releases to reach a larger audience.

3. Nintendo

Nintendo (NTDOY 0.00%) already started the year on shaky ground, as many investors questioned the ability of the aging Switch gaming console to hold its ground against the PS5 and Microsoft's Xbox Series consoles.

Nintendo recently beat analysts' estimates with a solid fourth-quarter earnings report, but it issued conservative guidance for fiscal 2022, which started in April. It expects its full-year revenue and operating profit to decline 9% and 22%, respectively, and for its annual Switch shipments to drop 11%.

It attributed that weak outlook to the ongoing chip shortage and tougher comparisons to its robust sales throughout the pandemic. Nintendo is reportedly developing an upgraded Switch, which is powered by a faster NVIDIA chip and a Samsung OLED display, which might launch in the second half of 2020.

However, the recent chip shortages could postpone that launch and force Nintendo to rely on its four-year-old Switch and its cheaper variant, the Switch Lite, for much longer than it originally anticipated.

The bottom line

Apple, Sony, and Nintendo could all experience some short-term pain from the global chip shortages, but demand for their core products could remain high. So as long as there's pent-up demand for their products, long-term investors shouldn't fret too much over their chip-related challenges.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Apple. The Motley Fool owns shares of and recommends Apple, Microsoft, NVIDIA, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Nintendo and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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