4/29/22, 12:17 PM Apple Stock, Amazon Hit By Supply-Chain Woes. The Good News in the Bad.

| Barron's

ECONOMICS THE TRADER

Apple and Amazon Were Slammed By

Shortages. Here’s the Good News in the Bad.
By
Al Root Follow Updated Oct. 29, 2021 8:51 am ET / Original Oct. 28, 2021 6:40 pm ET

Container ships and other vessels anchored off the ports of Los Angeles and Long Beach on Oct. 25.
Photo by Mario Tama/Getty Images

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4 minutes

First, it was car companies. Then it was industrials. Now, Apple

and Amazon.com
are
getting hit by global supply-chain woes that only seem to get worse. And if big tech
isn’t immune, then shortages are likely to be a growing risk for companies this earnings
season and beyond.

Few were expecting quarters this bad from the two tech titans. Apple CEO Tim Cook
said supply-chain problems cost the company $6 billion in quarterly sales as he
explained why the company missed revenue estimates. Amazon, meanwhile, missed
earnings estimates and CFO Brian Olsavsky said wage growth and inflation added $2
billion in costs to his company’s quarterly results.

Shares of Apple (ticker: AAPL) and Amazon (AMZN) were off 3.5% and 4.8%,
respectively, in premarket trading Friday.

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4/29/22, 12:17 PM Apple Stock, Amazon Hit By Supply-Chain Woes. The Good News in the Bad. | Barron's

Apple’s Troubles Are About Supply, Not Inflation, supply-chain delays, and lost
Demand. Analysts Are Still Upbeat. revenue sound awful, but they are no
surprise for anyone who has been
Amazon Stock Slips as Analysts Worry It
Could Lose Market Share in E-Commerce watching earnings from auto stocks
and industrials.
Apple Supplier Stocks Warned of Miss
Car companies have lost millions of
Commentary: The Answer to America’s units of production in 2021 because of
Supply-Chain Woes Lies in Automation
a lack of semiconductors. General
Motors
(GM) deliveries dropped 33% in the third quarter. Industrial firms are working to
offset inflation, and companies like General Electric
(GE), Honeywell International
(HON), and Caterpillar
(CAT) had to resort to higher prices to offset costs in the third
quarter.

Investors have paid for those problems. The four stocks have all languished over the
past three months, down 3% on average, while the S&P 500
rose 4%. Big tech was
supposed to be immune to these problems—or the companies were supposed to have
things well in hand as the Nasdaq Composite rose 5%, partly boosted by 6% and 16%,
respective, gains in shares of Amazon and Apple. The third-quarter reports show that
wasn’t the case.

Hurry Up and Wait

A measure of manufacturing lead times reached an all-time high in October.
70

60

50

40

30

20

10

0
Oct. 2018 '19 '20 '21
Note: Above 50 means lead times are accelerating.
Sources: Bloomberg; Richmond Fed

So who’s next? Retailers are the obvious choice. They typically report toward the tail-
end of earnings season, and they operate and compete in the same industry as
Amazon. If Amazon can’t manage the problem, then other retailers probably can’t
either.

What’s more, investors seem oblivious to those risks. Specialty retailers in the S&P 500
—including Home Depot
(HD), Best Buy
(BBY), and Ulta Beauty
(ULTA)—are up 11%
over the past three months. The specialty retail subsector hit its 52-week high on
October 26. Retail investors should ready themselves for comments about freight
inflation and difficult holiday shipping.

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4/29/22, 12:17 PM Apple Stock, Amazon Hit By Supply-Chain Woes. The Good News in the Bad. | Barron's

READ MORE TRADER

There Are Hundreds of Reasons to Sell the Stock Market. There’s Only One Reason to
Buy.

Forget AMC Stock. It’s Time to Buy Cinemark.

Still, there is a silver lining: The economy has a supply problem, not a demand problem.
People still want new cars, even if auto companies are having trouble producing them.
Orders for manufactured goods are rock solid and have been rising most of 2021. The
U.S. consumer is in good shape, too, with almost $1.6 trillion in savings, above the $1.2
trillion reported in the third quarter of pre-Covid 2019. That figure doesn’t include stock
market gains or home-price appreciation.

A supply problem is much better than a demand one. The former is annoying, but the
latter causes recessions.

For now, we’ll consider this a short-term problem.

Write to Al Root at allen.root@dowjones.com

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