Opinion: Apple and Amazon are struggling, so investors may want to

On Oct 29, 2021

Both Apple Inc. and Amazon.com Inc. had rare earnings disappointments on Thursday, which may lead investors to look in another direction for big holiday returns.

This column warned that the two tech giants could stumble this quarter, as the supply-chain issues that had been affecting other industries took a bite out of both Apple
AAPL,
+2.50%
and Amazon
AMZN,
+1.59%.
It appears those issues will continue into the normally huge holiday quarter for the consumer-focused companies, while a natural rival of both — Microsoft Corp.
MSFT,
+0.37%
— offered a huge holiday forecast just a few days earlier.

Read: The Tech earnings boom is fizzling out, as Apple and Amazon face the same issues as everyone else.

Apple reported a rare revenue miss — its first since the December quarter of 2018 — with revenue of $83.4 billion coming in $1.7 billion below analysts’ estimates of $85.1 billion for its fiscal fourth quarter. Since the pandemic, Apple no longer gives revenue guidance, but the bulk of the revenue shortfall came from iPhone sales, which came in $2.1 billion below analysts expectations. Sales of Macs and iPads, however, exceeded estimates.

Apple’s Chief Financial Officer Luca Maestri told analysts that the ongoing supply constraints hurt its revenue by around $6 billion, and that the impact will be larger in the December quarter. The products most effected were the iPhone, the iPad and the Mac, and the constraints were caused by both semiconductor shortages and manufacturing disruptions because of the COVID-19 pandemic.

Amazon reported an even sharper-than-expected drop in earnings, with a huge surge in expenses, as it tried to shore up staff and dealt with unprecedented supply-chain issues. Amazon’s costs to fulfill and ship orders increased to $18.5 billion from $14.71 billion. Amazon reported third-quarter earnings per share of $6.12, a drop of nearly 50% from the year-ago and below analysts’ average expectations of $8.90 a share.

These higher fulfillment and employee costs, like Apple’s supply-chain constraints, will continue in the fourth quarter, usually the biggest for consumer-related tech companies. Amazon CEO Andy Jassy said in a statement that Amazon expects to incur “several billion dollars of additional costs” in its consumer business, as it deals with “labor supply shortages, increased wage costs, global supply-chain issues, and increased freight and shipping costs.”

The shares of both tech mega stars — which both trade over $1 trillion in market cap — tumbled in after-hours trading, with Apple falling 3.65% while Amazon lost 3.89%.

While neither company is seeing any loss of demand — in fact the opposite is occurring because they cannot keep up with demand amid the global shipping and product constraints — the news was a downer for investors counting on them to finish the year strongly. As…