Why are automakers more affected by the chip shortage than Apple?

It is no secret that many automobile manufacturers have been impacted by a chip shortage. And while Apple said the other day that this could eventually result in a shortage of iPads in the second half of the year, top foundry TSMC has reportedly started mass production of the M2 chip for Apple. And during the first quarter, Apple's iPhone and iPad revenue rose 65.5% and 79% respectively indicating that it had enough chips to meet demand.

Yesterday, when Apple announced its spectacular first quarter results, Ford said that it would be able to produce only half the number of cars as expected due to the global chip shortage. It's not that Apple won't be affected as the company did say that it will lose $3 billion to $4 billion in revenue during the current quarter due to the shortage of chips.

According to Reuters, electronic companies like Apple are used to purchasing chips for the long term. Auto makers, on the other hand, purchase parts for production lines that can be changed quickly to deal with the production of varying parts depending on what models are in hot demand. But this makes automobile manufacturers more sensitive to the chip market in the short term.

Let's look at what both Apple and Ford have said. For Apple, $3 billion to $4 billion in revenue is a small percentage of the $68.94 billion in sales that Apple projects for its current fiscal third quarter. Ford, on the other hand, is talking about losing up to 50% of its production.

Reuters says that companies like Ford get much of the blame for their faulty analysis. Several manufacturers cut back chip orders a year ago when the pandemic started to raise its ugly head, but failed to forecast the stronger than expected rebound that ensued. Ford CEO Jim Farley acknowledged that the chip shortages and production cuts could last into next year and warned investors and buyers that "there are more whitewater moments ahead."

During yesterday's conference call, Apple CEO Tim Cook said that Apple has been able to forge ahead by running through its inventories of chips. The executive did admit that the tech giant will have problems purchasing older chips made with older technology starting this quarter. Chip foundries like TSMC have given smartphone manufacturers an edge over companies like Ford when it comes to procuring chips thanks to the more expensive production equipment that they have purchased over the years.

Chip supplier Qualcomm also provided a good example of how smartphone manufacturers are barely getting hurt by the chip shortage. The San Diego based outfit said that sales of smartphone processors and 5G communications chips are booming. But some smartphone producers besides Apple are beginning to feel the heat.

The chip shortage is expected to lead Samsung to announce lower smartphone sales during the current quarter even though the company's chip unit is supposed to continue to report good profits. However, even firms using advanced techniques to produce chips are having to use creative solutions to solve problems.

Advanced Micro Devices (AMD), in order to get around a shortage in the material used as the foundation in the production of integrated circuits, found that it can avoid a shortage by investing in the companies that supply it with this material. This resulted in AMD being able to obtain the amount of material it needs. CEO Lisa Su says, "We’re a bigger part of our suppliers' businesses, and we’re looking for opportunities to help our partners get the capacity that we need in place. We started that last year, and we’re going to continue."

While Apple faces potential shortages in delivering iPad models later this year, the iPhone contributes six times the revenue that the iPad does. Ford, on the other hand, is facing big time production shutdowns for its most profitable product, the F-150 pickup.