Apple's holiday quarter will again see giant challenges because of supply chain issues

Apple has publicly committed to donating to the disaster relief efforts following Hurricane Helene. This is unfortunately just the latest of so many cases that have needed such help, but it's also one Apple's supply chain could be severely affected.

That's because while much or most of Apple's suppliers are overseas, there is a crucial quartz mine in western Northern Carolina in the US. It's so far been closed entirely for five days following the devastation caused by the hurricane.

The town around the mine, Spruce Pine, contains one of a small number of mines worldwide that can produce ultra-pure quartz. That's the base for semiconductor wafers, so this mine is crucial to the worldwide manufacture of processors.

The only reason it's less than certain Apple will not reveal the effect of the factory fire on its bottom line, is historical. When there were larger production issues in China, Apple issued a rare statement about iPhone availability as a consequence.

Shipping issues

Then according to Reuters, dock workers on the US East Coast, and Gulf Coast, have begun their first strike in almost half a century. Apple famously used to use air freight in bulk, and to the extent that it created problems for rivals.

In recent years, however, Apple has been moving away from air and to ocean shipping. It still sticks to air freight to deliver most of the iPhones from September through November each year. After that initial iPhone rush, though, Apple switches to ocean freight for retail stock, and it also tends to prefer sea to air for distributing the Mac.

It's all part of the firm's commitment to becoming completely carbon neutral by 2030, and ocean shipping is significantly better for the environment than air traffic. When necessary for speed, or when supplies are tight, Apple will continue using pricier aircraft, though.

Ocean shipping is already a slow solution, and further delays complicate internal production and delivery schedules. At present, though, the strike is confined to the east coast while we've heard that about 70% of Apple's shipping receipts to the US is via west coast ports, which for now remain unaffected by the strike.

Worldwide demand for smartphones is down

Apple's products, most especially the iPhone, are expensive items and so are bound to be affected by consumer confidence. The worldwide macro economic situation is not leaving anyone with lots of disposable income, so Apple is facing declining funds exactly when it is spending more.

Tim Cook has been saying that Apple faces what he describes as macro economic headwinds for many of the recent quarterly earnings calls. There are some signs of recovery in China, but still while smartphones are important and enabling, upgrading them is far from an essential.

That's so much so that amongst all of the hype about AI and Apple Intelligence, Piper Sandler thinks demand may be dampened over the cost of the iPhones.

The good and bad of satellite messaging

Back specifically in the US, the economy is faring better than it is worldwide. But the US economy is also taking a battering from Hurricane Helene.

So is Apple's infrastructure, because of the recently introduced messages by satellite in iOS 18.

Apple's free satellite messaging service is intended for those times when someone is out of cellular contact because, say, they are stranded up a mountain. Now, just days after it was introduced in iOS 18, it is being pressed into service for countless people stranded by the hurricane.

It's a continuing secret just how much it costs Apple to operate this service. But where it's free to users, it's anything but to the company because as well as technology, it requires immense international resources. There's the satellite network itself, plus ground stations and support staff around the world.

Apple is never going to say how much the increased use of its new service is costing the firm in dollars and cents. But then it's also never going to say how much it is being affected by the current freight strike, and it's unlikely to put a figure on the impact of the Tata iPhone factory fire.

That fire has caused sufficient damage in the factory that it has been closed indefinitely. It's not known when that decision will or can be re-examined, but it's estimated that it will mean a shortfall of around 1.5 million iPhones being produced this year.

What happens next is up to Apple

So funding, freight strikes, fire, and floods. They are all hitting Apple at the same time — just as the holiday season and peak iPhone demand is starting.

But there is a reason Tim Cook is CEO of Apple, and there's a reason one of his earliest acts was to crack down on the supply chain. His background is in logistics and one famous example was in 1998, when he spent $100 million that Apple could not afford to lose — and he spent it on booking freight ahead of rivals.

Today there is a whole Operations and Supply Chain department at Apple, with logistics and infrastructure teams based around the world. For example, it seems probable that Apple will reroute iPhone manufacturing from the Tata factory to another, probably in China.

Apple faced much larger, much longer production issues over COVID and it got through all of those. It certainly got through them by planning, but it also had an advantage that will see it through the macro economic slump.

It's got cash. It happily spends it to spackle over supply chain issues.

It's easy to assume that having a lot of money available means Apple can do anything and can survive anything. But Apple has consistently demonstrated that it looks for the long game instead of any topical problems, and it has built its finances with that in mind.