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What will Apple do about the chip shortage?

August 27, 2021, 9:32 PM UTC

Manufacturing and supply challenges created by the pandemic have caused a widespread computer chip shortage that has inflated prices for everything with chips, including PCs, gaming consoles, cars, and assorted gadgetry.

Smartphones may be next on the list. The world’s largest contract chipmaker, Taiwan-based TSMC, plans to increase prices for its most advanced chips “by roughly 10%” later this year or next year, the Wall Street Journal reports. Apple, which uses TSMC chips in its phones, is among the semiconductor foundry’s biggest customers.

If Apple passes those price hikes to its own customers, it could mean more expensive iPhones. But pricier iPhones aren’t guaranteed. Apple, which already charges a premium for its phones, could offset the costs by accepting a thinner profit margin. After years of stagnation at around 38%, Apple’s gross profit margin has been on a tear lately, breaking the 40% threshold for the first time since the end of 2015 to more than 43% in its most recent quarter ended June 26. The boost is largely due to Apple’s booming software and services unit, a higher margin business that can cushion the blow of rising component costs in other of the company’s units (though lately, software and services has come under fire by App Store-probing regulators).

Alternatively, to keep prices in check, Apple could add fewer expensive bells and whistles to future iPhone models. Apple may already be delaying phone upgrades. Despite early rumors that the new iPhone 13 planned for next month may finally include in-screen Touch ID sensors for scanning fingerprints, they’ll, in fact, come without the much sought-after feature, reports Bloomberg’s Mark Gurman. Prospective iPhone-buyers, many of whom unpleasantly discovered that COVID masks thwart Face ID, will be disappointed to learn of the postponement.

Oftentimes, device manufacturers sign deals with parts suppliers in advance, locking in component costs in longer-term contracts. For phones coming this year, prices are undoubtedly already set. Apple is therefore unlikely to need to raise prices immediately, if at all.

Apple did not respond to Fortune’s request for comment.

In any case, Apple may want to avoid raising prices excessively during what promises to be a heated phone upgrade season. Rivals plan to introduce a slate of super-fast 5G network phones, with camera, battery, and processor speed improvements.

For example, Google’s latest phones, the Pixel 6 series, are the search giant’s first serious attempt at an “ultra-high end” phone, Google hardware chief Rick Osterloh told the Verge earlier this month. Google tapped Samsung—TSMC’s biggest competitor—to produce Google’s self-designed, A.I Tensor chips for its latest phones.

It’s unknown how long the chip shortage, and its impact, such as increased prices, will endure. But it’s worth noting this business axiom: higher prices tend to stick.

Robert Hackett
@rhhackett
robert.hackett@fortune.com

NEWSWORTHY

Apple commissions. The tech giant will finally let app developers alert their customers that they can pay the developers outside of their iPhone apps, Apple announced Thursday as part of a legal settlement. In doing so, the app makers will no longer have to pay Apple a commission on those sales. Apple has also agreed to cap the commission rate for small developers at 15% for at least three years. But, as The New York Times pointed out, Apple still faces a judge's decision in the lawsuit filed against it by Fortnite-creator Epic Games, which may call into question Apple's ability to charge commissions in the App Store entirely. 

OnlyFans backs off fundraising push. The subscription content platform that briefly retreated from the porn business is reversing course, again. This time it changed its mind about fundraising. In the same week that saw OnlyFans both announce and reverse a ban on sexually explicit content, the site's effort to raise funds with the help of The Raine Group are on hold. OnlyFans doesn't need money at the moment, though, according to business news site Insider. 

DoorDash, Grubhub under fire in the Midwest. The City of Chicago has sued the two food-delivery giants, reiterating concerns that both DoorDash and Grubhub advertise restaurants on their platforms without their consent and hide the lower prices that restaurants charge outside of the platforms. In Grubhub's case, Chicago alleges that the service shared restaurants' telephone numbers with customers while charging the businesses a commission for the resulting calls, even if no order was placed. Separately, DoorDash, according to Chicago, has been misleading customers about how driver tips were being allocated. Both companies called the claims "baseless," according to CNBC.  

Chinese listings crackdown. Beijing is gearing up to issue new rules banning companies from listing in the U.S., if they hold swaths of sensitive consumer data, The Wall Street Journal reported Friday. People familiar with the matter told The Journal that the move will likely provide Chinese officials with more oversight of the Variable Interest Entities that many China-based companies like Alibaba and Didi have used to list internationally—something that U.S. securities regulators have wanted for themselves too. 

Rivian looks for the public market on ramp. Backed by Amazon and Ford, EV startup Rivian Automotive has confidentially filed to go public in the U.S. The company has raised $10.5 billion in funding since 2019, including a recent $2.5 billion private round that was led by Amazon's Climate Pledge FundD1 Capital PartnersFord and certain funds advised by T. Rowe Price. 

This edition of Data Sheet comes courtesy of Declan Harty.

FOOD FOR THOUGHT

"A new generation of Jim Cramers." It's been almost two years since the retail brokerage business largely moved to a zero-commission regime, setting up a new era of retail investing. But who's to educate the young, hip, and cable-cut investors about the markets? Well, as The Wall Street Journal reported Friday, a wave of wannabe financial commentators who are using social media to reach the masses and very careful about making sure their followers know they aren't financial advisers.  

From the article:

On TikTok, podcaster Tori Dunlap (known on the app as @herfirst100k) offers her 1.7 million followers tips for developing "side hustle" businesses and which debts to pay off first. The 27-year-old is developing an app to cultivate a "nonjudgmental investing community" intended to help women feel comfortable trading investment tips and managing investments in their brokerage accounts.

Cameron Newell, aka CamTheMan, a college dropout from central Washington state, started trading penny stocks full-time about three years ago and says he earned $5 million last year from day trading. He doles out stock tips on TikTok and hosts a chat group on Discord—the social app commonly used by videogame enthusiasts—where followers can track and copy his trades, or follow along with periodic investing challenges where he seeks to turn an initial investment of $1,000 into $1 million.

"Traditional finance is a black box," said Sarah Petite, a social-media consultant in Los Angeles. "This generation is looking at their parents and saying, 'The way you thought about money? That isn't how it works anymore.'"

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BEFORE YOU GO

3-D beef. A group of scientists from Osaka University in Japan have found a way to 3-D print a "meat alternative." Using stem cells from Wagyu cows, the scientists created a substance that contains many of the features that have made Wagyu beef a signature of steakhouses worldwide. Considering it's 3-D printed, the Wagyu meat alternative will obviously offer a more sustainable option that maybe will be more cost effective. But the key is how it actually tastes.  

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