We have been hearing problems with supply issues with semiconductors – many car companies have brought it up (obviously Tesla has navigated this process quite well).
However, today’s news is quite surprising in terms of understanding the extent to which the semiconductor shortage is having an issue. Today we heard
A TOBACCO COMPANY SAYING SEMICONDUCTOR SHORTAGE IS SLOWING GROWTH:
PHILLIP MORRIS
This was a really interesting headline and I took a deeper look – and the issue was due to IQOS device – Philip Morris International’s electric tobacco device.
They anticipate tight supply situation to continue into the first half of 2022. It is actually a very high-tech device. For example, it highly sensitively controls the temperature in the device for optimal experience. It is not easy to continuously hit unstable/unnatural/artificial equilibrium and you need to rely on high technology to achieve that!
While semiconductor has done much damage to the world, there seems to be one good positive out of semiconductor shortage.
Philip Morris International will restrain commercial programs and will prioritize existing users.
I read this as they are going to turn down on commercial advertisement for customer “acquisition” – many lives will be saved as fewer people will be addicted to tobacco.
IQOS user growth remains robust though at least many people are moving towards non-combustible products – away from combustible / smoking.
Smoking business remains robust for now, but the obvious big question will be the terminal value – is it a 5x FCF business or 10x FCF business? Maybe IQOS can be transformational and turns the business into a highly durable business with predictable growth profile (it is very easy to raise price for your product if your customers are addicted to your products).
