Thirst for iPhones waning, so Apple activates Plan B

In a world where demand for iPhones is on the wane, Apple has a Plan B. As customers wait longer between upgrades and the smartphone market saturates, Apple can fall back on charging higher prices for each handset and raking in more money from services such as streaming music, digital videos and data storage.

But there’s no backup for many of the companies that supply components for iPhones.

The latest evidence that what’s bad for Apple can be terrible for suppliers came on two continents within hours of each other. Japan Display Inc., which gets more than half its revenue from the iPhone maker, cut forecasts. Then Lumentum Holdings Inc., a top maker of iPhone facial-recognition sensors, lowered its second-quarter outlook. On Tuesday, Hon Hai Precision Industry Co., the biggest assembler, missed estimates.

“Suppliers are more dependent on volume than Apple,” said Woo Jin Ho, an analyst at Bloomberg Intelligence. “This raises an incremental risk for the rest of the supply chain.”

Apple didn’t respond to a request for comment.

Apple shares fell 5 percent Monday, but Lumentum slumped more than 30 percent and rival II-VI Inc. dropped 13 percent. Japan Display dropped 9.5 percent, while Hon Hai Precision Industry Co. slipped to the lowest level in five years.

In Europe, Dialog Semiconductor Plc, which gets most of its sales from Apple, fell as much as 3.6 percent in early Frankfurt trading. Austria’s ams AG, another supplier, slid as much as 3.2 percent after plunging 22 percent Monday.

Faced with a maturing smartphone market, Apple’s strategy has been to entice customers to pay more for phones with new features such as facial recognition and more vibrant screens. The 3-D sensing components from companies such as Lumentum are found in iPhones that often cost more than $1,000. Fewer people can afford to pay that much for a new device. But when a sale does happen, suppliers get a onetime payment for their component, while Apple can generate hundreds of extra dollars per gadget. In its most recent quarter, Apple reported almost no increase in the number of iPhones sold, but revenue from that business jumped 29 percent from a year earlier.

If demand for newer, pricier iPhones wanes, Apple can cut component orders, or delay shipments, leaving suppliers with more inventory. That makes them more likely to cut prices when Apple comes back to the negotiating table.

Lumentum’s weaker sales forecast was the result of a shipment reduction from its largest customer just a few days ago, chief executive officer Alan Lowe said at a conference in San Francisco on Monday. Lumentum didn’t identify the customer, and a spokesman for the company declined to comment, but Apple is its biggest customer according to data compiled by Bloomberg.

Apple is touting its base of 1.3 billion installed devices, rather than how many iPhones it sells each quarter. And the company has been making changes to keep these existing customers happy while selling more services to them.

“Apple is no longer a traditional hardware business,” said Gene Munster, a veteran Apple analyst at Loup Ventures. “The Apple investment paradigm is moving away from a focus on device sales toward a more predictable servicesdriven business.”

This year, Apple has taken steps to lengthen the amount of time iPhones can be used.