Apple’s iPhone slump is rumbling through tech
Prospect of weak demand reverberates across company’s supply chain
Apple Inc. may not want to talk about iPhone unit sales anymore. That leaves the company’s massive global supply chain to do the talking for them.
Lately, the word there has not been great. Two suppliers—Lumentum Holdings and Japan Display—scaled back their forecasts Monday. Both observed the strict code of silence that Apple imposes on its suppliers, in that neither explicitly blamed weak iPhone demand for their actions or even mentioned the company by name. But Apple is a big source of business for both; the iPhone maker accounted for half of Lumen- tum’s revenue in last year’s December quarter, according to the company’s regulatory filings.
And Morgan Stanley estimates the iPhone will drive about 50% of Japan Display’s revenue this year as well.
Those were just the latest data points pointing to a weak turnout for Apple’s newest crop of iPhones.
Particularly the cheaper iPhone XR, which launched late last month and was expected to be the largest seller of the bunch.
Apple’s comments about the device during its last earnings call were noticeably devoid of enthusiasm, and the Nikkei Asian Review reported last week that the company has asked its Asian manufacturers not to expand production lines for the device.
What appears to be a weaker iPhone cycle is showing the downside of the giant tech companies that now dominate markets. The selloff at world’s largest company by market cap is also dragging down many in it’s vast network of component suppliers and manufacturers.
Much of that network is made up of smaller companies that have grown to depend on Apple and its iconic smartphone for large chunk of their businesses. In a list of 40 Asia-based Apple suppliers, Morgan Stanley estimates that 18 depend on the iPhone for 30% or more of their annual revenue this year.
U.S.-based chip makers like Qorvo and Skyworks—both of which supply radio-frequency chips for the iPhone—also draw more than one-third of their annual revenues from Apple. The big companies that supply Apple, like Samsung Electronics, Intel Corp. and Broadcom are more diversified, but can still feel the pain of slowing iPhone sales.
Which helps explain why the prospect of a bum iPhone cycle is bad news for all of tech. Apple’s share price slid 5% Monday and is now down nearly13% since its earnings report. The PHLX Semiconductor Index— home to many of the U.S. chip makers that supply Apple—has slumped nearly 7% since Apple’s last report, and that’s after losing 12% in tech’s Red October.
That has put the index to around 12 times forward earnings—its lowest multiple in three years. For a small device, the iPhone casts a very large shadow.
Apple’s comments about its iPhone XR during its last earnings call were noticeably devoid of enthusiasm