Technology Stocks

Apple Inc. (NASDAQ:AAPL) Doubts are Casting a Big Shadow Over Supplier Outlooks

Apple Inc. (NASDAQ:AAPL) is going through a natural process of being dragged through the hedge backward. It only happens to the biggest and most important players – the kings of the hill in any large supply chain. In this case, Apple probably has the most developed and complex ecosystem of dependent players that the business world has ever seen.

And that’s the right analogy: an ecosystem. Sunlight leaves the sun and heads toward the earth. Plants compete for access to it. Then animals and protists compete for access to the sunlight energy stored in plant tissues. Then fungi and bacteria compete for the energy locked in animals and protists after it has been passed through the plants. In this analogy, “demand for Apple products” is the sunlight. And there are plenty of niches built around the scraps from its table.

Apple Inc. (NASDAQ:AAPL), as was widely reported Monday morning, was smacked down after Lumentum (LITE) announced this very straightforward statement: “We recently received a request from one of our largest Industrial and Consumer customers for laser diodes for 3D sensing to materially reduce shipments to them during our fiscal second quarter for previously placed orders that were originally scheduled for delivery during the quarter.”

The large industrial and consumer customer was, of course, Apple.


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Next, on Tuesday morning, we got a similar warning from another major Apple supplier: Qorvo (QVRO). The company came out and lowered its fiscal Q3 (December) guidance due “to softer demand for flagship smartphones”.

The change was reported as: QRVO Lowers Q3 non-GAAP EPS to $1.70 (midpoint) from $1.95 vs $1.95 S&P Capital IQ Consensus; revs $800-840 mln from $880-900 mln vs $892.49 mln S&P Capital IQ Consensus.

“Citing recent demand changes for flagship smartphones. Qorvo’s forecast of demand from China-based handset manufacturers remains measured and largely unchanged. Qorvo’s current forecast of demand across markets served by Qorvo’s Infrastructure and Defense Products (IDP) segment are tracking within the range of its prior expectations. Qorvo currently forecasts non-GAAP gross margin in the third quarter to be ~49.5%, compared to its original forecast of ~50%, due primarily to lower factory utilization.”

Clearly, this is another statement about reduced sunlight – ie, a lack of sufficient demand for Apple products to justify current expectations.

There is really no other way to read this.

Probably the most important from here was made the night before by axe analyst at AlphaOne Capital, Dan Niles, who said he was calling for an AAPL shortside outlook: Guidance implies a 40% cut to Lumentum’s Apple business, or a 20 million unit shortfall; Apple bulls should realize that services are a lagging indicator, where growth is decelerating; Despite recent weakness, AAPL has still outperformed the market this year; he sees further underperformance; With industry shipments down, he is concerned about more warnings from Apple’s supply chain (semiconductors SMH), where inventory was up 30% in Sept Q vs. flat revenues.

Apple Inc. (NASDAQ:AAPL) managed to rope in revenues totaling $62.7B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 19.2%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($66.3B against $116.9B, respectively).

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