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Apple’s Supply Chain Hit Hard by Reduced iPhone Outlook
November 19, 2018 Lumentum Holdings Inc., the main supplier of the Face ID technology in the latest generation of iPhones, cut $70 million off its forecasts for revenue last week, which resulted in knocking another 5 percent, or around $50 billion, off Apple’s value.“Many suppliers have lowered numbers because Apple got cautious in their guidance. Lumentum blamed the cut in numbers it gave originally just 2 weeks s ago on a client that was “one of our largest... for laser diodes for 3D sensing”, which could only be Apple. Screen maker Japan Display Inc., a supplier of LCD displays for the iPhone XR cited lower smartphone demand in cutting its own outlook, while British chipmaker IQE Plc. said it expects a material reduction in its financial performance in the current year. JP Morgan analysts weighed in by cutting their price target for Apple by $4 to $270 pointing to poor orders for the new iPhone XR. Three analysts said that Lumentum’s forecast pointed to a reduction of 18 million to 20 million iPhones on earlier estimates, based on average selling prices for 3D sensing parts. |
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“Apple could have accumulated too much Lumentum inventory, and needs to work it off, in which case the unit shortfall is less, although it is still indicative of weak iPhone sales.” D.A. Davidson analyst Mark Kelleher said. In the fourth quarter, Apple sold 46.9 million iPhones, missing analyst expectations of 47.5 million iPhones, according to FactSet. Japan’s Nikkei reported earlier this month that Apple had told its smartphone assemblers Foxconn and Pegatron to halt plans for additional production lines dedicated to the iPhone XR. Apple’s Taiwanese suppliers late last week highlighted 20 percent to 30 percent iPhone order cuts related mainly to iPhone XR and XS Max, and 20 percent to 25 percent order increases for older iPhone models. Apple started selling iPhone XS and XS Max in September and XR model last month. Lumentum’s chips are not used in phones older than last year’s iPhone X.
Qorvo a provider of RF solutions announced it expects revenue for the third quarter of fiscal 2019 to be in the range of $800 million and $840 million, compared to its previous forecast of $880 million to $900 million, due to recent demand changes for flagship smartphones. Qorvo’s forecast of demand from China-based handset manufacturers remains measured and largely unchanged. Qorvo currently forecasts non-GAAP gross margin in the third quarter to be approximately 49.5%, compared to its original forecast of approximately 50%, due primarily to lower factory utilization. Non-GAAP operating expenses are projected to be approximately $161 million, down $4 million from the previous third quarter forecast, on expense control and lower incentive compensation. Non-GAAP diluted EPS for the third quarter of fiscal 2019 is expected to be $1.70 at the midpoint of guidance, compared to the previous forecast of $1.95. In the March 2019 quarter, Qorvo expects sequential revenue to be down less than 10%. Qorvo’s revised GAAP expectation for revenue and non-GAAP expectations for gross margin and diluted earnings per share for the third quarter of fiscal 2019, along with the prior guidance provided in Qorvo’s second quarter of fiscal 2019 earnings release, issued October 31, 2018, are provided in the table below.
Table 1: Q418 Updated and Prior Expectations
Qorvo a provider of RF solutions announced it expects revenue for the third quarter of fiscal 2019 to be in the range of $800 million and $840 million, compared to its previous forecast of $880 million to $900 million, due to recent demand changes for flagship smartphones. Qorvo’s forecast of demand from China-based handset manufacturers remains measured and largely unchanged. Qorvo currently forecasts non-GAAP gross margin in the third quarter to be approximately 49.5%, compared to its original forecast of approximately 50%, due primarily to lower factory utilization. Non-GAAP operating expenses are projected to be approximately $161 million, down $4 million from the previous third quarter forecast, on expense control and lower incentive compensation. Non-GAAP diluted EPS for the third quarter of fiscal 2019 is expected to be $1.70 at the midpoint of guidance, compared to the previous forecast of $1.95. In the March 2019 quarter, Qorvo expects sequential revenue to be down less than 10%. Qorvo’s revised GAAP expectation for revenue and non-GAAP expectations for gross margin and diluted earnings per share for the third quarter of fiscal 2019, along with the prior guidance provided in Qorvo’s second quarter of fiscal 2019 earnings release, issued October 31, 2018, are provided in the table below.
Table 1: Q418 Updated and Prior Expectations
Source: Company
Austria’s AMS, which makes facial recognition technology, is another Apple supplier to cut its revenue forecast, adding to growing evidence that the latest iPhones are not selling well. The Swiss-listed group cut its fourth-quarter revenue outlook by 15 percent and pushed back its medium-term targets, blaming “recent demand changes from a major customer”.
However, not all of Apple’s suppliers are suffering. Dialog Semiconductor, which struck a $600 million deal with Apple last month bucked the negative trend when it said, it does not see a drop in demand from Apple. TPKand GIS also reported strong October results, insisting that they have not seen any reduction in orders for November and December, with both producing touch modules for the iPhone XR, with both having added capacity earlier this year to meet ‘customer needs’.
However, not all of Apple’s suppliers are suffering. Dialog Semiconductor, which struck a $600 million deal with Apple last month bucked the negative trend when it said, it does not see a drop in demand from Apple. TPKand GIS also reported strong October results, insisting that they have not seen any reduction in orders for November and December, with both producing touch modules for the iPhone XR, with both having added capacity earlier this year to meet ‘customer needs’.