The last bastion of Tech companies /FAANG, Apple (APPL US)has cut its forecast. We wrote last week about how the share price has lost more than 10% recently as there have been rumours that demand for their flagship iPhone products is waning. Today WSJ confirmed the rumours as it reported the company has cut its production orders;
In recent weeks, Apple slashed production orders for all three of the iPhone models that it unveiled in September, these people said, frustrating executives at Apple suppliers as well as workers who assemble the handsets and their components.
Especially demand for iPhone XR and the other two new models have been abysmal with the company cutting orders twice this fall. Suppliers such as Lumentum (LITE US), Qorvo (QRVO US), Analog Devices (ADI US) and AMS (AMS SW)are down between 15-50% over the last month. As an example LITE US chart below.
Source: Yahoo Finance
This recent announcement increases the worries around Apple and its future growth. In connection with Apples’ earnings report earlier this month, the company announced that it would discontinue report unit sales for iPhones. Apple Insider wrote on 1stof November;
Going forward, Apple will no longer break out unit sales for three of its most important products. The company will continue to report revenue, sales growth, and guidance, but the change means analysts and market watchers will be unable to derive device ASPs and other calculations.
Apple motivated the reduction of this reporting stating, that installed based is more important than unit sales. The market interpreted this that iPhone sales have peaked. That there is saturation amongst customers, and renewal cycle is slowing down. With today’s news, it appears that is the case. Investors are highly sceptical of future growth potential despite Apple’s reinsurance of revenue and margin guidance. Furthermore, potential lower growth in iPhone sales will severely hit all smartphone suppliers and the tech supply-chain. Subsequently, as an investor, it is good to monitor all Apple suppliers as there might be a shift in smartphone market growth especially in the high-end segment where Apple is active.
Apple was the final big tech company holding out in this market. With it cutting its demand, on top of other big companies such as Facebook (FB US)facing troubles, there is less and less support levels for tech companies and the market.
