Home Markets Low iPhone Demand Drags Down Apple Suppliers

Low iPhone Demand Drags Down Apple Suppliers

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Apple Inc., a bellwether company of the tech industry, and its major suppliers saw another sharp sell-off on Tuesday as investors claimed that iPhone demand today is waning.

Apple’s earnings report for the fourth quarter of 2018 showed only tepid unit sales growth, and it seems that it is having a major impact on the company’s suppliers too.

Specifically, Lumentum, a company which develops parts used for facial recognition, saw its share price drop a record-breaking 33% after slashing its second-quarter outlook. Apple itself tumbled too, falling by 5%.

Lumentum cut back on its predictions when one of its biggest clients requested to “meaningfully reduce shipments” for earlier placed orders. The company didn’t drop the name of the client, but market analysts believe that it is referring to Apple, its biggest client.

At a UBS Group AG Conference held in San Francisco, Lumentum executives told investors that the client asked to slash 3D component shipments after having requested expedited orders in the last weeks. Analyst James Kisner of Loop Capital Markets told in a research note that he sees the 3D sensing technology market to decline more than previously expected next year.

Likewise, Japan Display Inc., a company that makes LCD screens used in the iPhone XR, plummeted as low as 11 %, its biggest drop since debuting in 2014.

“With uncertainty/volatility in the demand for its major customer’s new models” and more phone developers and makers shifting to newer technologies, the concerns of JDI’s survival are likely to remain, Jefferies analyst Atul Goyal said to its clients.

Other suppliers of Apple were affected too, with shares plummeting for most of them. Oclaro Inc., which is being acquired by Lumentum, saw a drop of 12%, its biggest drop since April. U.S. Cirrus Logic Inc. dropped by 14%, and Qorvo Inc. and Broadcom Inc. each sank 6.4%.

LG Innotek Corporation of South Korea, which gets half of its revenue from Apple, dropped as low as 9.5%. Japan’s Minebea Mitsumi Inc. fell 7.2%, and Alps Electric Corporation slid 8.9%. Also, Taiwan’s Catcher Technology dropped 5.1%, and Visual Photonics Epitaxy fell 8.9%.

Longbow Research pointed out the weak demand for the newest iPhones in China. The Citigroup downgraded Skyworks Solutions to Neutral from Buy due to Apple’s weaker-than-expected iPhone XR outlook and softer Chinese phone demand. Citi analyst Atif Malik lowered his price target on Skyworks to $85 from $116.