- Apple stock has been moving lower after Credit Suisse said that its checks with Apple suppliers have revealed that Apple had cut orders by 10%.
- Recent results and guidance by major Apple suppliers such as Skyworks Solutions and Qorvo, however, reveal that their businesses are still going strong.
- Dialog Semiconductor, a German-based company that supplies power management chips for Apple's iPhones and iPads, is the only Apple supplier to have issued weak Q4 2015 guidance.
- It's likely that Apple's order cuts are in relation to older iPhone models due to the popularity of newer iPhone models. As such, there is no good reason for long-term Apple investors to panic.
Apple (NASDAQ:AAPL) shares have been moving lower after Credit Suisse said that its checks with Apple suppliers revealed that Apple had cut component orders by 10%. Apple stock is down 5% over the past few days as investors seem to be interpreting the commentary by Credit Suisse to mean that Apple anticipates lower iPhone and iPad sales in the future. The stocks of Apple's suppliers have also been hit.
While this assumption by investors may be valid, there are quite a few reasons that make us believe that it could be off the ballpark, the key reason being the kind of outlook that Apple’s leading suppliers gave during their latest earnings calls. Skyworks Solutions (NASDAQ:SWKS) and Qorvo (NASDAQ:QRVO), two of Apple’s largest suppliers, recently delivered healthy Q3 2015 results with both companies managing to top expectations.
Skyworks, which is on of the principal RF chip supplier to Apple, delivered revenue of $880.4 million, up 22.6% Y/Y and above consensus of $887.4 million. EPS of $1.52 was in-line with estimates. Skyworks provided fourth quarter guidance of $925 million-$930 million, higher than consensus of $921.5 million while EPS guidance of $1.60 was $0.03 better than the consensus.
Meanwhile, Qorvo (formed in January 2015 through a merger between RF Micro and Triquint) reported revenue of $708.3 million, which was higher than the consensus by $8.87 million while EPS of $1.22 was double the consensus estimate. But, just as was the case for the second quarter, Qorvo issued weak revenue guidance of $725 million-$730 million for the third quarter, considerably below analysts’ estimates of $741.6 million. The mid-point of the company’s EPS guidance of $1.25-$1.30 was, however, above consensus of $1.26.
But, unlike the first quarter when its shares got hammered after issuing weak guidance, Qorvo shares rallied 20% post earnings call. The company had cited weakness in the Chinese market as reason for its weak guidance, but all indications (including the company’s own results as well as those by Apple, Skyworks, and a host of other American companies with huge exposure in China) have shown that the Chinese market is much stronger than earlier feared. Investors believe that Qorvo deliberately lowballed its guidance to give itself a good chance to beat it come fourth quarter earnings call, which was, quite likely, a correct observation.
The only major Apple supplier to issue weak guidance during the current earnings season is German-based Dialog Semiconductor. Dialog derives 70% of its revenue from Apple, and the soft guidance led to a severe hammering of its shares. Dialog Semiconductor supplied power management chips for Apple’s iPhone and iPads. The company reported revenue of 330 million, good for 18% Y/Y growth but a drastic Q/Q slowdown compared to the second quarter when the company’s top line expanded 44%. But what’s worse was that Dialog guided for revenue growth of just -1% to +6% for the fourth quarter.
But Dialog is a much smaller supplier of Apple components compared to Skyworks, Qorvo and Avago Technologies (NASDAQ:AVGO). Recent iPhone 6S teardowns turned up filters, switches, Wi-Fi power amplifiers, and power amplifier modules by Skyworks, Qorvo, and Avago.
The most feasible reason for Apple order cuts could be in relation to the company’s projections regarding future sales for older iPhone models. The new iPhone models have proven to be very popular, and could be badly depressing sales of older models. It’s not exactly clear whether Dialog Semiconductor supplies power management chips for newer or older iPhone models. But there is reason to believe that it’s more likely for the latter.
Apple has many component suppliers and the Credit Suisse report does not shed any light into the kind of components for which Apple has slashed orders. Apple’s U.S. suppliers have, however, in the past proven to be a pretty reliable barometer that has helped investors gauge the health of Apple’s business. Current indications are that Apple’s business remains in the pink of health, and there is no good reason for long-term investors to panic.