Apple suppliers will need a plan B if iPhone sales peak

Apple suppliers will need a plan B if iPhone sales peak

By Jeran Wittenstein and Mark Gurman

In a world where iPhone demand is on the wane, Apple has a plan B. As customers wait longer between upgrades and the smartphone market saturates, Apple can fall back on charging higher prices for each handset and raking in more money from services such as streaming music, digital videos, and data storage.

However, there’s no back-up for many of the companies that supply components for the iPhone.

The latest evidence that what is bad for Apple can be terrible for suppliers came on two continents within hours of each other.

Japan Display, which gets more than half its revenue from the iPhone maker, cut forecasts. Then Lumentum Holdings, a top maker of iPhone facial-recognition sensors, lowered its second-quarter outlook. Yesterday, Hon Hai Precision Industry Co, the biggest assembler, missed estimates.

“Suppliers are more dependent on volume than Apple,” said Woo Jin Ho, an analyst at Bloomberg Intelligence. “This raises an incremental risk for the rest of the supply chain,” the analyst said.

On Monday, Apple shares fell 5% but Lumentum slumped more than 30% and rival II-VI dropped 13%. Japan Display dropped 9.5%, while Hon Hai Precision Industry Co slipped to the lowest level in five years.

In Europe, Dialog Semiconductor, which gets most of its sales from Apple, fell yesterday as much as 3.6% in Frankfurt trading.

Faced with a maturing smartphone market, Apple’s strategy has been to entice customers to pay more for phones with new features such as facial recognition and more vibrant screens.

The 3-D sensing components from companies like Lumentum are found in iPhones that often cost more than €887. Fewer people can afford to pay that much for a new device.

However, when a sale does happen, suppliers get a one-time payment for their component, while Apple can generate hundreds of extra euro per gadget. In its most recent quarter, Apple reported almost no rise in the number of iPhones sold, but revenue from that business jumped 29% from a year earlier.

If demand for newer, pricier iPhones wanes, Apple can cut component orders, or delay shipments, leaving suppliers with more inventory. That makes them more likely to cut prices when Apple comes back to the negotiating table.

Lumentum’s weaker sales forecast was the result of a shipment reduction from its largest customer just a few days ago, chief executive Alan Lowe said at a conference in San Francisco earlier this week.

Bloomberg

More on this topic

Apple warns of ‘unprecedented’ waste impact if forced to drop Lightning cableApple warns of ‘unprecedented’ waste impact if forced to drop Lightning cable

Apple CEO Tim Cook backs OECD multinational tax reform plansApple CEO Tim Cook backs OECD multinational tax reform plans

Apple CEO Tim Cook receives IDA Ireland Special Recognition Award from TaoiseachApple CEO Tim Cook receives IDA Ireland Special Recognition Award from Taoiseach

Apple’s Tim Cook to get award from TaoiseachApple’s Tim Cook to get award from Taoiseach

More in this Section

UK's competition watchdog set to probe Takeaway’s £6bn Just Eat takeoverUK's competition watchdog set to probe Takeaway’s £6bn Just Eat takeover

At Davos, US and EU increase invective to clash over cars and digital taxesAt Davos, US and EU increase invective to clash over cars and digital taxes

Merkel seeks unity of purpose over climate changeMerkel seeks unity of purpose over climate change

Head & Shoulders and Olay boost sales at Procter & GambleHead & Shoulders and Olay boost sales at Procter & Gamble


Lifestyle

Cork teenager Jessie Griffin is launching a new comic-book series about her own life. She tells Donal O’Keeffe about her work as a comic artist, living with Asperger’s, and her life-changing time with the Cork Life CentrePicture perfect way of sharing Jessie’s story

Sorting out Cork people for agesAsk Audrey: The only way to improve air quality in Douglas is to move it upwind from Passage West

The Lighthouse is being hailed as one of the best — and strangest — films of the year. Its director tells Esther McCarthy about casting Robert Pattinson, and why he used 100-year-old lensesGoing against the grain: Robert Eggers talks about making his latest film The Lighthouse

It turns out 40 is no longer the new 30 – a new study says 47 is the age of peak unhappiness. The mid-life crisis is all too real, writes Antoinette Tyrrell.A midlife revolution: A new study says 47 is the age of peak unhappiness

More From The Irish Examiner