Everyone knows Apple Inc.‘s (AAPL) iPhone 7 is the key to returning AAPL stock to its former glory, but the fortunes of a slew of its suppliers’ stocks also hang in the balance.
Indeed, as Nikkei Asian Review notes, Taiwan’s tech industry is heavily dependent on AAPL and the success of its gadgets, and no gadget is more important than the iPhone.
Just look at the damage it has done to Apple stock and related shares. The latest iterations of the iPhone — iPhone 6s and iPhone 6s Plus — just didn’t resonate with consumers like the previous year’s models. Heck, after coming up against tough comparisons, iPhone sales actually fell last quarter on a year-over-year basis.
That was unprecedented and there’s every reason to expect more weakness ahead given what AAPL’s key iPhone suppliers are saying. From Nikkei Asian Review:
“Taiwan’s tech suppliers will get significantly fewer orders from Apple Inc. in the second half of this year compared with a year ago, no thanks to an ongoing slump in demand for premium smartphones and a lack of groundbreaking features for the upcoming iPhone 7.”
Since Apple stock essentially IS iPhone, AAPL stock can’t really go anywhere when the company’s most important segment is covered in uncertainty. Throw in the fact that AAPL is still searching for a hit in a new product category — the iPad and Apple Watch just ain’t doing it — and you can see why sentiment has become so sour on the same.
All of this goes double for AAPL’s key iPhone suppliers, and so shares in companies such as Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (TSM), Samsung Electronic KRW5000 (SSNLF), Pegatron Corp (PGTRF), Hon Hai Precision Industry Co., Ltd.-ADR (HNHPF) and LG Display Co Ltd. (ADR) (LPL) remain at risk.
AAPL Suppliers Pray for a Hit
Here’s a quick rundown on these companies’ exposure to sluggish iPhone demand, according to Nikkei Asian Review:
- Taiwan Semiconductor Manufacturing Company — or TSMC — is the sole supplier for the latest A10 chips used in the iPhone 7, and AAPL is its largest customer. Shipments are expected to tumble.
- Like TSMC, Samsung Electronics was another supplier of chips used in iPhone 6 and iPhone 6s. Disappointing sales of those gadgets and worries about a lack of new features in iPhone 7 are bad news for shares.
- Pegatron, a key iPhone assembler, recently issued a warning about the second half of the year. “Looking forward to the second half of 2016, we believe it looks better than the first half; however, we are still cautious due to some unfavorable uncertainties,” said CEO Jason Cheng, according to Nikkei Asian Review.
- Like Pegatron, Hon Hai Precision Industry — better known as Foxconn Technology Group — is a major assembler of iPhones.
- Meanwhile, LG Display — a major supplier of iPhone panels — recently reported a 99% drop in quarterly profit. With iPhone shipments expected to be weak, more bottom-line weakness lies ahead.
Sure, if Apple can pull off an upside surprise with demand for iPhone 7, these names could become great rebound trades, but the early data suggests that’s an unlikely outcome.
Either way, this year’s iPhone drop is Apple’s most important product debut in years — for both investors in AAPL stock and a wide swath of others.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
