Apple Earnings Could Fall Far From the Tree

by Alyssa Oursler | April 23, 2013 11:49 am

It’s that time of the year again. Well, one of the four, at least. Yes, today, everyone’s attention is turned to fallen-from-grace tech behemoth Apple (NASDAQ:AAPL[1]), which is slated to report its fiscal Q2 earnings after the bell.

Remember, the stock has fallen below $400 … and was trading for over $700 just over half a year ago. Since just the start of 2013, shares have shed nearly a quarter of their value.

What comes next, of course, is anything but clear. Even here at InvestorPlace, contributors are coming on both sides of the Apple coin. Editor Jeff Reeves expects growth to keep slowing[2] and earnings to thus be ugly, while contributor Tom Taulli thinks the selloff is overdone and a recovery is around the bend[3].

In the midst of all this chatter, one thing is certain: It’s not just about Apple. Just as woes in Europe and China have trickled out to other markets[4], Apple’s woes can rattle its suppliers — and in some cases, they already have.

Plus, remember: Until recently, the maker of iPhones, iPads, iPods and more was the largest company in the entire world. That means it also has a pretty darn big footprint.

A prime example of the Apple effect — or poison Apple, as many are calling it — is LG Display (NYSE:LPL[5]). The supplier of LCD flatscreens gets around 30% of its revenue from Apple. Amid dropping demand for iPhones and iPads, LG posted its smallest profit since it “returned to the black in the second quarter of last year,” as Reuters put it.

Just how small was the profit? Well, LGL’s operating profit of $135 million was 64% lower year-over-year, while net profit imploded 98.9% to $3.1 million.

Today alone, leading up to Apple’s earnings, the company has already shed nearly 3%. And while the S&P 500 has climbed double-digits so far in 2013, LGL is down almost 7%.

Apple is also the largest customer for chip-maker Cirrus Logic (NASDAQ:CRUS[6]). That distinction has hardly been good for Cirrus, as it recently presented a weak forecast for its fiscal first quarter (ends June 30), featuring a significant inventory reserve charge, slipping margins and lower-than-expected revenue.

While analysts slated sales of $195 million, Cirrus is now projecting sales between $150 million to $170 million. On the news, shares of both AAPL and CRUS got pummeled as a result, displaying the two-way street of Apple’s supply chain. Year-to-date, Cirrus shares have slid over 36%.

If only the story ended there.

The weak Cirrus forecast also sent SanDisk (NASDAQ:SNDK[7]) tumbling despite the fact that it posted better-than-expected earnings around the same time. Many thought the manufacturer of flash memory storage products and Apple supplier would suffer a similar fate to Cirrus: a slowdown resulting from Apple’s slowdown.

Other companies with ties to Apple include AU Optronics (NYSE:AUO[8]), which makes iPad mini screens and is off 4% year-to-date; Fusion IO (NYSE:FIO[9]), which provides networking IT to the iCloud; and Corning (NYSE:GLW[10]), which makes the glass for iPhone screens.

Intel (NASDAQ:INTC[11]) and Qualcomm (NASDAQ:QCOM[12]) — both competitors in this year’s Best Stocks of 2013[13] contest — also provide CPU processors and wireless chips[14] respectively, and both have been at the center of partnership rumors[15] in the last few months.

Of course, just as with any stock portfolio, bigger names like Intel and Qualcomm have the diversification to make a hit — or boost — from Apple less significant. The smaller suppliers, though, tend to have a much more direct correlation with Apple’s movement … as we’ve seen.

Surprisingly, though, while doubts about Apple continue to swirl, they don’t seem to be trickling to many suppliers today. While LG Display is off, SanDisk is one of many Apple suppliers climbing in the run-up to the iPhone-maker’s report. Take a look at other pre-report gainers:

Company Ticker Pre-Report Gains
Corning GLW 1.5%
Cirrus CRUS 1.9%
SanDisk SNDK 2.1%
Skyworks SWKS 2.7%
Fusion-IO FIO 5.7%

If you want to be optimistic, the fact that Apple’s supplier are climbing leading into the report could be an indicator that some decent numbers are around the bend.

Or it could mean that they will have further to fall if Apple disappoints after the bell this afternoon.

As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.

  1. AAPL:
  2. expects growth to keep slowing:
  3. recovery is around the bend:
  4. trickled out to other markets:
  5. LPL:
  6. CRUS:
  7. SNDK:
  8. AUO:
  9. FIO:
  10. GLW:
  11. INTC:
  12. QCOM:
  13. Best Stocks of 2013:
  14. provide CPU processors and wireless chips:
  15. center of partnership rumors:

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