We’re less than a week into 2016 and Apple (AAPL) is off to one rotten start. Since the beginning of the new year, shares of Apple stock have already been sliced by more than 6% — worse than, and undoubtedly contributing to, the 5% and 6% losses of the S&P 500 and Nasdaq, respectively. That leaves shares in the double-digits and at their lowest level in a year.
What’s been the main downward driver for Apple stock? A not-so-hot production report. This week, Japanese financial news service Nikkei reported that Apple is expected to decrease production of its newest smartphone models, the iPhone 6s and 6s Plus, by approximately 30% in the first quarter of the year.
AAPL Production Has a Ripple Effect
While the damage to Apple stock is clear thus far, the tech behemoth isn’t the only company that will suffer from this production slowdown. Its laundry list of suppliers will naturally feel the pain as well.
For example, another recent report showed that leading Apple phone producer Foxconn is cutting working hours over its New Year holiday — a time period that usually lends to worker overtime. And, shares of Hon Hai Precision Industry Co Ltd (HNHPF), as Foxconn is formally known, are down around 4% year-to-date.
At the same time, supplier Japan Display Inc. slid 10% year to date, while Alps Electric Co. (APELY) and Sharp Corporation (SHCAY) are also suffering. The slight silver lining? These companies are extremely thinly-traded ADRs, and thus likely less concerning for the standard U.S. investor.
That’s not the case for all Apple suppliers, though. Just consider casing maker Jabil Circuit (JBL), which had Apple stock investors worried last month. About 25% of the company’s revenue comes from Apple…so when the company posted a worse-than-expected revenue forecast in December, analysts across the board were pointing fingers at the iPhone 6 maker and a lack of demand.
Now that concerns about iPhone production have been, more or less, confirmed, JBL is taking it on the chin and could continue to struggle. Since the start of the year — and again, that only includes four trading days — shares have slid a whopping 13%.
Meanwhile, Advanced Semiconductor Engineering (ASX), which has historically made the fingerprint modules for the iPhone and is said to be making SiP modules (which contain “a processor, memory chips and various other components” and are of “small size [that] will free up more space for batteries”) for the new phone has also been battered just as badly as Apple itself.
Corning (GLW), which makes glass for the iPhone 6, has sunk more than 5% so far in 2016. The company actually collaborated with Apple for an even stronger Gorilla Glass for the iPhone 6s, but will naturally need far less of it if production is indeed sliced.
These are just a few examples, too. Overall, Apple’s iPhone production affects far more than just its own shares, as many suppliers depend on the new smartphones to meet their revenue and earnings guidance. More bad news around shipments is more bad news for these names as well.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.