Another Key Apple Supplier Just Sounded the Alarm, Raising Fears of Weak iPhone Demand
The bad news keeps piling up for Apple Inc. ahead of the crucial holiday season.
AMS AG, an Austria-based maker of light sensors for smartphones, became at least the fourth key supplier to the U.S. company this week to reduce revenue estimates for the current quarter. The spate of warnings, coupled with underwhelming earnings from main iPhone assembler Hon Hai Precision Industry Co., underscore concerns about weak demand for Apple’s bread-and-butter device.
Shares of AMS were down as much as 10% during pre-market trading in Switzerland Thursday.
Apple is headed for its longest losing streak in more than six months as investors reassess the company’s growth prospects. Faced with a maturing smartphone market, its strategy has been to entice customers to pay more for phones with new features such as facial recognition, while sales of services from video to music are growing at a rapid clip. But the company still relies on the iPhone for the bulk of its revenue, and the jury’s still out on whether its latest line-up is a bona fide hit.
The accumulation of warning signs has prompted analyst revisions in the past week. Guggenheim on Wednesday said the company’s recent reliance on rising average selling prices was “no longer enough” to boost growth at a time unit sales show signs of slowing. Shares in Japan Display Inc., one of the quartet that reduced its sales outlook, slid 9.5% Thursday.
The “iPhone’s nearly 60% contribution to revenue and profits looking like a headwind again,” Guggenheim wrote in a Wednesday research note.
Apple’s decision to stop disclosing unit sales for its main gadgets including the iPhone, iPad and Macbook—which Hon Hai also assembles—has fueled concerns surrounding the outlook for component makers that depend on volume growth. AMS, whose largest customer is Apple, said Wednesday it’s cutting projections for fourth-quarter sales to $480 million to $520 million, from $570 million to $610 million just last month.
AMS blamed the reduction on “recent demand changes from a major consumer customer,” a similar explanation to those offered by Qorvo Inc., Lumentum Holdings Inc. and Japan Display this week when they, too, unexpectedly reduced their outlooks. Cupertino, California-based Apple likes to diversify its suppliers, but four major component makers reducing revenue forecasts in the same week could mean the company is bracing for lower than expected sales of its latest devices.
None of the companies specifically cited Apple but the iPhone maker is the largest customer and biggest revenue driver for all four, according to data compiled by Bloomberg. Qorvo gets 36% of revenue from Apple, Lumentum generates 30%, AMS receives more than 20% and Japan Display gets 55%.
AMS makes what is known as an ambient light sensor, which helps measure how far a phone is from a user, for the Face ID facial recognition system on Apple’s iPhones. Qorvo makes wireless chips, while Lumentum makes 3D laser sensors for Face ID. Japan Display makes smartphone screens.
Their warnings come as a once-red-hot global smartphone market has flat-lined as economic uncertainty spreads, and a persistent lack of new or innovative devices discourages buyers. Apple itself has reported disappointing iPhone sales and projected holiday-quarter revenue below expectations.