Apple’s iPhone 5C Weakness May Have Hurt This Supplier

Source: Apple.comAlthough Apple’s (NASDAQ:AAPL) declining iPhone 5C sales may have lowered a supplier’s guidance for its upcoming quarter, it doesn’t necessarily mean bad news for the California-based company. Jabil Circuit (NYSE:JBL), a well-known manufacturer of Apple’s iPhone 5C, recently reported disappointing revenue guidance for its upcoming quarter.

“Guidance for the second quarter. We expect revenue on a year-over-year basis to decline approximately 17 percent to be in the range of $3.5 billion to $3.7 billion,” stated Jabil CFO Forbes I. J. Alexander during the company’s recent fiscal first quarter earnings call.

Jabil CEO Mark T. Mondello called the company’s fiscal second quarter revenue guidance “underwhelming and disappointing.” However, he cited several recent events that contributed to the company’s disappointing revenue guidance, including Jabil’s recent “disengagement with BlackBerry (NASDAQ:BBRY).” He also noted “demand changes in a segment of our DMS [Diversified Manufacturing Services] business.”

The decline in the company’s DMS segment was expected to be 25 percent in the February quarter. As noted by Chuck Jones at Forbes, components produced for Apple’s iPhone 5C would fall under the DMS segment of Jabil’s business. According to Jones’s calculations, this means that Jabil’s Apple revenue will decline from 19 percent to 6 percent in the upcoming February quarter. Since Jabil primarily supplies Apple with iPhone 5C components, this appears to be further evidence that the iPhone 5C is failing to meet expected sales levels.

Several different analysts’ supply chain checks appear to confirm this conclusion. According to Apple Insider, KGI Securities analyst Ming-Chi Kuo recently noted that “weak sales of iPhone 5C may trigger a re-negotiation of the Apple-China Mobile (NYSE:CHL) partnership.”

Similarly, Susquehanna Financial Group analyst Christopher Caso wrote in a recent note to investors obtained by Barron’s that “Our checks indicate the mix has indeed shifted disproportionately to iPhone 5S, with production of 5S running nearly 4x that of 5C.” However, Caso pointed out that this is actually a positive for Apple’s bottom line, since the production shift to the more expensive iPhone 5S will boost the company’s revenue and margin.

Besides the potential benefit from increased iPhone 5S sales, there appears to be several other signs that indicate Apple’s overall iPhone sales are still going strong. Recently released data from market research firm Counterpoint showed that Apple’s iPhone 5S was the world’s bestselling phone for two months in a row in October, despite long waiting periods in some markets. Similarly, Cantor Fitzgerald analyst Brian White noted that sales for Taiwan-based Apple suppliers increased 19 to 20 percent month-over-month, beating the average increase of 6 percent over the past eight years.

For these reasons, Jabil’s disappointing February quarter guidance would appear to be of little cause for concern for Apple investors. As noted by Mondello, “The impact resulting from the shift in demand in and of itself is significant but assumed to be temporary. We’re well-positioned with this customer, and our relationship is strong.”

Here’s how Apple traded on Friday.


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