Are Supplier-Based Assumptions About Apple Accurate?

While it’s possible that people are drawing the wrong conclusions about Apple, (NASDAQ:AAPL) based on the quarterly results of key suppliers, it’s really hard to tell just what connections the companies have and how deep they go.

Wednesday, after Cirrus Logic (NASDAQ:CRUS) reported earnings for its most recent quarter, shares for both Cirrus and Apple were down. Cirrus reported an 87 percent increase in revenue for its fourth quarter, but that fell below analyst expectations. More concerning, it also announced a “net inventory reserve of $23.3 million, of which approximately $20.7 million is due to decreased forecast for a high volume product.”

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Many believe that Cirrus is responsible for the audio chips that go into Apple’s mobile devices, and that 91 percent of the company’s sales are generated from Apple-related manufacturing, so the steep inventory reserve seems likely to be tied up with slack on Apple’s part. According to Jefferies analyst Peter Misek, Cirrus is a strong indicator of demand for iPhones and iPads. If Cirrus lowers its expectations, it is likely because something happened at Apple.

Cirrus isn’t the only company to look at when checking into Apple’s supply chain; Jabil Circuit (NYSE:JBL), Broadcom (NASDAQ:BRCM), and Flextronics (NASDAQ:FLEX) are also tied to Apple’s fate, but they draw a much smaller percentage of revenue from Apple compared to Cirrus…

Apple CEO Tim Cook has apparently been upset by analysts assuming things about Apple based on data from suppliers. In January he said, “even if a particular data point were factual, it would be impossible to accurately interpret the data point as to what it meant for our overall business, because the supply chain is very complex.”

It is possible that analysts got it wrong when they guessed that Apple was predicting weaker sales based on Cirrus’s inventory reserve. It could be that Apple is relying less on Cirrus or changed the technology it would use, leaving Cirrus with inventory it would have to digest.

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The news from Cirrus may have actually lead to the deep slip Apple took yesterday. Shares continued to drop even lower Thursday, with Apple’s stock reaching a new 52-week low of $393.56. Analysts are even expecting the first decrease in Apple’s net income since 2003, with estimates set at $9.5 billion. Apple will report its earnings on April 23, and either prove or disprove the analysts’ assessments that have been partially built on data from suppliers.

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